Corporation

Batas Pambansa Bilang 68
THE CORPORATION CODE OF THE PHILIPPINES
Be it enacted by the Batasang Pambansa in session assembled:
TITLE I – GENERAL PROVISIONS
DEFINITIONS AND CLASSIFICATIONS
Section 1. Title of the Code. – This Code shall be known as “The Corporation Code of the Philippines.” (n)
Section 2. Corporation defined. – 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 incident to its existence. (2)
Section 3. Classes of corporations. – Corporations formed or organized under this Code may be stock or non-stock
corporations. 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 are stock corporations. All
other corporations are non-stock corporations. (3a)
Section 4. Corporations created by special laws or charters. – Corporations created by special laws or charters shall be
governed primarily by the provisions of the special law or charter creating them or applicable to them, supplemented by
the provisions of this Code, insofar as they are applicable. (n)
Section 5. Corporators and incorporators, stockholders and members. – Corporators are those who compose a
corporation, whether as stockholders or as members. Incorporators are those stockholders or members mentioned in
the articles of incorporation as originally forming and composing the corporation and who are signatories thereof.
Corporators in a stock corporation are called stockholders or shareholders. Corporators in a non-stock corporation are
called members. (4a)
Section 6. Classification of shares. – The shares of stock of stock corporations may be divided into classes or series of
shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be
stated in the articles of incorporation: Provided, That no share may be deprived of voting rights except those classified
and issued as “preferred” or “redeemable” shares, unless otherwise provided in this Code: Provided, further, That there
shall always be a class or series of shares which have complete voting rights. Any or all of the shares or series of
shares may have a par value or have no par value as may be provided for in the articles of incorporation: Provided,
however, That banks, trust companies, insurance companies, public utilities, and building and loan associations shall
not be permitted to issue no-par value shares of stock.
Preferred shares of stock issued by any corporation may be given preference in the distribution of the assets of the
corporation in case of liquidation and in the distribution of dividends, or such other preferences as may be stated in the
articles of incorporation which are not violative of the provisions of this Code: Provided, That preferred shares of stock
may be issued only with a 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 series thereof: Provided, That such terms and
conditions shall be effective upon the filing of a certificate thereof with the Securities and Exchange Commission.
Shares of capital stock issued without par value shall be deemed fully paid and non-assessable and the holder of such
shares shall not be liable to the corporation or to its creditors in respect thereto: Provided; That shares without par
value may not be issued for a consideration less than the value of five (P5.00) pesos per share: Provided, further, That
the entire consideration received by the corporation for its no-par value shares shall be treated as capital and shall not
be available for distribution as dividends.
A corporation may, furthermore, classify its shares for the purpose of insuring compliance with constitutional or legal
requirements.
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be
equal in all respects to every other share.
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of such
shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
2. Adoption and amendment of by-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the corporation with another corporation or other corporations;

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7. Investment of corporate funds in another corporation or business in accordance with this Code; and
8. Dissolution of the corporation.
Except as provided in the immediately preceding paragraph, the vote necessary to approve a particular corporate act
as provided in this Code shall be deemed to refer only to stocks with voting rights. (5a)
Section 7. Founders’ shares. – Founders’ shares classified as such in the articles of incorporation may be given certain
rights and privileges not enjoyed by the owners of other stocks, provided that 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 subject to the
approval of the Securities and Exchange Commission. The five-year period shall commence from the date of the
aforesaid approval by the Securities and Exchange Commission. (n)
Section 8. Redeemable shares. – Redeemable shares may be issued by the corporation when expressly so provided in
the articles of incorporation. They may be purchased or taken up by the corporation 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 as may be stated in the articles of incorporation, which terms and conditions must also be
stated in the certificate of stock representing said shares. (n)
Section 9. Treasury shares. – Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful
means. Such shares may again be disposed of for a reasonable price fixed by the board of directors. (n)
TITLE II
INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
Section 10. Number and qualifications of incorporators. – Any number of natural persons not less than five (5) but not
more than fifteen (15), all of legal age and a majority of whom are residents of the Philippines, may form a private
corporation for any lawful purpose or purposes. Each of the incorporators of s stock corporation must own or be a
subscriber to at least one (1) share of the capital stock of the corporation. (6a)
Section 11. Corporate term. – A corporation shall exist for a period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period is extended. The corporate term as originally stated in the
articles of incorporation may be extended for periods not exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance with this Code; Provided, That no extension can be made
earlier than five (5) years prior to the original or subsequent expiry date(s) unless there are justifiable reasons for an
earlier extension as may be determined by the Securities and Exchange Commission. (6)
Section 12. Minimum capital stock required of stock corporations. – Stock corporations incorporated under this Code
shall not be required to have any minimum authorized capital stock except as otherwise specifically provided for by
special law, and subject to the provisions of the following section.
Section 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. – At least twenty-five
percent (25%) of the authorized capital stock as stated in the articles of incorporation must be subscribed at the time of
incorporation, and at least twenty-five (25%) per cent of the total subscription must be paid upon subscription, the
balance to be payable on a date or dates fixed in the contract of subscription without need of call, or in the absence of
a fixed date or dates, upon call for payment by the board of directors: Provided, however, That in no case shall the
paid-up capital be less than five Thousand (P5,000.00) pesos. (n)
Section 14. Contents of the articles of incorporation. – All corporations organized under this code shall file with the
Securities and Exchange Commission articles of incorporation in any of the official languages duly signed and
acknowledged by all of the incorporators, containing substantially the following matters, except as otherwise prescribed
by this Code or by special law:
1. The name of the corporation;
2. The specific purpose or purposes for which the corporation is being incorporated. Where a corporation has more
than one stated purpose, the articles of incorporation shall state which is the primary purpose and which is/are the
secondary purpose or purposes: Provided, That a non-stock corporation may not include a purpose which would
change or contradict its nature as such;
3. The place where the principal office of the corporation is to be located, which must be within the Philippines;
4. The term for which the corporation is to exist;
5. The names, nationalities and residences of the incorporators;
6. The number of directors or trustees, which shall not be less than five (5) nor more than fifteen (15);
7. The names, nationalities and residences of persons who shall act as directors or trustees until the first regular
directors or trustees are duly elected and qualified in accordance with this Code;

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8. If it be a stock corporation, the amount of its authorized capital stock in lawful money of the Philippines, the number
of shares into which it is divided, and in case the share are par value shares, the par value of each, the names,
nationalities and residences of the original subscribers, and the amount subscribed and paid by each on his
subscription, and if some or all of the shares are without par value, such fact must be stated;
9. If it be a non-stock corporation, the amount of its capital, the names, nationalities and residences of the contributors
and the amount contributed by each; and
10. Such other matters as are not inconsistent with law and which the incorporators may deem necessary and
convenient.
The Securities and Exchange Commission shall not accept the articles of incorporation of any stock corporation unless
accompanied by a sworn statement of the Treasurer elected by the subscribers showing that at least twenty-five (25%)
percent of the authorized capital stock of the corporation has been subscribed, and at least twenty-five (25%) of the
total subscription has been fully paid to him in actual cash and/or in property the fair valuation of which is equal to at
least twenty-five (25%) percent of the said subscription, such paid-up capital being not less than five thousand
(P5,000.00) pesos.
Section 15. Forms of Articles of Incorporation. – Unless otherwise prescribed by special law, articles of incorporation of
all domestic corporations shall comply substantially with the following form:
ARTICLES OF INCORPORATION OF
__________________________
(Name of Corporation)
KNOW ALL MEN BY THESE PRESENTS:
The undersigned incorporators, all of legal age and a majority of whom are residents of the Philippines, have this day
voluntarily agreed to form a (stock) (non-stock) corporation under the laws of the Republic of the Philippines;
AND WE HEREBY CERTIFY:
FIRST: That the name of said corporation shall be “_____________________, INC. or CORPORATION”;
SECOND: That the purpose or purposes for which such corporation is incorporated are: (If there is more than one
purpose, indicate primary and secondary purposes);
THIRD: That the principal office of the corporation is located in the City/Municipality of ________________________,
Province of _______________________, Philippines;
FOURTH: That the term for which said corporation is to exist is _____________ years from and after the date of
issuance of the certificate of incorporation;
FIFTH: That the names, nationalities and residences of the incorporators of the corporation are as follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
SIXTH: That the number of directors or trustees of the corporation shall be _______; and the names, nationalities and
residences of the first directors or trustees of the corporation are as follows:
NAME NATIONALITY RESIDENCE
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________
___________________ ___________________ ___________________

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SEVENTH: That the authorized capital stock of the corporation is ______________________ (P___________) PESOS
in lawful money of the Philippines, divided into __________ shares with the par value of ____________________
(P_____________) Pesos per share.
(In case all the share are without par value):
That the capital stock of the corporation is ______________ shares without par value. (In case some shares have par
value and some are without par value): That the capital stock of said corporation consists of _____________ shares of
which ______________ shares are of the par value of _________________ (P____________) PESOS each, and of
which _________________ shares are without par value.
EIGHTH: That at least twenty five (25%) per cent of the authorized capital stock above stated has been subscribed as
follows:
Name of Subscriber Nationality No of Shares Amount
Subscribed Subscribed
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
_________________ __________ ____________ ____________
NINTH: That the above-named subscribers have paid at least twenty-five (25%) percent of the total subscription as
follows:
Name of Subscriber Amount Subscribed Total Paid-In
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
_________________ ___________________ _______________
(Modify Nos. 8 and 9 if shares are with no par value. In case the corporation is non-stock, Nos. 7, 8 and 9 of the above
articles may be modified accordingly, and it is sufficient if the articles state the amount of capital or money contributed
or donated by specified persons, stating the names, nationalities and residences of the contributors or donors and the
respective amount given by each.)
TENTH: That _____________________ has been elected by the subscribers as Treasurer of the Corporation to act as
such until his successor is duly elected and qualified in accordance with the by-laws, and that as such Treasurer, he
has been authorized to receive for and in the name and for the benefit of the corporation, all subscription (or fees) or
contributions or donations paid or given by the subscribers or members.
ELEVENTH: (Corporations which will engage in any business or activity reserved for Filipino citizens shall provide the
following):
“No transfer of stock or interest which shall reduce the ownership of Filipino citizens to less than the required
percentage of the capital stock as provided by existing laws shall be allowed or permitted to be recorded in the proper
books of the corporation and this restriction shall be indicated in all stock certificates issued by the corporation.”
IN WITNESS WHEREOF, we have hereunto signed these Articles of Incorporation, this __________ day of
________________, 19 ______ in the City/Municipality of ____________________, Province of
________________________, Republic of the Philippines.
_______________________ _______________________
_______________________ _______________________
________________________________
(Names and signatures of the incorporators)
SIGNED IN THE PRESENCE OF:
_______________________ _______________________

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(Notarial Acknowledgment)
TREASURER’S AFFIDAVIT
REPUBLIC OF THE PHILIPPINES)
CITY/MUNICIPALITY OF ) S.S.
PROVINCE OF )
I, ____________________, being duly sworn, depose and say:
That I have been elected by the subscribers of the corporation as Treasurer thereof, to act as such until my successor
has been duly elected and qualified in accordance with the by-laws of the corporation, and that as such Treasurer, I
hereby certify under oath that at least 25% of the authorized capital stock of the corporation has been subscribed and
at least 25% of the total subscription has been paid, and received by me, in cash or property, in the amount of not less
than P5,000.00, in accordance with the Corporation Code.
____________________
(Signature of Treasurer)
SUBSCRIBED AND SWORN to before me, a Notary Public, for and in the City/Municipality
of___________________Province of _____________________, this _______ day of ___________, 19 _____; by
__________________ with Res. Cert. No. ___________ issued at _______________________ on ____________, 19
______
NOTARY PUBLIC
My commission expires on
_________, 19 _____
Doc. No. _________;
Page No. _________;
Book No. ________;
Series of 19____ (7a)
Section 16. Amendment of Articles of Incorporation. – Unless otherwise prescribed by this Code or by special law, and
for legitimate purposes, any provision or matter stated in the articles of incorporation may be amended by a majority
vote of the board of directors or trustees and the vote or written assent of the stockholders representing at least twothirds (2/3) of the outstanding capital stock, without prejudice to the appraisal right of dissenting stockholders in
accordance with the provisions of this Code, or the vote or written assent of at least two-thirds (2/3) of the members if it
be a non-stock corporation.
The original and amended articles together shall contain all provisions required by law to be set out in the articles of
incorporation. Such articles, as amended shall be indicated by underscoring the change or changes made, and a copy
thereof duly certified under oath by the corporate secretary and a majority of the directors or trustees stating the fact
that said amendment or amendments have been duly approved by the required vote of the stockholders or members,
shall be submitted to the Securities and Exchange Commission.
The amendments shall take effect upon their approval by the Securities and Exchange Commission or from the date of
filing with the said Commission if not acted upon within six (6) months from the date of filing for a cause not attributable
to the corporation.
Section 17. Grounds when articles of incorporation or amendment may be rejected or disapproved. – The Securities
and Exchange Commission may reject the articles of incorporation or disapprove any amendment thereto if the same is
not in compliance with the requirements of this Code: Provided, That the Commission shall give the incorporators a
reasonable time within which to correct or modify the objectionable portions of the articles or amendment. The following
are grounds for such rejection or disapproval:
1. That the articles of incorporation or any amendment thereto is not substantially in accordance with the form
prescribed herein;
2. That the purpose or purposes of the corporation are patently unconstitutional, illegal, immoral, or contrary to
government rules and regulations;
3. That the Treasurer’s Affidavit concerning the amount of capital stock subscribed and/or paid is false;
4. That the percentage of ownership of the capital stock to be owned by citizens of the Philippines has not been
complied with as required by existing laws or the Constitution.

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No articles of incorporation or amendment to articles of incorporation of banks, banking and quasi-banking institutions,
building and loan associations, trust companies and other financial intermediaries, insurance companies, public utilities,
educational institutions, and other corporations governed by special laws shall be accepted or approved by the
Commission unless accompanied by a favorable recommendation of the appropriate government agency to the effect
that such articles or amendment is in accordance with law. (n)
Section 18. Corporate name. – No corporate name may be allowed by the Securities and Exchange Commission if the
proposed name is identical or deceptively or confusingly similar to that of any existing corporation or to any other name
already protected by law or is patently deceptive, confusing or contrary to existing laws. When a change in the
corporate name is approved, the Commission shall issue an amended certificate of incorporation under the amended
name. (n)
Section 19. Commencement of corporate existence. – A private corporation formed or organized under this Code
commences to have corporate existence and juridical personality and is deemed incorporated from the date the
Securities and Exchange Commission issues a certificate of incorporation under its official seal; and thereupon the
incorporators, stockholders/members and their successors shall constitute a body politic and corporate under the name
stated in the articles of incorporation for the period of time mentioned therein, unless said period is extended or the
corporation is sooner dissolved in accordance with law. (n)
Section 20. De facto corporations. – The due incorporation of any corporation claiming in good faith to be a corporation
under this Code, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to
which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto
proceeding. (n)
Section 21. Corporation by estoppel. – All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided, however, That when any such ostensible corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of corporate
personality.
On who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the ground
that there was in fact no corporation. (n)
Section 22. Effects on non-use of corporate charter and continuous inoperation of a corporation. – If a corporation does
not formally organize and commence the transaction of its business or the construction of its works within two (2) years
from the date of its incorporation, its corporate powers cease and the corporation shall be deemed dissolved. However,
if a corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for
a period of at least five (5) years, the same shall be a ground for the suspension or revocation of its corporate franchise
or certificate of incorporation. (19a)
This provision shall not apply if the failure to organize, commence the transaction of its businesses or the construction
of its works, or to continuously operate is due to causes beyond the control of the corporation as may be determined by
the Securities and Exchange Commission.
TITLE III
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS
Section 23. The board of directors or trustees. – Unless otherwise provided in this Code, the corporate powers of all
corporations formed under this Code shall be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees to be elected from among the holders of stocks, or where there
is no stock, from among the members of the corporation, who shall hold office for one (1) year until their successors are
elected and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which
share shall stand in his name on the books of the corporation. Any director who ceases to be the owner of at least one
(1) share of the capital stock of the corporation of which he is a director shall thereby cease to be a director. Trustees of
non-stock corporations must be members thereof. A majority of the directors or trustees of all corporations organized
under this Code must be residents of the Philippines.
Section 24. Election of directors or trustees. – At all elections of directors or trustees, there must be present, either in
person or by representative authorized to act by written proxy, the owners of a majority of the outstanding capital stock,
or if there be no capital stock, a majority of the members entitled to vote. The election must be by ballot if requested by
any voting stockholder or member. In stock corporations, every stockholder entitled to vote shall have the right to vote
in person or by proxy the number of shares of stock standing, at the time fixed in the by-laws, in his own name on the
stock books of the corporation, or where the by-laws are silent, at the time of the election; and said stockholder may
vote such number of shares for as many persons as there are directors to be elected or he may cumulate said shares
and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares
shall equal, or he may distribute them on the same principle among as many candidates as he shall see fit: Provided,
That the total number of votes cast by him shall not exceed the number of shares owned by him as shown in the books

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of the corporation multiplied by the whole number of directors to be elected: Provided, however, That no delinquent
stock shall be voted. Unless otherwise provided in the articles of incorporation or in the by-laws, members of
corporations which have no capital stock may cast as many votes as there are trustees to be elected but may not cast
more than one vote for one candidate. Candidates receiving the highest number of votes shall be declared elected. Any
meeting of the stockholders or members called for an election may adjourn from day to day or from time to time but not
sine die or indefinitely if, for any reason, no election is held, or if there are not present or represented by proxy, at the
meeting, the owners of a majority of the outstanding capital stock, or if there be no capital stock, a majority of the
member entitled to vote. (31a)
Section 25. Corporate officers, quorum. – Immediately after their election, the directors of a corporation must formally
organize by the election of a president, who shall be a director, a treasurer who may or may not be a director, a
secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the
by-laws. Any two (2) or more positions may be held concurrently by the same person, except that no one shall act as
president and secretary or as president and treasurer at the same time.
The directors or trustees and officers to be elected shall perform the duties enjoined on them by law and the by-laws of
the corporation. Unless the articles of incorporation or the by-laws provide for a greater majority, a majority of the
number of directors or trustees as fixed in the articles of incorporation shall constitute a quorum for the transaction of
corporate business, and every decision of at least a majority of the directors or trustees present at a meeting at which
there is a quorum shall be valid as a corporate act, except for the election of officers which shall require the vote of a
majority of all the members of the board.
Directors or trustees cannot attend or vote by proxy at board meetings. (33a)
Section 26. Report of election of directors, trustees and officers. – Within thirty (30) days after the election of the
directors, trustees and officers of the corporation, the secretary, or any other officer of the corporation, shall submit to
the Securities and Exchange Commission, the names, nationalities and residences of the directors, trustees, and
officers elected. Should a director, trustee or officer die, resign or in any manner cease to hold office, his heirs in case
of his death, the secretary, or any other officer of the corporation, or the director, trustee or officer himself, shall
immediately report such fact to the Securities and Exchange Commission. (n)
Section 27. Disqualification of directors, trustees or officers. – No person convicted by final judgment of an offense
punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code committed within five (5)
years prior to the date of his election or appointment, shall qualify as a director, trustee or officer of any corporation. (n)
Section 28. Removal of directors or trustees. – Any director or trustee of a corporation may be removed from office by a
vote of the stockholders holding or representing at least two-thirds (2/3) of the outstanding capital stock, or if the
corporation be a non-stock corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote: Provided,
That such removal shall take place either at a regular meeting of the corporation or at a special meeting called for the
purpose, and in either case, after previous notice to stockholders or members of the corporation of the intention to
propose such removal at the meeting. A special meeting of the stockholders or members of a corporation for the
purpose of removal of directors or trustees, or any of them, must be called by the secretary on order of the president or
on the written demand of the stockholders representing or holding at least a majority of the outstanding capital stock,
or, if it be a non-stock corporation, on the written demand of a majority of the members entitled to vote. Should the
secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or if there is no
secretary, the call for the meeting may be addressed directly to the stockholders or members by any stockholder or
member of the corporation signing the demand. Notice of the time and place of such meeting, as well as of the
intention to propose such removal, must be given by publication or by written notice prescribed in this Code. Removal
may be with or without cause: Provided, That removal without cause may not be used to deprive minority stockholders
or members of the right of representation to which they may be entitled under Section 24 of this Code. (n)
Section 29. Vacancies in the office of director or trustee. – Any vacancy occurring in the board of directors or trustees
other than by removal by the stockholders or members or by expiration of term, may be filled by the vote of at least a
majority of the remaining directors or trustees, if still constituting a quorum; otherwise, said vacancies must be filled by
the stockholders in a regular or special meeting called for that purpose. A director or trustee so elected to fill a vacancy
shall be elected only or the unexpired term of his predecessor in office.
Any directorship or trusteeship to be filled by reason of an increase in the number of directors or trustees shall be filled
only by an election at a regular or at a special meeting of stockholders or members duly called for the purpose, or in the
same meeting authorizing the increase of directors or trustees if so stated in the notice of the meeting. (n)
Section 30. Compensation of directors. – In the absence of any provision in the by-laws fixing their compensation, the
directors shall not receive any compensation, as such directors, except for reasonable per diems: Provided, however,
That any such compensation other than per diems may be granted to directors by the vote of the stockholders
representing at least a majority of the outstanding capital stock at a regular or special stockholders’ meeting. In no case
shall the total yearly compensation of directors, as such directors, exceed ten (10%) percent of the net income before
income tax of the corporation during the preceding year. (n)

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Section 31. Liability of directors, trustees or officers. - Directors or trustees who wilfully and knowingly vote for or assent
to patently unlawful acts of the corporation or who are guilty of gross negligence or bad faith in directing the affairs of
the corporation or acquire any personal or pecuniary interest in conflict with their duty as such directors or trustees
shall be liable jointly and severally for all damages resulting therefrom suffered by the corporation, its stockholders or
members and other persons.
When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the
corporation in respect of any matter which has been reposed in him in confidence, as to which equity imposes a
disability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the
profits which otherwise would have accrued to the corporation. (n)
Section 32. Dealings of directors, trustees or officers with the corporation. – A contract of the corporation with one or
more of its directors or trustees or officers is voidable, at the option of such corporation, unless all the following
conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was approved was not
necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a
director or trustee, such contract may be ratified by the vote of the stockholders representing at least two-thirds (2/3) of
the outstanding capital stock or of at least two-thirds (2/3) of the members in a meeting called for the purpose:
Provided, That full disclosure of the adverse interest of the directors or trustees involved is made at such meeting:
Provided, however, That the contract is fair and reasonable under the circumstances. (n)
Section 33. Contracts between corporations with interlocking directors. – Except in cases of fraud, and provided the
contract is fair and reasonable under the circumstances, a contract between two or more corporations having
interlocking directors shall not be invalidated on that ground alone: Provided, That if the interest of the interlocking
director in one corporation is substantial and his interest in the other corporation or corporations is merely nominal, he
shall be subject to the provisions of the preceding section insofar as the latter corporation or corporations are
concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered substantial for
purposes of interlocking directors. (n)
Section 34. Disloyalty of a director. – Where a director, by virtue of his office, acquires for himself a business
opportunity which should belong to the corporation, thereby obtaining profits to the prejudice of such corporation, he
must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the
stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be
applicable, notwithstanding the fact that the director risked his own funds in the venture. (n)
Section 35. Executive committee. – The by-laws of a corporation may create an executive committee, composed of not
less than three members of the board, to be appointed by the board. Said committee may act, by majority vote of all its
members, on such specific matters within the competence of the board, as may be delegated to it in the by-laws or on
a majority vote of the board, except with respect to: (1) approval of any action for which shareholders’ approval is also
required; (2) the filing of vacancies in the board; (3) the amendment or repeal of by-laws or the adoption of new bylaws; (4) the amendment or repeal of any resolution of the board which by its express terms is not so amendable or
repealable; and (5) a distribution of cash dividends to the shareholders.
TITLE IV
POWERS OF CORPORATIONS
Section 36. Corporate powers and capacity. – Every corporation incorporated under this Code has the power and
capacity:
1. To sue and be sued in its corporate name;
2. Of succession by its corporate name for the period of time stated in the articles of incorporation and the certificate of
incorporation;
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance with the provisions of this Code;
5. To adopt by-laws, not contrary to law, morals, or public policy, and to amend or repeal the same in accordance with
this Code;

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6. In case of stock corporations, to issue or sell stocks to subscribers and to sell stocks to subscribers and to sell
treasury stocks in accordance with the provisions of this Code; and to admit members to the corporation if it be a nonstock corporation;
7. To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real
and personal property, including securities and bonds of other corporations, as the transaction of the lawful business of
the corporation may reasonably and necessarily require, subject to the limitations prescribed by law and the
Constitution;
8. To enter into merger or consolidation with other corporations as provided in this Code;
9. To make reasonable donations, including those for the public welfare or for hospital, charitable, cultural, scientific,
civic, or similar purposes: Provided, That no corporation, domestic or foreign, shall give donations in aid of any political
party or candidate or for purposes of partisan political activity;
10. To establish pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees;
and
11. To exercise such other powers as may be essential or necessary to carry out its purpose or purposes as stated in
the articles of incorporation. (13a)
Section 37. Power to extend or shorten corporate term. – A private corporation may extend or shorten its term as stated
in the articles of incorporation when approved by a majority vote of the board of directors or trustees and ratified at a
meeting by the stockholders representing at least two-thirds (2/3) of the outstanding capital stock or by at least twothirds (2/3) of the members in case of non-stock corporations. Written notice of the proposed action and of the time and
place of the meeting shall be addressed to each stockholder or member at his place of residence as shown on the
books of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally:
Provided, That in case of extension of corporate term, any dissenting stockholder may exercise his appraisal right
under the conditions provided in this code. (n)
Section 38. Power to increase or decrease capital stock; incur, create or increase bonded indebtedness. – No
corporation shall increase or decrease its capital stock or incur, create or increase any bonded indebtedness unless
approved by a majority vote of the board of directors and, at a stockholder’s meeting duly called for the purpose, twothirds (2/3) of the outstanding capital stock shall favor the increase or diminution of the capital stock, or the incurring,
creating or increasing of any bonded indebtedness. Written notice of the proposed increase or diminution of the capital
stock or of the incurring, creating, or increasing of any bonded indebtedness and of the time and place of the
stockholder’s meeting at which the proposed increase or diminution of the capital stock or the incurring or increasing of
any bonded indebtedness is to be considered, must be addressed to each stockholder at his place of residence as
shown on the books of the corporation and deposited to the addressee in the post office with postage prepaid, or
served personally.
A certificate in duplicate must be signed by a majority of the directors of the corporation and countersigned by the
chairman and the secretary of the stockholders’ meeting, setting forth:
(1) That the requirements of this section have been complied with;
(2) The amount of the increase or diminution of the capital stock;
(3) If an increase of the capital stock, the amount of capital stock or number of shares of no-par stock thereof actually
subscribed, the names, nationalities and residences of the persons subscribing, the amount of capital stock or number
of no-par stock subscribed by each, and the amount paid by each on his subscription in cash or property, or the amount
of capital stock or number of shares of no-par stock allotted to each stock-holder if such increase is for the purpose of
making effective stock dividend therefor authorized;
(4) Any bonded indebtedness to be incurred, created or increased;
(5) The actual indebtedness of the corporation on the day of the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the capital stock, or the incurring, creating or increasing of any
bonded indebtedness.
Any increase or decrease in the capital stock or the incurring, creating or increasing of any bonded indebtedness shall
require prior approval of the Securities and Exchange Commission.
One of the duplicate certificates shall be kept on file in the office of the corporation and the other shall be filed with the
Securities and Exchange Commission and attached to the original articles of incorporation. From and after approval by
the Securities and Exchange Commission and the issuance by the Commission of its certificate of filing, the capital
stock shall stand increased or decreased and the incurring, creating or increasing of any bonded indebtedness
authorized, as the certificate of filing may declare: Provided, That the Securities and Exchange Commission shall not

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accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer
of the corporation lawfully holding office at the time of the filing of the certificate, showing that at least twenty-five (25%)
percent of such increased capital stock has been subscribed and that at least twenty-five (25%) percent of the amount
subscribed has been paid either in actual cash to the corporation or that there has been transferred to the corporation
property the valuation of which is equal to twenty-five (25%) percent of the subscription: Provided, further, That no
decrease of the capital stock shall be approved by the Commission if its effect shall prejudice the rights of corporate
creditors.
Non-stock corporations may incur or create bonded indebtedness, or increase the same, with the approval by a
majority vote of the board of trustees and of at least two-thirds (2/3) of the members in a meeting duly called for the
purpose.
Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the
authority to determine the sufficiency of the terms thereof. (17a)
Section 39. Power to deny pre-emptive right. – All stockholders of a stock corporation shall enjoy pre-emptive right 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 or an amendment thereto: Provided, That such pre-emptive right shall not
extend to shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the
public; or to shares to be issued in good faith with the approval of the stockholders representing two-thirds (2/3) of the
outstanding capital stock, in exchange for property needed for corporate purposes or in payment of a previously
contracted debt.
Section 40. Sale or other disposition of assets. – Subject to the provisions of existing laws on illegal combinations and
monopolies, a corporation may, by a majority vote of its board of directors or trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or substantially all of its property and assets, including its goodwill, upon such terms
and conditions and for such consideration, which may be money, stocks, bonds or other instruments for the payment of
money or other property or consideration, as its board of directors or trustees may deem expedient, when authorized
by the vote of the stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or in case of nonstock corporation, by the vote of at least to two-thirds (2/3) of the members, in a stockholder’s or member’s meeting
duly called for the purpose. Written notice of the proposed action and of the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage prepaid, or served personally: Provided, That any dissenting
stockholder may exercise his appraisal right under the conditions provided in this Code.
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was
incorporated.
After such authorization or approval by the stockholders or members, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property
and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval by
the stockholders or members.
Nothing in this section is intended to restrict the power of any corporation, without the authorization by the stockholders
or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and assets if the
same is necessary in the usual and regular course of business of said corporation or if the proceeds of the sale or other
disposition of such property and assets be appropriated for the conduct of its remaining business.
In non-stock corporations where there are no members with voting rights, the vote of at least a majority of the trustees
in office will be sufficient authorization for the corporation to enter into any transaction authorized by this section.
Section 41. Power to acquire own shares. – A stock corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, That
the corporation has unrestricted retained earnings in its books to cover the shares to be purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency
sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the provisions of this Code.
(a)
Section 42. Power to invest corporate funds in another corporation or business or for any other purpose. – Subject to
the provisions of this Code, a private corporation may invest its funds in any other corporation or business or for any
purpose other than the primary purpose for which it was organized when approved by a majority of the board of
directors or trustees and ratified by the stockholders representing at least two-thirds (2/3) of the outstanding capital
stock, or by at least two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder’s or
member’s meeting duly called for the purpose. Written notice of the proposed investment and the time and place of the

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meeting shall be addressed to each stockholder or member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served personally: Provided,
That any dissenting stockholder shall have appraisal right as provided in this Code: Provided, however, That where the
investment by the corporation is reasonably necessary to accomplish its primary purpose as stated in the articles of
incorporation, the approval of the stockholders or members shall not be necessary. (17 1/2a)
Section 43. Power to declare dividends. - The board of directors of a stock corporation may declare dividends out of the
unrestricted retained earnings which shall be payable in cash, in property, or in stock to all stockholders on the basis of
outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the
delinquent stockholder until his unpaid subscription is fully paid: Provided, further, That no stock dividend shall be
issued without the approval of stockholders representing not less than two-thirds (2/3) of the outstanding capital stock
at a regular or special meeting duly called for the purpose. (16a)
Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in
capital stock, except: (1) when justified by definite corporate expansion projects or programs approved by the board of
directors; or (2) when the corporation is prohibited under any loan agreement with any financial institution or creditor,
whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured;
or (3) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the
corporation, such as when there is need for special reserve for probable contingencies. (n)
Section 44. Power to enter into management contract. – No corporation shall conclude a management contract with
another corporation unless such contract shall have been approved by the board of directors and by stockholders
owning at least the majority of the outstanding capital stock, or by at least a majority of the members in the case of a
non-stock corporation, of both the managing and the managed corporation, at a meeting duly called for the purpose:
Provided, That (1) where a stockholder or stockholders representing the same interest of both the managing and the
managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of
the managing corporation; or (2) where a majority of the members of the board of directors of the managing corporation
also constitute a majority of the members of the board of directors of the managed corporation, then the management
contract must be approved by the stockholders of the managed corporation owning at least two-thirds (2/3) of the total
outstanding capital stock entitled to vote, or by at least two-thirds (2/3) of the members in the case of a non-stock
corporation. No management contract shall be entered into for a period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any contract whereby a corporation undertakes to
manage or operate all or substantially all of the business of another corporation, whether such contracts are called
service contracts, operating agreements or otherwise: Provided, however, That such service contracts or operating
agreements which relate to the exploration, development, exploitation or utilization of natural resources may be entered
into for such periods as may be provided by the pertinent laws or regulations. (n)
Section 45. Ultra vires acts of corporations. – No corporation under this Code shall possess or exercise any corporate
powers except those conferred by this Code or by its articles of incorporation and except such as are necessary or
incidental to the exercise of the powers so conferred. (n)
TITLE V
BY LAWS
Section 46. Adoption of by-laws. – Every corporation formed under this Code must, within one (1) month after receipt of
official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, adopt a
code of by-laws for its government not inconsistent with this Code. For the adoption of by-laws by the corporation the
affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or of at least a
majority of the members in case of non-stock corporations, shall be necessary. The by-laws shall be signed by the
stockholders or members voting for them and shall be kept in the principal office of the corporation, subject to the
inspection of the stockholders or members during office hours. A copy thereof, duly certified to by a majority of the
directors or trustees countersigned by the secretary of the corporation, shall be filed with the Securities and Exchange
Commission which shall be attached to the original articles of incorporation.
Notwithstanding the provisions of the preceding paragraph, by-laws may be adopted and filed prior to incorporation; in
such case, such by-laws shall be approved and signed by all the incorporators and submitted to the Securities and
Exchange Commission, together with the articles of incorporation.
In all cases, by-laws shall be effective only upon the issuance by the Securities and Exchange Commission of a
certification that the by-laws are not inconsistent with this Code.
The Securities and Exchange Commission shall not accept for filing the by-laws or any amendment thereto of any
bank, banking institution, building and loan association, trust company, insurance company, public utility, educational
institution or other special corporations governed by special laws, unless accompanied by a certificate of the
appropriate government agency to the effect that such by-laws or amendments are in accordance with law. (20a)

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Section 47. Contents of by-laws. – Subject to the provisions of the Constitution, this Code, other special laws, and the
articles of incorporation, a private corporation may provide in its by-laws for:
1. The time, place and manner of calling and conducting regular or special meetings of the directors or trustees;
2. The time and manner of calling and conducting regular or special meetings of the stockholders or members;
3. The required quorum in meetings of stockholders or members and the manner of voting therein;
4. The form for proxies of stockholders and members and the manner of voting them;
5. The qualifications, duties and compensation of directors or trustees, officers and employees;
6. The time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof;
7. The manner of election or appointment and the term of office of all officers other than directors or trustees;
8. The penalties for violation of the by-laws;
9. In the case of stock corporations, the manner of issuing stock certificates; and
10. Such other matters as may be necessary for the proper or convenient transaction of its corporate business and
affairs. (21a)
Section 48. Amendments to by-laws. – The board of directors or trustees, by a majority vote thereof, and the owners of
at least a majority of the outstanding capital stock, or at least a majority of the members of a non-stock corporation, at a
regular or special meeting duly called for the purpose, may amend or repeal any by-laws or adopt new by-laws. The
owners of two-thirds (2/3) of the outstanding capital stock or two-thirds (2/3) of the members in a non-stock corporation
may delegate to the board of directors or trustees the power to amend or repeal any by-laws or adopt new by-laws:
Provided, That any power delegated to the board of directors or trustees to amend or repeal any by-laws or adopt new
by-laws shall be considered as revoked whenever stockholders owning or representing a majority of the outstanding
capital stock or a majority of the members in non-stock corporations, shall so vote at a regular or special meeting.
Whenever any amendment or new by-laws are adopted, such amendment or new by-laws shall be attached to the
original by-laws in the office of the corporation, and a copy thereof, duly certified under oath by the corporate secretary
and a majority of the directors or trustees, shall be filed with the Securities and Exchange Commission the same to be
attached to the original articles of incorporation and original by-laws.
The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange Commission of
a certification that the same are not inconsistent with this Code. (22a and 23a)
TITLE VI
MEETINGS
Section 49. Kinds of meetings. – Meetings of directors, trustees, stockholders, or members may be regular or special.
(n)
Section 50. Regular and special meetings of stockholders or members. - Regular meetings of stockholders or members
shall be held annually on a date fixed in the by-laws, or if not so fixed, on any date in April of every year as determined
by the board of directors or trustees: Provided, That written notice of regular meetings shall be sent to all stockholders
or members of record at least two (2) weeks prior to the meeting, unless a different period is required by the by-laws.
Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the bylaws: Provided, however, That at least one (1) week written notice shall be sent to all stockholders or members, unless
otherwise provided in the by-laws.
Notice of any meeting may be waived, expressly or impliedly, by any stockholder or member.
Whenever, for any cause, there is no person authorized to call a meeting, the Securities and Exchange Commission,
upon petition of a stockholder or member on a showing of good cause therefor, may issue an order to the petitioning
stockholder or member directing him to call a meeting of the corporation by giving proper notice required by this Code
or by the by-laws. The petitioning stockholder or member shall preside thereat until at least a majority of the
stockholders or members present have chosen one of their number as presiding officer. (24, 26)
Section 51. Place and time of meetings of stockholders of members. – Stockholder’s or member’s meetings, whether
regular or special, shall be held in the city or municipality where the principal office of the corporation is located, and if
practicable in the principal office of the corporation: Provided, That Metro Manila shall, for purposes of this section, be
considered a city or municipality.
Notice of meetings shall be in writing, and the time and place thereof stated therein.

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All proceedings had and any business transacted at any meeting of the stockholders or members, if within the powers
or authority of the corporation, shall be valid even if the meeting be improperly held or called, provided all the
stockholders or members of the corporation are present or duly represented at the meeting. (24 and 25)
Section 52. Quorum in meetings. – Unless otherwise provided for in this Code or in the by-laws, a quorum shall consist
of the stockholders representing a majority of the outstanding capital stock or a majority of the members in the case of
non-stock corporations. (n)
Section 53. Regular and special meetings of directors or trustees. – Regular meetings of the board of directors or
trustees of every corporation shall be held monthly, unless the by-laws provide otherwise.
Special meetings of the board of directors or trustees may be held at any time upon the call of the president or as
provided in the by-laws.
Meetings of directors or trustees of corporations may be held anywhere in or outside of the Philippines, unless the bylaws provide otherwise. Notice of regular or special meetings stating the date, time and place of the meeting must be
sent to every director or trustee at least one (1) day prior to the scheduled meeting, unless otherwise provided by the
by-laws. A director or trustee may waive this requirement, either expressly or impliedly. (n)
Section 54. Who shall preside at meetings. – The president shall preside at all meetings of the directors or trustee as
well as of the stockholders or members, unless the by-laws provide otherwise. (n)
Section 55. Right to vote of pledgors, mortgagors, and administrators. – In case of pledged or mortgaged shares in
stock corporations, the pledgor or mortgagor shall have the right to attend and vote at meetings of stockholders, unless
the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in writing which is recorded on the
appropriate corporate books. (n)
Executors, administrators, receivers, and other legal representatives duly appointed by the court may attend and vote
in behalf of the stockholders or members without need of any written proxy. (27a)
Section 56. Voting in case of joint ownership of stock. – In case of shares of stock owned jointly by two or more
persons, in order to vote the same, the consent of all the co-owners shall be necessary, unless there is a written proxy,
signed by all the co-owners, authorizing one or some of them or any other person to vote such share or shares:
Provided, That when the shares are owned in an “and/or” capacity by the holders thereof, any one of the joint owners
can vote said shares or appoint a proxy therefor. (n)
Section 57. Voting right for treasury shares. – Treasury shares shall have no voting right as long as such shares remain
in the Treasury. (n)
Section 58. Proxies. – Stockholders and members may vote in person or by proxy in all meetings of stockholders or
members. Proxies shall in writing, signed by the stockholder or member and filed before the scheduled meeting with
the corporate secretary. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is
intended. No proxy shall be valid and effective for a period longer than five (5) years at any one time. (n)
Section 59. Voting trusts. – One or more stockholders of a stock corporation may create a voting trust for the purpose
of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not
exceeding five (5) years at any time: Provided, That in the case of a voting trust specifically required as a condition in a
loan agreement, said voting trust may be for a period exceeding five (5) years but shall automatically expire upon full
payment of the loan. A voting trust agreement must be in writing and notarized, and shall specify the terms and
conditions thereof. A certified copy of such agreement shall be filed with the corporation and with the Securities and
Exchange Commission; otherwise, said agreement is ineffective and unenforceable. The certificate or certificates of
stock covered by the voting trust agreement shall be cancelled and new ones shall be issued in the name of the trustee
or trustees stating that they are issued pursuant to said agreement. In the books of the corporation, it shall be noted
that the transfer in the name of the trustee or trustees is made pursuant to said voting trust agreement.
The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which shall be transferable
in the same manner and with the same effect as certificates of stock.
The voting trust agreement filed with the corporation shall be subject to examination by any stockholder of the
corporation in the same manner as any other corporate book or record: Provided, That both the transferor and the
trustee or trustees may exercise the right of inspection of all corporate books and records in accordance with the
provisions of this Code.
Any other stockholder may transfer his shares to the same trustee or trustees upon the terms and conditions stated in
the voting trust agreement, and thereupon shall be bound by all the provisions of said agreement.
No voting trust agreement shall be entered into for the purpose of circumventing the law against monopolies and illegal
combinations in restraint of trade or used for purposes of fraud.

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Unless expressly renewed, all rights granted in a voting trust agreement shall automatically expire at the end of the
agreed period, and the voting trust certificates as well as the certificates of stock in the name of the trustee or trustees
shall thereby be deemed cancelled and new certificates of stock shall be reissued in the name of the transferors.
The voting trustee or trustees may vote by proxy unless the agreement provides otherwise. (36a)
TITLE VII
STOCKS AND STOCKHOLDERS
Section 60. Subscription contract. – Any contract for the acquisition of unissued stock in an existing corporation or a
corporation still to be formed shall be deemed a subscription within the meaning of this Title, notwithstanding the fact
that the parties refer to it as a purchase or some other contract. (n)
Section 61. Pre-incorporation subscription. – A subscription for shares of stock of a corporation still to be formed shall
be irrevocable for a period of at least six (6) months from the date of subscription, unless all of the other subscribers
consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period or within
a longer period as may be stipulated in the contract of subscription: Provided, That no pre-incorporation subscription
may be revoked after the submission of the articles of incorporation to the Securities and Exchange Commission. (n)
Section 62. Consideration for stocks. – Stocks shall not be issued for a consideration less than the par or issued price
thereof. Consideration for the issuance of stock may be any or a combination of any two or more of the following:
1. Actual cash paid to the corporation;
2. Property, tangible or intangible, actually received by the corporation and necessary or convenient for its use and
lawful purposes at a fair valuation equal to the par or issued value of the stock issued;
3. Labor performed for or services actually rendered to the corporation;
4. Previously incurred indebtedness of the corporation;
5. Amounts transferred from unrestricted retained earnings to stated capital; and
6. Outstanding shares exchanged for stocks in the event of reclassification or conversion.
Where the consideration is other than actual cash, or consists of intangible property such as patents of copyrights, the
valuation thereof shall initially be determined by the incorporators or the board of directors, subject to approval by the
Securities and Exchange Commission.
Shares of stock shall not be issued in exchange for promissory notes or future service.
The same considerations provided for in this section, insofar as they may be applicable, may be used for the issuance
of bonds by the corporation.
The issued price of no-par value shares may be fixed in the articles of incorporation or by the board of directors
pursuant to authority conferred upon it by the articles of incorporation or the by-laws, or in the absence thereof, by the
stockholders representing at least a majority of the outstanding capital stock at a meeting duly called for the purpose.
(5 and 16)
Section 63. Certificate of stock and transfer of shares. – The capital stock of stock corporations shall be divided into
shares for which certificates signed by the president or vice president, countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock
so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the
owner or his attorney-in-fact or other person legally authorized to make the transfer. No transfer, however, shall be
valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of
the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of
shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the
corporation. (35)
Section 64. Issuance of stock certificates. – No certificate of stock shall be issued to a subscriber until the full amount
of his subscription together with interest and expenses (in case of delinquent shares), if any is due, has been paid. (37)
Section 65. Liability of directors for watered stocks. – Any director or officer of a corporation consenting to the issuance
of stocks for a consideration less than its par or issued value or for a consideration in any form other than cash, valued
in excess of its fair value, or who, having knowledge thereof, does not forthwith express his objection in writing and file
the same with the corporate secretary, shall be solidarily, liable with the stockholder concerned to the corporation and
its creditors for the difference between the fair value received at the time of issuance of the stock and the par or issued
value of the same. (n)

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Section 66. Interest on unpaid subscriptions. – Subscribers for stock shall pay to the corporation interest on all unpaid
subscriptions from the date of subscription, if so required by, and at the rate of interest fixed in the by-laws. If no rate of
interest is fixed in the by-laws, such rate shall be deemed to be the legal rate. (37)
Section 67. Payment of balance of subscription. – Subject to the provisions of the contract of subscription, the board of
directors of any stock corporation may at any time declare due and payable to the corporation unpaid subscriptions to
the capital stock and may collect the same or such percentage thereof, in either case with accrued interest, if any, as it
may deem necessary.
Payment of any unpaid subscription or any percentage thereof, together with the interest accrued, if any, shall be made
on the date specified in the contract of subscription or on the date stated in the call made by the board. Failure to pay
on such date shall render the entire balance due and payable and shall make the stockholder liable for interest at the
legal rate on such balance, unless a different rate of interest is provided in the by-laws, computed from such date until
full payment. If within thirty (30) days from the said date no payment is made, all stocks covered by said subscription
shall thereupon become delinquent and shall be subject to sale as hereinafter provided, unless the board of directors
orders otherwise. (38)
Section 68. Delinquency sale. – The board of directors may, by resolution, order the sale of delinquent stock and shall
specifically state the amount due on each subscription plus all accrued interest, and the date, time and place of the
sale which shall not be less than thirty (30) days nor more than sixty (60) days from the date the stocks become
delinquent.
Notice of said sale, with a copy of the resolution, shall be sent to every delinquent stockholder either personally or by
registered mail. The same shall furthermore be published once a week for two (2) consecutive weeks in a newspaper of
general circulation in the province or city where the principal office of the corporation is located.
Unless the delinquent stockholder pays to the corporation, on or before the date specified for the sale of the delinquent
stock, the balance due on his subscription, plus accrued interest, costs of advertisement and expenses of sale, or
unless the board of directors otherwise orders, said delinquent stock shall be sold at public auction to such bidder who
shall offer to pay the full amount of the balance on the subscription together with accrued interest, costs of
advertisement and expenses of sale, for the smallest number of shares or fraction of a share. The stock so purchased
shall be transferred to such purchaser in the books of the corporation and a certificate for such stock shall be issued in
his favor. The remaining shares, if any, shall be credited in favor of the delinquent stockholder who shall likewise be
entitled to the issuance of a certificate of stock covering such shares.
Should there be no bidder at the public auction who offers to pay the full amount of the balance on the subscription
together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of shares or
fraction of a share, the corporation may, subject to the provisions of this Code, bid for the same, and the total amount
due shall be credited as paid in full in the books of the corporation. Title to all the shares of stock covered by the
subscription shall be vested in the corporation as treasury shares and may be disposed of by said corporation in
accordance with the provisions of this Code. (39a-46a)
Section 69. When sale may be questioned. – No action to recover delinquent stock sold can be sustained upon the
ground of irregularity or defect in the notice of sale, or in the sale itself of the delinquent stock, unless the party seeking
to maintain such action first pays or tenders to the party holding the stock the sum for which the same was sold, with
interest from the date of sale at the legal rate; and no such action shall be maintained unless it is commenced by the
filing of a complaint within six (6) months from the date of sale. (47a)
Section 70. Court action to recover unpaid subscription. – Nothing in this Code shall prevent the corporation from
collecting by action in a court of proper jurisdiction the amount due on any unpaid subscription, with accrued interest,
costs and expenses. (49a)
Section 71. Effect of delinquency. – No delinquent stock shall be voted for or be entitled to vote or to representation at
any stockholder’s meeting, nor shall the holder thereof be entitled to any of the rights of a stockholder except the right
to dividends in accordance with the provisions of this Code, until and unless he pays the amount due on his
subscription with accrued interest, and the costs and expenses of advertisement, if any. (50a)
Section 72. Rights of unpaid shares. – Holders of subscribed shares not fully paid which are not delinquent shall have
all the rights of a stockholder. (n)
Section 73. Lost or destroyed certificates. – The following procedure shall be followed for the issuance by a corporation
of new certificates of stock in lieu of those which have been lost, stolen or destroyed:
1. The registered owner of a certificate of stock in a corporation or his legal representative shall file with the corporation
an affidavit in triplicate setting forth, if possible, the circumstances as to how the certificate was lost, stolen or
destroyed, the number of shares represented by such certificate, the serial number of the certificate and the name of
the corporation which issued the same. He shall also submit such other information and evidence which he may deem
necessary;

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2. After verifying the affidavit and other information and evidence with the books of the corporation, said corporation
shall publish a notice in a newspaper of general circulation published in the place where the corporation has its
principal office, once a week for three (3) consecutive weeks at the expense of the registered owner of the certificate of
stock which has been lost, stolen or destroyed. The notice shall state the name of said corporation, the name of the
registered owner and the serial number of said certificate, and the number of shares represented by such certificate,
and that after the expiration of one (1) year from the date of the last publication, if no contest has been presented to
said corporation regarding said certificate of stock, the right to make such contest shall be barred and said corporation
shall cancel in its books the certificate of stock which has been lost, stolen or destroyed and issue in lieu thereof new
certificate of stock, unless the registered owner files a bond or other security in lieu thereof as may be required,
effective for a period of one (1) year, for such amount and in such form and with such sureties as may be satisfactory to
the board of directors, in which case a new certificate may be issued even before the expiration of the one (1) year
period provided herein: Provided, That if a contest has been presented to said corporation or if an action is pending in
court regarding the ownership of said certificate of stock which has been lost, stolen or destroyed, the issuance of the
new certificate of stock in lieu thereof shall be suspended until the final decision by the court regarding the ownership of
said certificate of stock which has been lost, stolen or destroyed.
Except in case of fraud, bad faith, or negligence on the part of the corporation and its officers, no action may be brought
against any corporation which shall have issued certificate of stock in lieu of those lost, stolen or destroyed pursuant to
the procedure above-described. (R.A. 201a)
TITLE VIII
CORPORATE BOOKS AND RECORDS
Section 74. Books to be kept; stock transfer agent. – Every corporation shall keep and carefully preserve at its principal
office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board of
directors or trustees, in which shall be set forth in detail the time and place of holding the meeting, how authorized, the
notice given, whether the meeting was regular or special, if special its object, those present and absent, and every act
done or ordered done at the meeting. Upon the demand of any director, trustee, stockholder or member, the time when
any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar
demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The
protest of any director, trustee, stockholder or member on any action or proposed action must be recorded in full on his
demand.
The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection
by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said records or minutes, at his expense.
Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or member of the
corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code,
shall be 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 144 of this Code: Provided, That if such refusal is made pursuant to a
resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed
upon the directors or trustees who voted for such refusal: and Provided, further, That it shall be a defense to any action
under this section that the person demanding to examine and copy excerpts from the corporation’s records and
minutes has improperly used any information secured through any prior examination of the records or minutes of such
corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his
demand.
Stock corporations must also keep a book to be known as the “stock and transfer book”, in which must be kept a record
of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for
which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or
transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may
prescribe. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock
transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on
business days.
No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock
corporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and
Exchange Commission and pays a fee as may be fixed by the Commission, which shall be renewable annually:
Provided, That a stock corporation is not precluded from performing or making transfer of its own stocks, in which case
all the rules and regulations imposed on stock transfer agents, except the payment of a license fee herein provided,
shall be applicable. (51a and 32a; P.B. No. 268.)
Section 75. Right to financial statements. – Within ten (10) days from receipt of a written request of any stockholder or
member, the corporation shall furnish to him its most recent financial statement, which shall include a balance sheet as
of the end of the last taxable year and a profit or loss statement for said taxable year, showing in reasonable detail its
assets and liabilities and the result of its operations.

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At the regular meeting of stockholders or members, the board of directors or trustees shall present to such
stockholders or members a financial report of the operations of the corporation for the preceding year, which shall
include financial statements, duly signed and certified by an independent certified public accountant.
However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be certified
under oath by the treasurer or any responsible officer of the corporation. (n)
TITLE IX
MERGER AND CONSOLIDATION
Section 76. Plan or merger of consolidation. – Two or more corporations may merge into a single corporation which
shall be one of the constituent corporations or may consolidate into a new single corporation which shall be the
consolidated corporation.
The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a plan of
merger or consolidation setting forth the following:
1. The names of the corporations proposing to merge or consolidate, hereinafter referred to as the constituent
corporations;
2. The terms of the merger or consolidation and the mode of carrying the same into effect;
3. A statement of the changes, if any, in the articles of incorporation of the surviving corporation in case of merger; and,
with respect to the consolidated corporation in case of consolidation, all the statements required to be set forth in the
articles of incorporation for corporations organized under this Code; and
4. Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or desirable.
(n)
Section 77. Stockholder’s or member’s approval. – Upon approval by majority vote of each of the board of directors or
trustees of the constituent corporations of the plan of merger or consolidation, the same shall be submitted for approval
by the stockholders or members of each of such corporations at separate corporate meetings duly called for the
purpose. Notice of such meetings shall be given to all stockholders or members of the respective corporations, at least
two (2) weeks prior to the date of the meeting, either personally or by registered mail. Said notice shall state the
purpose of the meeting and shall include a copy or a summary of the plan of merger or consolidation. The affirmative
vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock of each corporation in the
case of stock corporations or at least two-thirds (2/3) of the members in the case of non-stock corporations shall be
necessary for the approval of such plan. Any dissenting stockholder in stock corporations may exercise his appraisal
right in accordance with the Code: Provided, That if after the approval by the stockholders of such plan, the board of
directors decides to abandon the plan, the appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be made, provided such amendment is approved by
majority vote of the respective boards of directors or trustees of all the constituent corporations and ratified by the
affirmative vote of stockholders representing at least two-thirds (2/3) of the outstanding capital stock or of two-thirds
(2/3) of the members of each of the constituent corporations. Such plan, together with any amendment, shall be
considered as the agreement of merger or consolidation. (n)
Section 78. Articles of merger or consolidation. – After the approval by the stockholders or members as required by the
preceding section, articles of merger or articles of consolidation shall be executed by each of the constituent
corporations, to be signed by the president or vice-president and certified by the secretary or assistant secretary of
each corporation setting forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares outstanding, or in the case of non-stock corporations, the number of
members; and
3. As to each corporation, the number of shares or members voting for and against such plan, respectively. (n)
Section 79. Effectivity of merger or consolidation. – The articles of merger or of consolidation, signed and certified as
herein above required, shall be submitted to the Securities and Exchange Commission in quadruplicate for its approval:
Provided, That in the case of merger or consolidation of banks or banking institutions, building and loan associations,
trust companies, insurance companies, public utilities, educational institutions and other special corporations governed
by special laws, the favorable recommendation of the appropriate government agency shall first be obtained. If the
Commission is satisfied that the merger or consolidation of the corporations concerned is not inconsistent with the
provisions of this Code and existing laws, it shall issue a certificate of merger or of consolidation, at which time the
merger or consolidation shall be effective.
If, upon investigation, the Securities and Exchange Commission has reason to believe that the proposed merger or
consolidation is contrary to or inconsistent with the provisions of this Code or existing laws, it shall set a hearing to give

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the corporations concerned the opportunity to be heard. Written notice of the date, time and place of hearing shall be
given to each constituent corporation at least two (2) weeks before said hearing. The Commission shall thereafter
proceed as provided in this Code. (n)
Section 80. Effects of merger or consolidation. – The merger or consolidation shall have the following effects:
1. The constituent corporations shall become a single corporation which, in case of merger, shall be the surviving
corporation designated in the plan of merger; and, in case of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
2. The separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated
corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities and powers and
shall be subject to all the duties and liabilities of a corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights, privileges,
immunities and franchises of each of the constituent corporations; and all property, real or personal, and all receivables
due on whatever account, including subscriptions to shares and other choses in action, and all and every other interest
of, or belonging to, or due to each constituent corporation, shall be deemed transferred to and vested in such surviving
or consolidated corporation without further act or deed; and
5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and obligations of each
of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself incurred
such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent
corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens
upon the property of any of such constituent corporations shall not be impaired by such merger or consolidation. (n)
TITLE X
APPRAISAL RIGHT
Section 81. Instances of appraisal right. – Any stockholder of a corporation shall have the right to dissent and demand
payment of the fair value of his shares in the following instances:
1. In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any
stockholder or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of
any class, or of extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the
corporate property and assets as provided in the Code; and
3. In case of merger or consolidation. (n)
Section 82. How right is exercised. – The appraisal right may be exercised by any stockholder who shall have voted
against the proposed corporate action, by making a written demand on the corporation within thirty (30) days after the
date on which the vote was taken for payment of the fair value of his shares: Provided, That failure to make the
demand within such period shall be deemed a waiver of the appraisal right. If the proposed corporate action is
implemented or affected, the corporation shall pay to such stockholder, upon surrender of the certificate or certificates
of stock representing his shares, the fair value thereof as of the day prior to the date on which the vote was taken,
excluding any appreciation or depreciation in anticipation of such corporate action.
If within a period of sixty (60) days from the date the corporate action was approved by the stockholders, the
withdrawing stockholder and the corporation cannot agree on the fair value of the shares, it shall be determined and
appraised by three (3) disinterested persons, one of whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings of the majority of the appraisers shall be final, and their
award shall be paid by the corporation within thirty (30) days after such award is made: Provided, That no payment
shall be made to any dissenting stockholder unless the corporation has unrestricted retained earnings in its books to
cover such payment: and Provided, further, That upon payment by the corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his shares to the corporation. (n)
Section 83. Effect of demand and termination of right. – From the time of demand for payment of the fair value of a
stockholder’s shares until either the abandonment of the corporate action involved or the purchase of the said shares
by the corporation, all rights accruing to such shares, including voting and dividend rights, shall be suspended in
accordance with the provisions of this Code, except the right of such stockholder to receive payment of the fair value
thereof: Provided, That if the dissenting stockholder is not paid the value of his shares within 30 days after the award,
his voting and dividend rights shall immediately be restored. (n)
Section 84. When right to payment ceases. – No demand for payment under this Title may be withdrawn unless the
corporation consents thereto. If, however, such demand for payment is withdrawn with the consent of the corporation,
or if the proposed corporate action is abandoned or rescinded by the corporation or disapproved by the Securities and

18

Exchange Commission where such approval is necessary, or if the Securities and Exchange Commission determines
that such stockholder is not entitled to the appraisal right, then the right of said stockholder to be paid the fair value of
his shares shall cease, his status as a stockholder shall thereupon be restored, and all dividend distributions which
would have accrued on his shares shall be paid to him. (n)
Section 85. Who bears costs of appraisal. – The costs and expenses of appraisal shall be borne by the corporation,
unless the fair value ascertained by the appraisers is approximately the same as the price which the corporation may
have offered to pay the stockholder, in which case they shall be borne by the latter. In the case of an action to recover
such fair value, all costs and expenses shall be assessed against the corporation, unless the refusal of the stockholder
to receive payment was unjustified. (n)
Section 86. Notation on certificates; rights of transferee. – Within ten (10) days after demanding payment for his
shares, a dissenting stockholder shall submit the certificates of stock representing his shares to the corporation for
notation thereon that such shares are dissenting shares. His failure to do so shall, at the option of the corporation,
terminate his rights under this Title. If shares represented by the certificates bearing such notation are transferred, and
the certificates consequently cancelled, the rights of the transferor as a dissenting stockholder under this Title shall
cease and the transferee shall have all the rights of a regular stockholder; and all dividend distributions which would
have accrued on such shares shall be paid to the transferee. (n)
TITLE XI
NON-STOCK CORPORATIONS
Section 87. Definition. – For the purposes of this Code, a non-stock corporation is one where no part of its income is
distributable as dividends to its members, trustees, or officers, subject to the provisions of this Code on dissolution:
Provided, That any profit which a non-stock corporation may obtain as an incident to its operations shall, whenever
necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized,
subject to the provisions of this Title.
The provisions governing stock corporation, when pertinent, shall be applicable to non-stock corporations, except as
may be covered by specific provisions of this Title. (n)
Section 88. Purposes. – Non-stock corporations may be formed or organized for charitable, religious, educational,
professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes, like trade, industry,
agricultural and like chambers, or any combination thereof, subject to the special provisions of this Title governing
particular classes of non-stock corporations. (n)
CHAPTER
MEMBERS

I

Section 89. Right to vote. – The right of the members of any class or classes to vote may be limited, broadened or
denied to the extent specified in the articles of incorporation or the by-laws. Unless so limited, broadened or denied,
each member, regardless of class, shall be entitled to one vote.
Unless otherwise provided in the articles of incorporation or the by-laws, a member may vote by proxy in accordance
with the provisions of this Code. (n)
Voting by mail or other similar means by members of non-stock corporations may be authorized by the by-laws of nonstock corporations with the approval of, and under such conditions which may be prescribed by, the Securities and
Exchange Commission.
Section 90. Non-transferability of membership. – Membership in a non-stock corporation and all rights arising therefrom
are personal and non-transferable, unless the articles of incorporation or the by-laws otherwise provide. (n)
Section 91. Termination of membership. – Membership shall be terminated in the manner and for the causes provided
in the articles of incorporation or the by-laws. Termination of membership shall have the effect of extinguishing all rights
of a member in the corporation or in its property, unless otherwise provided in the articles of incorporation or the bylaws. (n)
CHAPTER
TRUSTEES AND OFFICES

II

Section 92. Election and term of trustees. – Unless otherwise provided in the articles of incorporation or the by-laws,
the board of trustees of non-stock corporations, which may be more than fifteen (15) in number as may be fixed in their
articles of incorporation or by-laws, shall, as soon as organized, so classify themselves that the term of office of onethird (1/3) of their number shall expire every year; and subsequent elections of trustees comprising one-third (1/3) of
the board of trustees shall be held annually and trustees so elected shall have a term of three (3) years. Trustees
thereafter elected to fill vacancies occurring before the expiration of a particular term shall hold office only for the
unexpired period.
No person shall be elected as trustee unless he is a member of the corporation.

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Unless otherwise provided in the articles of incorporation or the by-laws, officers of a non-stock corporation may be
directly elected by the members. (n)
Section 93. Place of meetings. – The by-laws may provide that the members of a non-stock corporation may hold their
regular or special meetings at any place even outside the place where the principal office of the corporation is located:
Provided, That proper notice is sent to all members indicating the date, time and place of the meeting: and Provided,
further, That the place of meeting shall be within the Philippines. (n)
CHAPTER
DISTRIBUTION OF ASSETS IN NON-STOCK CORPORATIONS

III

Section 94. Rules of distribution. – In case dissolution of a non-stock corporation in accordance with the provisions of
this Code, its assets shall be applied and distributed as follows:
1. All liabilities and obligations of the corporation shall be paid, satisfied and discharged, or adequate provision shall be
made therefore;
2. Assets held by the corporation upon a condition requiring return, transfer or conveyance, and which condition occurs
by reason of the dissolution, shall be returned, transferred or conveyed in accordance with such requirements;
3. Assets received and held by the corporation subject to limitations permitting their use only for charitable, religious,
benevolent, educational or similar purposes, but not held upon a condition requiring return, transfer or conveyance by
reason of the dissolution, shall be transferred or conveyed to one or more corporations, societies or organizations
engaged in activities in the Philippines substantially similar to those of the dissolving corporation according to a plan of
distribution adopted pursuant to this Chapter;
4. Assets other than those mentioned in the preceding paragraphs, if any, shall be distributed in accordance with the
provisions of the articles of incorporation or the by-laws, to the extent that the articles of incorporation or the by-laws,
determine the distributive rights of members, or any class or classes of members, or provide for distribution; and
5. In any other case, assets may be distributed to such persons, societies, organizations or corporations, whether or
not organized for profit, as may be specified in a plan of distribution adopted pursuant to this Chapter. (n)
Section 95. Plan of distribution of assets. – A plan providing for the distribution of assets, not inconsistent with the
provisions of this Title, may be adopted by a non-stock corporation in the process of dissolution in the following
manner:
The board of trustees shall, by majority vote, adopt a resolution recommending a plan of distribution and directing the
submission thereof to a vote at a regular or special meeting of members having voting rights. Written notice setting
forth the proposed plan of distribution or a summary thereof and the date, time and place of such meeting shall be
given to each member entitled to vote, within the time and in the manner provided in this Code for the giving of notice
of meetings to members. Such plan of distribution shall be adopted upon approval of at least two-thirds (2/3) of the
members having voting rights present or represented by proxy at such meeting. (n)
TITLE XII
CLOSE CORPORATIONS
Section 96. Definition and applicability of Title. - A close corporation, within the meaning of this Code, is one whose
articles of incorporation provide that: (1) 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 twenty (20); (2) all the issued
stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and (3) The
corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least two-thirds (2/3) of
its voting stock or voting rights is owned or controlled by another corporation which is not a close corporation within the
meaning of this Code.
Any corporation may be incorporated as a close corporation, except mining or oil companies, stock exchanges, banks,
insurance companies, public utilities, educational institutions and corporations declared to be vested with public interest
in accordance with the provisions of this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of other Titles of this
Code shall apply suppletorily except insofar as this Title otherwise provides.
Section 97. Articles of incorporation. – The articles of incorporation of a close corporation may provide:
1. For a classification of shares or rights and the qualifications for owning or holding the same and restrictions on their
transfers as may be stated therein, subject to the provisions of the following section;
2. For a classification of directors into one or more classes, each of whom may be voted for and elected solely by a
particular class of stock; and

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3. For a greater quorum or voting requirements in meetings of stockholders or directors than those provided in this
Code.
The articles of incorporation of a close corporation may provide that the business of the corporation shall be managed
by the stockholders of the corporation rather than by a board of directors. So long as this provision continues in effect:
1. No meeting of stockholders need be called to elect directors;
2. Unless the context clearly requires otherwise, the stockholders of the corporation shall be deemed to be directors for
the purpose of applying the provisions of this Code; and
3. The stockholders of the corporation shall be subject to all liabilities of directors.
The articles of incorporation may likewise provide that all officers or employees or that specified officers or employees
shall be elected or appointed by the stockholders, instead of by the board of directors.
Section 98. Validity of restrictions on transfer of shares. – Restrictions on the right to transfer shares must appear in the
articles of incorporation and in the by-laws as well as in the certificate of stock; otherwise, the same shall not be binding
on any purchaser thereof in good faith. Said restrictions shall not be more onerous than granting the existing
stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable
terms, conditions or period stated therein. If upon the expiration of said period, the existing stockholders or the
corporation fails to exercise the option to purchase, the transferring stockholder may sell his shares to any third person.
Section 99. Effects of issuance or transfer of stock in breach of qualifying conditions. 1. If stock of a close corporation is issued or transferred to any person who is not entitled under any provision of the
articles of incorporation to be a holder of record of its stock, and if the certificate for such stock conspicuously shows
the qualifications of the persons entitled to be holders of record thereof, such person is conclusively presumed to have
notice of the fact of his ineligibility to be a stockholder.
2. If the articles of incorporation of a close corporation states the number of persons, not exceeding twenty (20), who
are entitled to be holders of record of its stock, and if the certificate for such stock conspicuously states such number,
and if the issuance or transfer of stock to any person would cause the stock to be held by more than such number of
persons, the person to whom such stock is issued or transferred is conclusively presumed to have notice of this fact.
3. If a stock certificate of any close corporation conspicuously shows a restriction on transfer of stock of the
corporation, the transferee of the stock is conclusively presumed to have notice of the fact that he has acquired stock in
violation of the restriction, if such acquisition violates the restriction.
4. Whenever any person to whom stock of a close corporation has been issued or transferred has, or is conclusively
presumed under this section to have, notice either (a) that he is a person not eligible to be a holder of stock of the
corporation, or (b) that transfer of stock to him would cause the stock of the corporation to be held by more than the
number of persons permitted by its articles of incorporation to hold stock of the corporation, or (c) that the transfer of
stock is in violation of a restriction on transfer of stock, the corporation may, at its option, refuse to register the transfer
of stock in the name of the transferee.
5. The provisions of subsection (4) shall not be applicable if the transfer of stock, though contrary to subsections (1), (2)
or (3), has been consented to by all the stockholders of the close corporation, or if the close corporation has amended
its articles of incorporation in accordance with this Title.
6. The term “transfer”, as used in this section, is not limited to a transfer for value.
7. The provisions of this section shall not impair any right which the transferee may have to rescind the transfer or to
recover under any applicable warranty, express or implied.
Section 100. Agreements by stockholders. 1. Agreements by and among stockholders executed before the formation and organization of a close corporation,
signed by all stockholders, shall survive the incorporation of such corporation and shall continue to be valid and binding
between and among such stockholders, if such be their intent, to the extent that such agreements are not inconsistent
with the articles of incorporation, irrespective of where the provisions of such agreements are contained, except those
required by this Title to be embodied in said articles of incorporation.
2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in
exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as
determined in accordance with a procedure agreed upon by them.
3. No provision in any written agreement signed by the stockholders, relating to any phase of the corporate affairs, shall
be invalidated as between the parties on the ground that its effect is to make them partners among themselves.
4. A written agreement among some or all of the stockholders in a close corporation shall not be invalidated on the
ground that it so relates to the conduct of the business and affairs of the corporation as to restrict or interfere with the

21

discretion or powers of the board of directors: Provided, That such agreement shall impose on the stockholders who
are parties thereto the liabilities for managerial acts imposed by this Code on directors.
5. To the extent that the stockholders are actively engaged in the management or operation of the business and affairs
of a close corporation, the stockholders shall be held to strict fiduciary duties to each other and among themselves.
Said stockholders shall be personally liable for corporate torts unless the corporation has obtained reasonably
adequate liability insurance.
Section 101. When board meeting is unnecessary or improperly held. - Unless the by-laws provide otherwise, any
action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if:
1. Before or after such action is taken, written consent thereto is signed by all the directors; or
2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing;
or
3. The directors are accustomed to take informal action with the express or implied acquiescence of all the
stockholders; or
4. All the directors have express or implied knowledge of the action in question and none of them makes prompt
objection thereto in writing.
If a director’s meeting is held without proper call or notice, an action taken therein within the corporate powers is
deemed ratified by a director who failed to attend, unless he promptly files his written objection with the secretary of the
corporation after having knowledge thereof.
Section 102. Pre-emptive right in close corporations. – The pre-emptive right of stockholders in close corporations shall
extend to all stock to be issued, including reissuance of treasury shares, whether for money, property or personal
services, or in payment of corporate debts, unless the articles of incorporation provide otherwise.
Section 103. Amendment of articles of incorporation. – Any amendment to the articles of incorporation which seeks to
delete or remove any provision required by this Title to be contained in the articles of incorporation or to reduce a
quorum or voting requirement stated in said articles of incorporation shall not be valid or effective unless approved by
the affirmative vote of at least two-thirds (2/3) of the outstanding capital stock, whether with or without voting rights, or
of such greater proportion of shares as may be specifically provided in the articles of incorporation for amending,
deleting or removing any of the aforesaid provisions, at a meeting duly called for the purpose.
Section 104. Deadlocks. – Notwithstanding any contrary provision in the articles of incorporation or by-laws or
agreement of stockholders of a close corporation, if the directors or stockholders are so divided respecting the
management of the corporation’s business and affairs that the votes required for any corporate action cannot be
obtained, with the consequence that the business and affairs of the corporation can no longer be conducted to the
advantage of the stockholders generally, the Securities and Exchange Commission, upon written petition by any
stockholder, shall have the power to arbitrate the dispute. In the exercise of such power, the Commission shall have
authority to make such order as it deems appropriate, including an order: (1) cancelling or altering any provision
contained in the articles of incorporation, by-laws, or any stockholder’s agreement; (2) cancelling, altering or enjoining
any resolution or act of the corporation or its board of directors, stockholders, or officers; (3) directing or prohibiting any
act of the corporation or its board of directors, stockholders, officers, or other persons party to the action; (4) requiring
the purchase at their fair value of shares of any stockholder, either by the corporation regardless of the availability of
unrestricted retained earnings in its books, or by the other stockholders; (5) appointing a provisional director; (6)
dissolving the corporation; or (7) granting such other relief as the circumstances may warrant.
A provisional director shall be an impartial person who is neither a stockholder nor a creditor of the corporation or of
any subsidiary or affiliate of the corporation, and whose further qualifications, if any, may be determined by the
Commission. A provisional director is not a receiver of the corporation and does not have the title and powers of a
custodian or receiver. A provisional director shall have all the rights and powers of a duly elected director of the
corporation, including the right to notice of and to vote at meetings of directors, until such time as he shall be removed
by order of the Commission or by all the stockholders. His compensation shall be determined by agreement between
him and the corporation subject to approval of the Commission, which may fix his compensation in the absence of
agreement or in the event of disagreement between the provisional director and the corporation.
Section 105. Withdrawal of stockholder or dissolution of corporation. – In addition and without prejudice to other rights
and remedies available to a stockholder under this Title, any stockholder of a close corporation may, for any reason,
compel the said corporation to purchase his shares at their fair value, which shall not be less than their par or issued
value, when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock:
Provided, That any stockholder of a close corporation may, by written petition to the Securities and Exchange
Commission, compel the dissolution of such corporation whenever any of acts of the directors, officers or those in
control of the corporation is illegal, or fraudulent, or dishonest, or oppressive or unfairly prejudicial to the corporation or
any stockholder, or whenever corporate assets are being misapplied or wasted.
TITLE XIII

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SPECIAL
CHAPTER I – EDUCATIONAL CORPORATIONS

CORPORATIONS

Section 106. Incorporation. – Educational corporations shall be governed by special laws and by the general provisions
of this Code. (n)
Section 107. Pre-requisites to incorporation. – Except upon favorable recommendation of the Ministry of Education and
Culture, the Securities and Exchange Commission shall not accept or approve the articles of incorporation and by-laws
of any educational institution. (168a)
Section 108. Board of trustees. – Trustees of educational institutions organized as non-stock corporations shall not be
less than five (5) nor more than fifteen (15): Provided, however, That the number of trustees shall be in multiples of five
(5).
Unless otherwise provided in the articles of incorporation on the by-laws, the board of trustees of incorporated schools,
colleges, or other institutions of learning shall, as soon as organized, so classify themselves that the term of office of
one-fifth (1/5) of their number shall expire every year. Trustees thereafter elected to fill vacancies, occurring before the
expiration of a particular term, shall hold office only for the unexpired period. Trustees elected thereafter to fill
vacancies caused by expiration of term shall hold office for five (5) years. A majority of the trustees shall constitute a
quorum for the transaction of business. The powers and authority of trustees shall be defined in the by-laws.
For institutions organized as stock corporations, the number and term of directors shall be governed by the provisions
on stock corporations. (169a)
CHAPTER
RELIGIOUS CORPORATIONS

II

Section 109. Classes of religious corporations. – Religious corporations may be incorporated by one or more persons.
Such corporations may be classified into corporations sole and religious societies.
Religious corporations shall be governed by this Chapter and by the general provisions on non-stock corporations
insofar as they may be applicable. (n)
Section 110. Corporation sole. – For the purpose of administering and managing, as trustee, the affairs, property and
temporalities of any religious denomination, sect or church, a corporation sole may be formed by the chief archbishop,
bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or church. (154a)
Section 111. Articles of incorporation. – In order to become a corporation sole, the chief archbishop, bishop, priest,
minister, rabbi or presiding elder of any religious denomination, sect or church must file with the Securities and
Exchange Commission articles of incorporation setting forth the following:
1. That he is the chief archbishop, bishop, priest, minister, rabbi or presiding elder of his religious denomination, sect or
church and that he desires to become a corporation sole;
2. That the rules, regulations and discipline of his religious denomination, sect or church are not inconsistent with his
becoming a corporation sole and do not forbid it;
3. That as such chief archbishop, bishop, priest, minister, rabbi or presiding elder, he is charged with the administration
of the temporalities and the management of the affairs, estate and properties of his religious denomination, sect or
church within his territorial jurisdiction, describing such territorial jurisdiction;
4. The manner in which any vacancy occurring in the office of chief archbishop, bishop, priest, minister, rabbi of
presiding elder is required to be filled, according to the rules, regulations or discipline of the religious denomination,
sect or church to which he belongs; and
5. The place where the principal office of the corporation sole is to be established and located, which place must be
within the Philippines.
The articles of incorporation may include any other provision not contrary to law for the regulation of the affairs of the
corporation. (n)
Section 112. Submission of the articles of incorporation. – The articles of incorporation must be verified, before filing, by
affidavit or affirmation of the chief archbishop, bishop, priest, minister, rabbi or presiding elder, as the case may be, and
accompanied by a copy of the commission, certificate of election or letter of appointment of such chief archbishop,
bishop, priest, minister, rabbi or presiding elder, duly certified to be correct by any notary public.
From and after the filing with the Securities and Exchange Commission of the said articles of incorporation, verified by
affidavit or affirmation, and accompanied by the documents mentioned in the preceding paragraph, such chief
archbishop, bishop, priest, minister, rabbi or presiding elder shall become a corporation sole and all temporalities,
estate and properties of the religious denomination, sect or church theretofore administered or managed by him as
such chief archbishop, bishop, priest, minister, rabbi or presiding elder shall be held in trust by him as a corporation

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sole, for the use, purpose, behalf and sole benefit of his religious denomination, sect or church, including hospitals,
schools, colleges, orphan asylums, parsonages and cemeteries thereof. (n)
Section 113. Acquisition and alienation of property. – Any corporation sole may purchase and hold real estate and
personal property for its church, charitable, benevolent or educational purposes, and may receive bequests or gifts for
such purposes. Such corporation may sell or mortgage real property held by it by obtaining an order for that purpose
from the Court of First Instance of the province where the property is situated upon proof made to the satisfaction of the
court that notice of the application for leave to sell or mortgage has been given by publication or otherwise in such
manner and for such time as said court may have directed, and that it is to the interest of the corporation that leave to
sell or mortgage should be granted. The application for leave to sell or mortgage must be made by petition, duly
verified, by the chief archbishop, bishop, priest, minister, rabbi or presiding elder acting as corporation sole, and may
be opposed by any member of the religious denomination, sect or church represented by the corporation sole:
Provided, That in cases where the rules, regulations and discipline of the religious denomination, sect or church,
religious society or order concerned represented by such corporation sole regulate the method of acquiring, holding,
selling and mortgaging real estate and personal property, such rules, regulations and discipline shall control, and the
intervention of the courts shall not be necessary. (159a)
Section 114. Filling of vacancies. – The successors in office of any chief archbishop, bishop, priest, minister, rabbi or
presiding elder in a corporation sole shall become the corporation sole on their accession to office and shall be
permitted to transact business as such on the filing with the Securities and Exchange Commission of a copy of their
commission, certificate of election, or letters of appointment, duly certified by any notary public.
During any vacancy in the office of chief archbishop, bishop, priest, minister, rabbi or presiding elder of any religious
denomination, sect or church incorporated as a corporation sole, the person or persons authorized and empowered by
the rules, regulations or discipline of the religious denomination, sect or church represented by the corporation sole to
administer the temporalities and manage the affairs, estate and properties of the corporation sole during the vacancy
shall exercise all the powers and authority of the corporation sole during such vacancy. (158a)
Section 115. Dissolution. – A corporation sole may be dissolved and its affairs settled voluntarily by submitting to the
Securities and Exchange Commission a verified declaration of dissolution.
The declaration of dissolution shall set forth:
1. The name of the corporation;
2. The reason for dissolution and winding up;
3. The authorization for the dissolution of the corporation by the particular religious denomination, sect or church;
4. The names and addresses of the persons who are to supervise the winding up of the affairs of the corporation.
Upon approval of such declaration of dissolution by the Securities and Exchange Commission, the corporation shall
cease to carry on its operations except for the purpose of winding up its affairs. (n)
Section 116. Religious societies. – Any religious society or religious order, or any diocese, synod, or district
organization of any religious denomination, sect or church, unless forbidden by the constitution, rules, regulations, or
discipline of the religious denomination, sect or church of which it is a part, or by competent authority, may, upon written
consent and/or by an affirmative vote at a meeting called for the purpose of at least two-thirds (2/3) of its membership,
incorporate for the administration of its temporalities or for the management of its affairs, properties and estate by filing
with the Securities and Exchange Commission, articles of incorporation verified by the affidavit of the presiding elder,
secretary, or clerk or other member of such religious society or religious order, or diocese, synod, or district
organization of the religious denomination, sect or church, setting forth the following:
1. That the religious society or religious order, or diocese, synod, or district organization is a religious organization of a
religious denomination, sect or church;
2. That at least two-thirds (2/3) of its membership have given their written consent or have voted to incorporate, at a
duly convened meeting of the body;
3. That the incorporation of the religious society or religious order, or diocese, synod, or district organization desiring to
incorporate is not forbidden by competent authority or by the constitution, rules, regulations or discipline of the religious
denomination, sect, or church of which it forms a part;
4. That the religious society or religious order, or diocese, synod, or district organization desires to incorporate for the
administration of its affairs, properties and estate;
5. The place where the principal office of the corporation is to be established and located, which place must be within
the Philippines; and
The names, nationalities, and residences of the trustees elected by the religious society or religious order, or the
diocese, synod, or district organization to serve for the first year or such other period as may be prescribed by the laws

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of the religious society or religious order, or of the diocese, synod, or district organization, the board of trustees to be
not less than five (5) nor more than fifteen (15). (160a)
TITLE XIV
DISSOLUTION
Section 117. Methods of dissolution. – A corporation formed or organized under the provisions of this Code may be
dissolved voluntarily or involuntarily. (n)
Section 118. Voluntary dissolution where no creditors are affected. – If dissolution of a corporation does not prejudice
the rights of any creditor having a claim against it, the dissolution may be effected by majority vote of the board of
directors or trustees, and by a resolution duly adopted by the affirmative vote of the stockholders owning at least twothirds (2/3) of the outstanding capital stock or of at least two-thirds (2/3) of the members of a meeting to be held upon
call of the directors or trustees after publication of the notice of time, place and object of the meeting for three (3)
consecutive weeks in a newspaper published in the place where the principal office of said corporation is located; and if
no newspaper is published in such place, then in a newspaper of general circulation in the Philippines, after sending
such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days
prior to said meeting. A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of
directors or trustees and countersigned by the secretary of the corporation. The Securities and Exchange Commission
shall thereupon issue the certificate of dissolution. (62a)
Section 119. Voluntary dissolution where creditors are affected. – Where the dissolution of a corporation may prejudice
the rights of any creditor, the petition for dissolution shall be filed with the Securities and Exchange Commission. The
petition shall be signed by a majority of its board of directors or trustees or other officers having the management of its
affairs, verified by its president or secretary or one of its directors or trustees, and shall set forth all claims and
demands against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders representing
at least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds (2/3) of the members at a meeting of its
stockholders or members called for that purpose.
If the petition is sufficient in form and substance, the Commission shall, by an order reciting the purpose of the petition,
fix a date on or before which objections thereto may be filed by any person, which date shall not be less than thirty (30)
days nor more than sixty (60) days after the entry of the order. Before such date, a copy of the order shall be published
at least once a week for three (3) consecutive weeks in a newspaper of general circulation published in the municipality
or city where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of
general circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3)
public places in such municipality or city.
Upon five (5) day’s notice, given after the date on which the right to file objections as fixed in the order has expired, the
Commission shall proceed to hear the petition and try any issue made by the objections filed; and if no such objection
is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and
directing such disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay
the debts of the corporation. (Rule 104, RCa)
Section 120. Dissolution by shortening corporate term. – A voluntary dissolution may be effected by amending the
articles of incorporation to shorten the corporate term pursuant to the provisions of this Code. A copy of the amended
articles of incorporation shall be submitted to the Securities and Exchange Commission in accordance with this Code.
Upon approval of the amended articles of incorporation of the expiration of the shortened term, as the case may be, the
corporation shall be deemed dissolved without any further proceedings, subject to the provisions of this Code on
liquidation. (n)
Section 121. Involuntary dissolution. – A corporation may be dissolved by the Securities and Exchange Commission
upon filing of a verified complaint and after proper notice and hearing on the grounds provided by existing laws, rules
and regulations. (n)
Section 122. Corporate liquidation. – Every corporation whose charter expires by its own limitation or is annulled by
forfeiture or otherwise, or whose corporate existence for other purposes is terminated in any other manner, shall
nevertheless be continued as a body corporate for three (3) years after the time when it would have been so dissolved,
for the purpose of prosecuting and defending suits by or against it and enabling it to settle and close its affairs, to
dispose of and convey its property and to distribute its assets, but not for the purpose of continuing the business for
which it was established.
At any time during said three (3) years, the corporation is authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and others
in interest, all interest which the corporation had in the property terminates, the legal interest vests in the trustees, and
the beneficial interest in the stockholders, members, creditors or other persons in interest.
Upon the winding up of the corporate affairs, any asset distributable to any creditor or stockholder or member who is
unknown or cannot be found shall be escheated to the city or municipality where such assets are located.

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Except by decrease of capital stock and as otherwise allowed by this Code, no corporation shall distribute any of its
assets or property except upon lawful dissolution and after payment of all its debts and liabilities. (77a, 89a, 16a)
TITLE XV
FOREIGN CORPORATIONS
Section 123. Definition and rights of foreign corporations. – For the purposes of this Code, a foreign corporation is one
formed, organized or existing under any 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 it shall have obtained a license to transact business in this country in accordance with this Code and a certificate
of authority from the appropriate government agency. (n)
Section 124. Application to existing foreign corporations. – Every foreign corporation which on the date of the effectivity
of this Code is authorized to do business in the Philippines under a license therefore issued to it, shall continue to have
such authority under the terms and condition of its license, subject to the provisions of this Code and other special
laws. (n)
Section 125. Application for a license. – A foreign corporation applying for a license to transact business in the
Philippines shall submit to the Securities and Exchange Commission a copy of its articles of incorporation and by-laws,
certified in accordance with law, and their translation to an official language of the Philippines, if necessary. The
application shall be under oath and, unless already stated in its articles of incorporation, shall specifically set forth the
following:
1. The date and term of incorporation;
2. The address, including the street number, of the principal office of the corporation in the country or state of
incorporation;
3. The name and address of its resident agent authorized to accept summons and process in all legal proceedings and,
pending the establishment of a local office, all notices affecting the corporation;
4. The place in the Philippines where the corporation intends to operate;
5. The specific purpose or purposes which the corporation intends to pursue in the transaction of its business in the
Philippines: Provided, That said purpose or purposes are those specifically stated in the certificate of authority issued
by the appropriate government agency;
6. The names and addresses of the present directors and officers of the corporation;
7. A statement of its authorized capital stock and the aggregate number of shares which the corporation has authority
to issue, itemized by classes, par value of shares, shares without par value, and series, if any;
8. A statement of its outstanding capital stock and the aggregate number of shares which the corporation has issued,
itemized by classes, par value of shares, shares without par value, and series, if any;
9. A statement of the amount actually paid in; and
10. Such additional information as may be necessary or appropriate in order to enable the Securities and Exchange
Commission to determine whether such corporation is entitled to a license to transact business in the Philippines, and
to determine and assess the fees payable.
Attached to the application for license shall be a duly executed certificate under oath by the authorized official or
officials of the jurisdiction of its incorporation, attesting to the fact that the laws of the country or state of the applicant
allow Filipino citizens and corporations to do business therein, and that the applicant is an existing corporation in good
standing. If such certificate is in a foreign language, a translation thereof in English under oath of the translator shall be
attached thereto.
The application for a license to transact business in the Philippines shall likewise be accompanied by a statement
under oath of the president or any other person authorized by the corporation, showing to the satisfaction of the
Securities and Exchange Commission and other governmental agency in the proper cases that the applicant is solvent
and in sound financial condition, and setting forth the assets and liabilities of the corporation as of the date not
exceeding one (1) year immediately prior to the filing of the application.
Foreign banking, financial and insurance corporations shall, in addition to the above requirements, comply with the
provisions of existing laws applicable to them. In the case of all other foreign corporations, no application for license to
transact business in the Philippines shall be accepted by the Securities and Exchange Commission without previous
authority from the appropriate government agency, whenever required by law. (68a)
Section 126. Issuance of a license. – If the Securities and Exchange Commission is satisfied that the applicant has
complied with all the requirements of this Code and other special laws, rules and regulations, the Commission shall
issue a license to the applicant to transact business in the Philippines for the purpose or purposes specified in such

26

license. Upon issuance of the license, such foreign corporation may commence to transact business in the Philippines
and continue to do so for as long as it retains its authority to act as a corporation under the laws of the country or state
of its incorporation, unless such license is sooner surrendered, revoked, suspended or annulled in accordance with this
Code or other special laws.
Within sixty (60) days after the issuance of the license to transact business in the Philippines, the license, except
foreign banking or insurance corporation, shall deposit with the Securities and Exchange Commission for the benefit of
present and future creditors of the licensee in the Philippines, securities satisfactory to the Securities and Exchange
Commission, consisting of bonds or other evidence of indebtedness of the Government of the Philippines, its political
subdivisions and instrumentalities, or of government-owned or controlled corporations and entities, shares of stock in
“registered enterprises” as this term is defined in Republic Act No. 5186, shares of stock in domestic corporations
registered in the stock exchange, or shares of stock in domestic insurance companies and banks, or any combination
of these kinds of securities, with an actual market value of at least one hundred thousand (P100,000.) pesos; Provided,
however, That within six (6) months after each fiscal year of the licensee, the Securities and Exchange Commission
shall require the licensee to deposit additional securities equivalent in actual market value to two (2%) percent of the
amount by which the licensee’s gross income for that fiscal year exceeds five million (P5,000,000.00) pesos. The
Securities and Exchange Commission shall also require deposit of additional securities if the actual market value of the
securities on deposit has decreased by at least ten (10%) percent of their actual market value at the time they were
deposited. The Securities and Exchange Commission may at its discretion release part of the additional securities
deposited with it if the gross income of the licensee has decreased, or if the actual market value of the total securities
on deposit has increased, by more than ten (10%) percent of the actual market value of the securities at the time they
were deposited. The Securities and Exchange Commission may, from time to time, allow the licensee to substitute
other securities for those already on deposit as long as the licensee is solvent. Such licensee shall be entitled to collect
the interest or dividends on the securities deposited. In the event the licensee ceases to do business in the Philippines,
the securities deposited as aforesaid shall be returned, upon the licensee’s application therefor and upon proof to the
satisfaction of the Securities and Exchange Commission that the licensee has no liability to Philippine residents,
including the Government of the Republic of the Philippines. (n)
Section 127. Who may be a resident agent. – A resident agent may be either an individual residing in the Philippines or
a domestic corporation lawfully transacting business in the Philippines: Provided, That in the case of an individual, he
must be of good moral character and of sound financial standing. (n)
Section 128. Resident agent; service of process. – The Securities and Exchange Commission shall require as a
condition precedent to the issuance of the license to transact business in the Philippines by any foreign corporation that
such corporation file with the Securities and Exchange Commission a written power of attorney designating some
person who must be a resident of the Philippines, on whom any summons and other legal processes may be served in
all actions or other legal proceedings against such corporation, and consenting that service upon such resident agent
shall be admitted and held as valid as if served upon the duly authorized officers of the foreign corporation at its home
office. Any such foreign corporation shall likewise execute and file with the Securities and Exchange Commission an
agreement or stipulation, executed by the proper authorities of said corporation, in form and substance as follows:
“The (name of foreign corporation) does hereby stipulate and agree, in consideration of its being granted by the
Securities and Exchange Commission a license to transact business in the Philippines, that if at any time said
corporation shall cease to transact business in the Philippines, or shall be without any resident agent in the Philippines
on whom any summons or other legal processes may be served, then in any action or proceeding arising out of any
business or transaction which occurred in the Philippines, service of any summons or other legal process may be made
upon the Securities and Exchange Commission and that such service shall have the same force and effect as if made
upon the duly-authorized officers of the corporation at its home office.”
Whenever such service of summons or other process shall be made upon the Securities and Exchange Commission,
the Commission shall, within ten (10) days thereafter, transmit by mail a copy of such summons or other legal process
to the corporation at its home or principal office. The sending of such copy by the Commission shall be necessary part
of and shall complete such service. All expenses incurred by the Commission for such service shall be paid in advance
by the party at whose instance the service is made.
In case of a change of address of the resident agent, it shall be his or its duty to immediately notify in writing the
Securities and Exchange Commission of the new address. (72a; and n)
Section 129. Law applicable. – Any foreign corporation lawfully doing business in the Philippines shall be bound by all
laws, rules and regulations applicable to domestic corporations of the same class, except such only as provide for the
creation, formation, organization or dissolution of corporations or those which fix the relations, liabilities,
responsibilities, or duties of stockholders, members, or officers of corporations to each other or to the corporation. (73a)
Section 130. Amendments to articles of incorporation or by-laws of foreign corporations. – Whenever the articles of
incorporation or by-laws of a foreign corporation authorized to transact business in the Philippines are amended, such
foreign corporation shall, within sixty (60) days after the amendment becomes effective, file with the Securities and
Exchange Commission, and in the proper cases with the appropriate government agency, a duly authenticated copy of
the articles of incorporation or by-laws, as amended, indicating clearly in capital letters or by underscoring the change

27

or changes made, duly certified by the authorized official or officials of the country or state of incorporation. The filing
thereof shall not of itself enlarge or alter the purpose or purposes for which such corporation is authorized to transact
business in the Philippines. (n)
Section 131. Amended license. – A foreign corporation authorized to transact business in the Philippines shall obtain an
amended license in the event it changes its corporate name, or desires to pursue in the Philippines other or additional
purposes, by submitting an application therefor to the Securities and Exchange Commission, favorably endorsed by the
appropriate government agency in the proper cases. (n)
Section 132. Merger or consolidation involving a foreign corporation licensed in the Philippines. – One or more foreign
corporations authorized to transact business in the Philippines may merge or consolidate with any domestic corporation
or corporations if such is permitted under Philippine laws and by the law of its incorporation: Provided, That the
requirements on merger or consolidation as provided in this Code are followed.
Whenever a foreign corporation authorized to transact business in the Philippines shall be a party to a merger or
consolidation in its home country or state as permitted by the law of its incorporation, such foreign corporation shall,
within sixty (60) days after such merger or consolidation becomes effective, file with the Securities and Exchange
Commission, and in proper cases with the appropriate government agency, a copy of the articles of merger or
consolidation duly authenticated by the proper official or officials of the country or state under the laws of which merger
or consolidation was effected: Provided, however, That if the absorbed corporation is the foreign corporation doing
business in the Philippines, the latter shall at the same time file a petition for withdrawal of its license in accordance
with this Title. (n)
Section 133. Doing business without a license. – No foreign corporation transacting business in the Philippines without
a license, or its successors or assigns, shall be permitted to maintain or intervene in any action, suit or proceeding in
any court or administrative agency of the Philippines; but such corporation may be sued or proceeded against before
Philippine courts or administrative tribunals on any valid cause of action recognized under Philippine laws. (69a)
Section 134. Revocation of license. – Without prejudice to other grounds provided by special laws, the license of a
foreign corporation to transact business in the Philippines may be revoked or suspended by the Securities and
Exchange Commission upon any of the following grounds:
1. Failure to file its annual report or pay any fees as required by this Code;
2. Failure to appoint and maintain a resident agent in the Philippines as required by this Title;
3. Failure, after change of its resident agent or of his address, to submit to the Securities and Exchange Commission a
statement of such change as required by this Title;
4. Failure to submit to the Securities and Exchange Commission an authenticated copy of any amendment to its
articles of incorporation or by-laws or of any articles of merger or consolidation within the time prescribed by this Title;
5. A misrepresentation of any material matter in any application, report, affidavit or other document submitted by such
corporation pursuant to this Title;
6. Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due to the Philippine Government
or any of its agencies or political subdivisions;
7. Transacting business in the Philippines outside of the purpose or purposes for which such corporation is authorized
under its license;
8. Transacting business in the Philippines as agent of or acting for and in behalf of any foreign corporation or entity not
duly licensed to do business in the Philippines; or
9. Any other ground as would render it unfit to transact business in the Philippines. (n)
Section 135. Issuance of certificate of revocation. – Upon the revocation of any such license to transact business in the
Philippines, the Securities and Exchange Commission shall issue a corresponding certificate of revocation, furnishing a
copy thereof to the appropriate government agency in the proper cases.
The Securities and Exchange Commission shall also mail to the corporation at its registered office in the Philippines a
notice of such revocation accompanied by a copy of the certificate of revocation. (n)
Section 136. Withdrawal of foreign corporations. – Subject to existing laws and regulations, a foreign corporation
licensed to transact business in the Philippines may be allowed to withdraw from the Philippines by filing a petition for
withdrawal of license. No certificate of withdrawal shall be issued by the Securities and Exchange Commission unless
all the following requirements are met;
1. All claims which have accrued in the Philippines have been paid, compromised or settled;
2. All taxes, imposts, assessments, and penalties, if any, lawfully due to the Philippine Government or any of its
agencies or political subdivisions have been paid; and

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3. The petition for withdrawal of license has been published once a week for three (3) consecutive weeks in a
newspaper of general circulation in the Philippines.
TITLE XVI
MISCELLANEOUS PROVISIONS
Section 137. Outstanding capital stock defined. – The term “outstanding capital stock”, as used in this Code, means the
total shares of stock issued under binding subscription agreements to subscribers or stockholders, whether or not fully
or partially paid, except treasury shares. (n)
Section 138. Designation of governing boards. – The provisions of specific provisions of this Code to the contrary
notwithstanding, non-stock or special corporations may, through their articles of incorporation or their by-laws,
designate their governing boards by any name other than as board of trustees. (n)
Section 139. Incorporation and other fees. – The Securities and Exchange Commission is hereby authorized to collect
and receive fees as authorized by law or by rules and regulations promulgated by the Commission. (n)
Section 140. Stock ownership in certain corporations. – Pursuant to the duties specified by Article XIV of the
Constitution, the National Economic and Development Authority shall, from time to time, make a determination of
whether the corporate vehicle has been used by any corporation or by business or industry to frustrate the provisions
thereof or of applicable laws, and shall submit to the Batasang Pambansa, whenever deemed necessary, a report of its
findings, including recommendations for their prevention or correction.
Maximum limits may be set by the Batasang Pambansa for stockholdings in corporations declared by it to be vested
with a public interest pursuant to the provisions of this section, belonging to individuals or groups of individuals related
to each other by consanguinity or affinity or by close business interests, or whenever it is necessary to achieve national
objectives, prevent illegal monopolies or combinations in restraint or trade, or to implement national economic policies
declared in laws, rules and regulations designed to promote the general welfare and foster economic development.
In recommending to the Batasang Pambansa corporations, businesses or industries to be declared vested with a public
interest and in formulating proposals for limitations on stock ownership, the National Economic and Development
Authority shall consider the type and nature of the industry, the size of the enterprise, the economies of scale, the
geographic location, the extent of Filipino ownership, the labor intensity of the activity, the export potential, as well as
other factors which are germane to the realization and promotion of business and industry.
Section 141. Annual report or corporations. – Every corporation, domestic or foreign, lawfully doing business in the
Philippines shall submit to the Securities and Exchange Commission an annual report of its operations, together with a
financial statement of its assets and liabilities, certified by any independent certified public accountant in appropriate
cases, covering the preceding fiscal year and such other requirements as the Securities and Exchange Commission
may require. Such report shall be submitted within such period as may be prescribed by the Securities and Exchange
Commission. (n)
Section 142. Confidential nature of examination results. – All interrogatories propounded by the Securities and
Exchange Commission and the answers thereto, as well as the results of any examination made by the Commission or
by any other official authorized by law to make an examination of the operations, books and records of any corporation,
shall be kept strictly confidential, except insofar as the law may require the same to be made public or where such
interrogatories, answers or results are necessary to be presented as evidence before any court. (n)
Section 143. Rule-making power of the Securities and Exchange Commission. – The Securities and Exchange
Commission shall have the power and authority to implement the provisions of this Code, and to promulgate rules and
regulations reasonably necessary to enable it to perform its duties hereunder, particularly in the prevention of fraud and
abuses on the part of the controlling stockholders, members, directors, trustees or officers. (n)
Section 144. Violations of the Code. – Violations of any of the provisions of this Code or its amendments not otherwise
specifically penalized therein shall be punished by a fine of not less than one thousand (P1,000.00) pesos but not more
than ten thousand (P10,000.00) pesos or by imprisonment for not less than thirty (30) days but not more than five (5)
years, or both, in the discretion of the court. If the violation is committed by a corporation, the same may, after notice
and hearing, be dissolved in appropriate proceedings before the Securities and Exchange Commission: Provided, That
such dissolution shall not preclude the institution of appropriate action against the director, trustee or officer of the
corporation responsible for said violation: Provided, further, That nothing in this section shall be construed to repeal the
other causes for dissolution of a corporation provided in this Code. (190 1/2 a)
Section 145. Amendment or repeal. – No right or remedy in favor of or against any corporation, its stockholders,
members, directors, trustees, or officers, nor any liability incurred by any such corporation, stockholders, members,
directors, trustees, or officers, shall be removed or impaired either by the subsequent dissolution of said corporation or
by any subsequent amendment or repeal of this Code or of any part thereof. (n)
Section 146. Repealing clause. – Except as expressly provided by this Code, all laws or parts thereof inconsistent with
any provision of this Code shall be deemed repealed. (n)

29

Section 147. Separability of provisions. – Should any provision of this Code or any part thereof be declared invalid or
unconstitutional, the other provisions, so far as they are separable, shall remain in force. (n)
Section 148. Applicability to existing corporations. – All corporations lawfully existing and doing business in the
Philippines on the date of the effectivity of this Code and heretofore authorized, licensed or registered by the Securities
and Exchange Commission, shall be deemed to have been authorized, licensed or registered under the provisions of
this Code, subject to the terms and conditions of its license, and shall be governed by the provisions hereof: Provided,
That if any such corporation is affected by the new requirements of this Code, said corporation shall, unless otherwise
herein provided, be given a period of not more than two (2) years from the effectivity of this Code within which to
comply with the same. (n)
Section 149. Effectivity. – This Code shall take effect immediately upon its approval.
Approved, May 1, 1980
REPUBLIC ACT NO. 8799
SECURITIES REGULATION CODE

CHAPTER
Title and Definitions

I

SECTION 1. Title. – This shall be known as “The Securities Regulation Code”.

SEC. 2. Declaration of State Policy. – The State shall establish a socially conscious, free market that regulates itself,
encourage the widest participation of ownership in enterprises, enhance the democratization of wealth, promote the
development of the capital market, protect investors, ensure full and fair disclosure about securities, minimize if not
totally eliminate insider trading and other fraudulent or manipulative devices and practices which create distortions in
the free market.

To achieve these ends, this Securities Regulation Code is hereby enacted.

SEC. 3. Definition of Terms. –

3.1. “Securities” are shares, participation or interests in a corporation or in a commercial enterprise or profit-making
venture and evidenced by a certificate, contract, instrument, whether written or electronic in character. It includes:
(a) Shares of stock, bonds, debentures, notes, evidences of indebtedness, asset-backed securities;
(b) Investment contracts, certificates of interest or participation in a profit sharing agreement, certificates of deposit for
a future subscription;
(c) Fractional undivided interests in oil, gas or other mineral rights;
(d) Derivatives like option and warrants;
(e) Certificates of assignments, certificates of participation, trust certificates, voting trust certificates or similar
instruments;
(f) Proprietary or non proprietary membership certificates incorporations; and
(g) Other instruments as may in the future be determined by the Commission.
3.2 “Issuer” is the originator, maker, obligor, or creator of the security.

30

3.3 “Broker” is a person engaged in the business of buying and selling securities for the account of others. chan robles
virtual law library

3.4 “Dealer” means any person who buys and sells securities for his/her own account in the ordinary course of
business.

3.5. “Associated person of a broker or dealer” is an employee thereof who, directly exercises control of supervisory
authority, but does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial.

3.6. “Clearing Agency” is any person who acts as intermediary in making deliveries upon payment to effect settlement
in securities transactions.

3.7. “Exchange” is an organized marketplace or facility that brings together buyers and sellers and executes trades of
securities and/or commodities.

3.8. “Insider” means: (a) the issuer; (b) a director or officer (or person performing similar functions) of, or a person
controlling the issuer; (c) a person whose relationship or former relationship to the issuer gives or gave him access to
material information about the issuer or the security that is not generally available to the public; (d) a government
employee, or director, or officer of an exchange, clearing agency and/or self-regulatory organization who has access to
material information about an issuer or a security that is not generally available to the public; or (e) a person who learns
such information by a communication from any of the foregoing insiders.

3.9. “Pre-Need Plans” are contracts which provide for the performance of future services or the payment of future
monetary considerations at the time of actual need, for which planholders pay in cash or installment at stated prices,
with or without interest or insurance coverage and includes life, pension, education, interment, and other plans which
the Commission may from time to time approve.

3.10. “Promoter” is a person who, acting alone or with others, takes initiative in founding and organizing the business or
enterprise of the issuer and receives consideration therefor.

3.11. “Prospectus” is the document made by or on behalf of an issuer, underwriter or dealer to sell or offer securities for
sale to the public through a registration statement filed with the Commission.

3.12. “Registration statement” is the application for the registration of securities required to be filed with the
Commission.

3.13. “Salesman” is a natural person, employed as such or as an agent, by a dealer, issuer or broker to buy and sell
securities.

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3.14. “Uncertificated security” is a security evidenced by electronic or similar records.

3.15. “Underwriter” is a person who guarantees on a firm commitment and/or declared best effort basis the distribution
and sale of securities of any kind by another company.

CHAPTER
Securities and Exchange Commission
SEC.

II

4. Administrative

Agency.

-

4.1. This Code shall be administered by the Securities and Exchange Commission (hereafter the “Commission”) as a
collegial body, composed of a Chairperson and four (4) Commissioners, appointed by the President for a term of seven
(7) years each and who shall serve as such until their successor shall have been appointed and qualified. A
Commissioner appointed to fill a vacancy occurring prior to the expiration of the term for which his/her predecessor was
appointed, shall serve only for the unexpired portion of such term. The incumbent Chairperson and Commissioners at
the effectivity of this Code, shall serve the unexpired portion of their terms under Presidential Decree No. 902-A.
Unless the context indicates otherwise, the term “Commissioner” includes the Chairperson. chan robles virtual law
library

4.2. The Commissioners must be natural-born citizens of the Philippines, at least forty (40)
Chairperson and at least thirty-five (35) years of age for the Commissioners, of good
unquestionable integrity, of known probity and patriotism, and with recognized competence in
disciplines: Provided, That the majority of Commissioners, including the Chairperson, shall
Philippine Bar.

years of age for the
moral character, of
social and economic
be members of the

4.3. The Chairperson is the chief executive officer of the Commission. The Chairperson shall execute and administer
the policies, decisions, orders and resolutions approved by the Commission and shall have the general executive
direction and supervision of the work and operation of the Commission and of its members, bodies, boards, offices,
personnel and all its administrative business.

4.4. The salary of the Chairperson and the Commissioners shall be fixed by the President of the Philippines based on
an objective classification system, at a sum comparable to the members of the Monetary Board and commensurate to
the importance and responsibilities attached to the position.

4.5. The Commission shall hold meetings at least once a week for the conduct of business or as often as may be
necessary upon call of the Chairperson or upon the request of three (3) Commissioners. The notice of the meeting shall
be given to all Commissioners and the presence of three (3) Commissioners shall constitute a quorum. In the absence
of the Chairperson, the most senior Commissioner shall act as presiding officer of the meeting.

4.6. The Commission may, for purposes of efficiency, delegate any of its functions to any department or office of the
Commission, an individual Commissioner or staff member of the Commission except its review or appellate authority
and its power to adopt, alter and supplement any rule or regulation.

The Commission may review upon its own initiative or upon the petition of any interested party any action of any
department or office, individual Commissioner, or staff member of the Commission.

32

SEC. 5. Powers and Functions of the Commission.- 5.1. The Commission shall act with transparency and shall have
the powers and functions provided by this Code, Presidential Decree No. 902-A, the Corporation Code, the Investment
Houses Law, the Financing Company Act and other existing laws. Pursuant thereto the Commission shall have, among
others, the following powers and functions:

(a) Have jurisdiction and supervision over all corporations, partnerships or associations who are the grantees of
primary franchises and/or a license or permit issued by the Government; chan robles virtual law library
(b) Formulate policies and recommendations on issues concerning the securities market, advise Congress and other
government agencies on all aspects of the securities market and propose legislation and amendments thereto;
(c) Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing
applications;
(d) Regulate, investigate or supervise the activities of persons to ensure compliance;
(e) Supervise, monitor, suspend or take over the activities of exchanges, clearing agencies and other SROs;
(f) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;
(g) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and
supervise compliance with such rules, regulations and orders;
(h) Enlist the aid and support of and/or deputize any and all enforcement agencies of the Government, civil or military
as well as any private institution, corporation, firm, association or person in the implementation of its powers and
functions under this Code;
(i) Issue cease and desist orders to prevent fraud or injury to the investing public;
(j) Punish for contempt of the Commission, both direct and indirect, in accordance with the pertinent provisions of and
penalties prescribed by the Rules of Court;
(k) Compel the officers of any registered corporation or association to call meetings of stockholders or members thereof
under its supervision;
(l) Issue subpoena duces tecum and summon witnesses to appear in any proceedings of the Commission and in
appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns,
and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the
cases before it, subject to the provisions of existing laws;
(m) Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration of corporations,
partnerships or associations, upon any of the grounds provided by law; and
(n) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are
necessary or incidental to the carrying out of, the express powers granted the Commission to achieve the objectives
and purposes of these laws.
5.2. The Commission’s jurisdiction over all cases enumerated under Section 5 of Presidential Decree No. 902-A is
hereby transferred to the Courts of general jurisdiction or the appropriate Regional Trial Court: Provided, that the
Supreme Court in the exercise of its authority may designate the Regional Trial Court branches that shall exercise
jurisdiction over these cases. The Commission shall retain jurisdiction over pending cases involving intra-corporate
disputes submitted for final resolution which should be resolved within one (1) year from the enactment of this Code.
The Commission shall retain jurisdiction over pending suspension of payments/rehabilitation cases filed as of 30 June
2000 until finally disposed. chan robles virtual law library

33

SEC. 6. Indemnification and Responsibilities of Commissioners.- 6.1. The Commission shall indemnify each
Commissioner and other officials of the Commission, including personnel performing supervision and examination
functions for all costs and expenses reasonably incurred by such persons in connection with any civil or criminal
actions, suits or proceedings to which they may be or made a party by reason of the performance of their functions or
duties, unless they are finally adjudged in such actions or proceedings to be liable for gross negligence or misconduct.

In the event of settlement or compromise, indemnification shall be provided only in connection with such matters
covered by the settlement as to which the Commission is advised by external counsel that the persons to be
indemnified did not commit any gross negligence or misconduct.

The costs and expenses incurred in defending the aforementioned action, suit or proceeding may be paid by the
Commission in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or
on behalf of the Commissioner, officer or employee to repay the amount advanced should it ultimately be determined
by the Commission that he/she is not entitled to be indemnified as provided in this subsection.

6.2. The Commissioners, officers and employees of the Commission who willfully violate this Code or who are guilty of
negligence, abuse or acts of malfeasance or fail to exercise extraordinary diligence in the performance of their duties
shall be held liable for any loss or injury suffered by the Commission or other institutions as a result of such violation,
negligence, abuse, malfeasance, or failure to exercise extraordinary diligence. Similar responsibility shall apply to the
Commissioners, officers and employees of the Commission for (1) the disclosure of any information, discussion or
resolution of the Commission of a confidential nature, or about the confidential operations of the Commission, unless
the disclosure is in connection with the performance of official functions with the Commission or with prior authorization
of the Commissioners; or (2) the use of such information for personal gain or to the detriment of the government, the
Commission or third parties: Provided,however, That any data or information required to be submitted to the President
and/or Congress or its appropriate committee, or to be published under the provisions of this Code shall not be
considered confidential.

SEC. 7. Reorganization.- 7.1. To achieve the goals of this Code, consistent with Civil Service laws, the Commission is
hereby authorized to provide for its reorganization, to streamline its structure and operations, upgrade its human
resource component and enable it to more efficiently and effectively perform its functions and exercise its powers under
this Code.

7.2. All positions of the Commission shall be governed by a compensation and position classification systems and
qualification standards approved by the Commission based on a comprehensive job analysis and audit of actual duties
and responsibilities. The compensation plan shall be comparable with the prevailing compensation plan in the Bangko
Sentral ng Pilipinas and other government financial institutions and shall be subject to periodic review by the
Commission no more than once every two (2) years without prejudice to yearly merit reviews or increases based on
productivity and efficiency. The Commission shall, therefore, be exempt from laws, rules, and regulations on
compensation, position classification and qualification standards. The Commission shall, however, endeavor to make
its system conform as closely as possible with the principles under the Compensation and Position Classification Act of
1989 (Republic Act No. 6758, as amended).
CHAPTER
Registration of Securities

III

SEC. 8. Requirement of Registration of Securities. – 8.1. Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed with and approved by the Commission. Prior to such
sale, information on the securities, in such form and with such substance as the Commission may prescribe, shall be
made available to each prospective purchaser.

34

8.2. The Commission may conditionally approve the registration statement under such terms as it may deem
necessary.

8.3. The Commission may specify the terms and conditions under which any written communication, including any
summary prospectus, shall be deemed not to constitute an offer for sale under this Section.

8.4. A record of the registration of securities shall be kept in a Register of Securities in which shall be recorded orders
entered by the Commission with respect to such securities. Such register and all documents or information with respect
to the securities registered therein shall be open to public inspection at reasonable hours on business days. chan
robles virtual law library

8.5. The Commission may audit the financial statements, assets and other information of a firm applying for registration
of its securities whenever it deems the same necessary to insure full disclosure or to protect the interest of the
investors and the public in general.

SEC. 9. Exempt Securities. 9.1. The requirement of registration under Subsection 8.1 shall not as a general rule apply to any of the following
classes of securities:

(a) Any security issued or guaranteed by the Government of the Philippines, or by any political subdivision or agency
thereof, or by any person controlled or supervised by, and acting as an instrumentality of said Government.
(b) Any security issued or guaranteed by the government of any country with which the Philippines maintains diplomatic
relations, or by any state, province or political subdivision thereof on the basis of reciprocity: Provided, That the
Commission may require compliance with the form and content of disclosures the Commission may prescribe.
(c) Certificates issued by a receiver or by a trustee in bankruptcy duly approved by the proper adjudicatory body.
(d) Any security or its derivatives the sale or transfer of which, by law, is under the supervision and regulation of the
Office of the Insurance Commission, Housing and Land Use Regulatory Board, or the Bureau of Internal Revenue.
(e) Any security issued by a bank except its own shares of stock.
9.2. The Commission may, by rule or regulation after public hearing, add to the foregoing any class of securities if it
finds that the enforcement of this Code with respect to such securities is not necessary in the public interest and for the
protection of investors.

SEC. 10. Exempt Transactions. - 10.1. The requirement of registration under Subsection 8.1. shall not apply to the sale
of any security in any of the following transactions:

(a) At any judicial sale, or sale by an executor, administrator, guardian or receiver or trustee in insolvency or
bankruptcy.
(b) By or for the account of a pledge holder, or mortgagee or any other similar lien holder selling or offering for sale or
delivery in the ordinary course of business and not for the purpose of avoiding the provisions of this Code, to liquidate
a bona fide debt, a security pledged in good faith as security for such debt.

35

(c) An isolated transaction in which any security is sold, offered for sale, subscription or delivery by the owner thereof,
or by his representative for the owner’s account, such sale or offer for sale, subscription or delivery not being made in
the course of repeated and successive transactions of a like character by such owner, or on his account by such
representative and such owner or representative not being the underwriter of such security.
(d) The distribution by a corporation, actively engaged in the business authorized by its articles of incorporation, of
securities to its stockholders or other security holders as a stock dividend or other distribution out of surplus.
(e) The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other
remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.
(f) The issuance of bonds or notes secured by mortgage upon real estate or tangible personal property, where the
entire mortgage together with all the bonds or notes secured thereby are sold to a single purchaser at a single sale.
(g) The issue and delivery of any security in exchange for any other security of the same issuer pursuant to a right of
conversion entitling the holder of the security surrendered in exchange to make such conversion: Provided, That the
security so surrendered has been registered under this Code or was, when sold, exempt from the provisions of this
Code, and that the security issued and delivered in exchange, if sold at the conversion price, would at the time of such
conversion fall within the class of securities entitled to registration under this Code. Upon such conversion the par
value of the security surrendered in such exchange shall be deemed the price at which the securities issued and
delivered in such exchange are sold.
(h) Broker’s transactions, executed upon customer’s orders, on any registered Exchange or other trading market.
(i) Subscriptions for shares of the capital stock of a corporation prior to the incorporation thereof or in pursuance of an
increase in its authorized capital stock under the Corporation Code, when no expense is incurred, or no commission,
compensation or remuneration is paid or given in connection with the sale or disposition of such securities, and only
when the purpose for soliciting, giving or taking of such subscriptions is to comply with the requirements of such law as
to the percentage of the capital stock of a corporation which should be subscribed before it can be registered and duly
incorporated, or its authorized capital increased.
(j) The exchange of securities by the issuer with its existing security holders exclusively, where no commission or other
remuneration is paid or given directly or indirectly for soliciting such exchange.
(k) The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month
period.
(l) The sale of securities to any number of the following qualified buyers:
(i) Bank; chan robles virtual law library
(ii) Registered investment house;
(iii) Insurance company;
(iv) Pension fund or retirement plan maintained by the Government of the Philippines or any political subdivision thereof
or managed by a bank or other persons authorized by the Bangko Sentral to engage in trust functions;
(v) Investment company; or
(vi) Such other person as the Commission may by rule determine as qualified buyers, on the basis of such factors as
financial sophistication, net worth, knowledge, and experience in financial and business matters, or amount of assets
under management.
10.2. The Commission may exempt other transactions, if it finds that the requirements of registration under this Code is

36

not necessary in the public interest or for the protection of the investors such as by reason of the small amount involved
or the limited character of the public offering.

10.3. Any person applying for an exemption under this Section, shall file with the Commission a notice identifying the
exemption relied upon on such form and at such time as the Commission by rule may prescribe and with such notice
shall pay to the Commission a fee equivalent to one-tenth (1/10) of one percent (1%) of the maximum aggregate price
or issued value of the securities.

SEC. 11. Commodity Futures Contracts.- No person shall offer, sell or enter into commodity futures contracts except in
accordance with rules, regulations and orders the Commission may prescribe in the public interest. The Commission
shall promulgate rules and regulations involving commodity futures contracts to protect investors to ensure the
development of a fair and transparent commodities market.

SEC. 12. Procedure for Registration of Securities. 12.1. All securities required to be registered under Subsection 8.1 shall be registered through the filing by the issuer in
the main office of the Commission, of a sworn registration statement with respect to such securities, in such form and
containing such information and documents as the Commission shall prescribe. The registration statement shall include
any prospectus required or permitted to be delivered under Subsections 8.2, 8.3 and 8.4.

12.2. In promulgating rules governing the content of any registration statement (including any prospectus made a part
thereof or annexed thereto), the Commission may require the registration statement to contain such information or
documents as it may, by rule, prescribe. It may dispense with any such requirement, or may require additional
information or documents, including written information from an expert, depending on the necessity thereof or their
applicability to the class of securities sought to be registered.chan robles virtual law library

12.3. The information required for the registration of any kind, and all securities, shall include, among others, the effect
of the securities issue on ownership, on the mix of ownership, especially foreign and local ownership.

12.4. The registration statement shall be signed by the issuer’s executive officer, its principal operating officer, its
principal financial officer, its comptroller, principal accounting officer, its corporate secretary or persons performing
similar functions accompanied by a duly verified resolution of the board of directors of the issuer corporation. The
written consent of the expert named as having certified any part of the registration statement or any document used in
connection therewith shall also be filed. Where the registration statement includes shares to be sold by selling
shareholders, a written certification by such selling shareholders as to the accuracy of any part of the registration
statement contributed to by such selling shareholders shall also be filed.

12.5. (a) Upon filing of the registration statement, the issuer shall pay to the Commission a fee of not more than onetenth (1/10) of one per centum (1%) of the maximum aggregate price at which such securities are proposed to be
offered. The Commission shall prescribe by rule diminishing fees in inverse proportion to the value of the aggregate
price of the offering.

(b) Notice of the filing of the registration statement shall be immediately published by the issuer, at its own expense, in
two (2) newspapers of general circulation in the Philippines, once a week for two (2) consecutive weeks, or in such
other manner as the Commission by rule shall prescribe, reciting that a registration statement for the sale of such
security has been filed, and that the aforesaid registration statement, as well as the papers attached thereto are open

37

to inspection at the Commission during business hours, and copies thereof, photostatic or otherwise, shall be furnished
to interested parties at such reasonable charge as the Commission may prescribe.

12.6. Within forty-five (45) days after the date of filing of the registration statement, or by such later date to which the
issuer has consented, the Commission shall declare the registration statement effective or rejected, unless the
applicant is allowed to amend the registration statement as provided in Section 14 hereof. The Commission shall enter
an order declaring the registration statement to be effective if it finds that the registration statement together with all the
other papers and documents attached thereto, is on its face complete and that the requirements have been complied
with. The Commission may impose such terms and conditions as may be necessary or appropriate for the protection of
the investors.

12.7. Upon effectivity of the registration statement, the issuer shall state under oath in every prospectus that all
registration requirements have been met and that all information are true and correct as represented by the issuer or
the one making the statement. Any untrue statement of fact or omission to state a material fact required to be stated
therein or necessary to make the statement therein not misleading shall constitute fraud.

SEC. 13. Rejection and Revocation of Registration of Securities. - 13.1. The Commission may reject a registration
statement and refuse registration of the security thereunder, or revoke the effectivity of a registration statement and the
registration of the security thereunder after due notice and hearing by issuing an order to such effect, setting forth its
findings in respect thereto, if it finds that:

(a) The issuer:
(i) Has been judicially declared insolvent;
(ii) Has violated any of the provisions of this Code, the rules promulgated pursuant thereto, or any order of the
Commission of which the issuer has notice in connection with the offering for which a registration statement has been
filed;
(iii) Has been or is engaged or is about to engage in fraudulent transactions;
(iv) Has made any false or misleading representation of material facts in any prospectus concerning the issuer or its
securities;
(v) Has failed to comply with any requirement that the Commission may impose as a condition for registration of the
security for which the registration statement has been filed; or
(b) The registration statement is on its face incomplete or inaccurate in any material respect or includes any untrue
statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the
statements therein not misleading; or
(c) The issuer, any officer, director or controlling person of the issuer, or person performing similar functions, or any
underwriter has been convicted, by a competent judicial or administrative body, upon plea of guilty, or otherwise, of an
offense involving moral turpitude and/or fraud or is enjoined or restrained by the Commission or other competent
judicial or administrative body for violations of securities, commodities, and other related laws.chan robles virtual law
library
For purposes of this subsection, the term “competent judicial or administrative body” shall include a foreign court of
competent jurisdiction as provided for under the Rules of Court.
13.2. The Commission may compel the production of all the books and papers of such issuer, and may administer
oaths to, and examine the officers of such issuer or any other person connected therewith as to its business and affairs.

38

13.3. If any issuer shall refuse to permit an examination to be made by the Commission, its refusal shall be ground for
the refusal or revocation of the registration of its securities.

13.4. If the Commission deems it necessary, it may issue an order suspending the offer and sale of the securities
pending any investigation. The order shall state the grounds for taking such action, but such order of suspension
although binding upon the persons notified thereof, shall be deemed confidential, and shall not be published. Upon the
issuance of the suspension order, no further offer or sale of such security shall be made until the same is lifted or set
aside by the Commission. Otherwise, such sale shall be void.

13.5. Notice of issuance of such order shall be given to the issuer and every dealer and broker who shall have notified
the Commission of an intention to sell such security.

13.6. A registration statement may be withdrawn by the issuer only with the consent of the Commission.

SEC. 14. Amendments to the Registration Statement. - 14.1. If a registration statement is on its face incomplete or
inaccurate in any material respect, the Commission shall issue an order directing the amendment of the registration
statement. Upon compliance with such order, the amended registration statement shall become effective in accordance
with the procedure mentioned in Subsection 12.6 hereof.

14.2. An amendment filed prior to the effective date of the registration statement shall recommence the forty-five (45)
day period within which the Commission shall act on a registration statement. An amendment filed after the effective
date of the registration statement shall become effective only upon such date as determined by the Commission.

14.3. If any change occurs in the facts set forth in a registration statement, the issuer shall file an amendment thereto
setting forth the change.

14.4. If, at any time, the Commission finds that a registration statement contains any false statement or omits to state
any fact required to be stated therein or necessary to make the statements therein not misleading, the Commission
may conduct an examination, and, after due notice and hearing, issue an Order suspending the effectivity of the
registration statement. If the statement is duly amended, the suspension order may be lifted.

14.5. In making such examination the Commission or any officer or officers designated by it may administer oaths and
affirmations and shall have access to, and may demand the production of, any books, records or documents relevant to
the examination. Failure of the issuer, underwriter, or any other person to cooperate, or his obstruction or refusal to
undergo an examination, shall be a ground for the issuance of a suspension order.

SEC. 15. Suspension of Registration. - 15.1. If, at any time, the information contained in the registration statement filed
is or has become misleading, incorrect, inadequate or incomplete in any material respect, or the sale or offering for sale
of the security registered thereunder may work or tend to work a fraud, the Commission may require from the issuer
such further information as may in its judgment be necessary to enable the Commission to ascertain whether the
registration of such security should be revoked on any ground specified in this Code. The Commission may also
suspend the right to sell and offer for sale such security pending further investigation, by entering an order specifying
the grounds for such action, and by notifying the issuer, underwriter, dealer or broker known as participating in such
offering.

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15.2. The refusal to furnish information required by the Commission may be a ground for the issuance of an order of
suspension pursuant to Subsection 15.1. Upon the issuance of any such order and notification to the issuer,
underwriter, dealer or broker known as participating in such offering, no further offer or sale of any such security shall
be made until the same is lifted or set aside by the Commission. Otherwise, such sale shall be void.

15.3. Upon issuance of an order of suspension, the Commission shall conduct a hearing. If the Commission determines
that the sale of any security should be revoked, it shall issue an order prohibiting sale of such security.
Until the issuance of a final order, the suspension of the right to sell, though binding upon the persons notified thereof,
shall be deemed confidential, and shall not be published, unless it shall appear that the order of suspension has been
violated after notice. If, however, the Commission finds that the sale of the security will neither be fraudulent nor result
in fraud, it shall forthwith issue an order revoking the order of suspension, and such security shall be restored to its
status as a registered security as of the date of such order of suspension.chan robles virtual law library

CHAPTER
Regulation of Pre-Need Plans

IV

SEC.16. Pre-Need Plans. - No person shall sell or offer for sale to the public any pre-need plan except in accordance
with rules and regulations which the Commission shall prescribe. Such rules shall regulate the sale of pre-need plans
by, among other things, requiring the registration of pre-need plans, licensing persons involved in the sale of pre-need
plans, requiring disclosures to prospective plan holders, prescribing advertising guidelines, providing for uniform
accounting system, reports and record keeping with respect to such plans, imposing capital, bonding and other
financial responsibility, and establishing trust funds for the payment of benefits under such plans.

CHAPTER
Reportorial Requirements

V

SEC. 17. Periodic and Other Reports of Issuers. -17.1. Every issuer satisfying the requirements in Subsection 17.2
hereof shall file with the Commission:

(a) Within one hundred thirty-five (135) days, after the end of the issuer’s fiscal year, or such other time as the
Commission may prescribe, an annual report which shall include, among others, a balance sheet, profit and loss
statement and statement of cash flows, for such last fiscal year, certified by an independent certified public accountant,
and a management discussion and analysis of results of operations; and

(b) Such other periodical reports for interim fiscal periods and current reports on significant developments of the issuer
as the Commission may prescribe as necessary to keep current information on the operation of the business and
financial condition of the issuer.

17.2.The reportorial requirements of Subsection 17.1 shall apply to the following:

(a) An issuer which has sold a class of its securities pursuant to a registration under Section 12 hereof: Provided,
however, That the obligation of such issuer to file reports shall be suspended for any fiscal year after the year such
registration became effective if such issuer, as of the first day of any such fiscal year, has less than one hundred (100)
holders of such class of securities or such other number as the Commission shall prescribe and it notifies the
Commission of such;

40

(b) An issuer with a class of securities listed for trading on an Exchange; and

(c) An issuer with assets of at least Fifty million pesos (P50,000,000.00) or such other amount as the Commission shall
prescribe, and having Two hundred (200) or more holders each holding at least One hundred (100) shares of a class of
its equity securities: Provided, however, That the obligation of such issuer to file reports shall be terminated ninety (90)
days after notification to the Commission by the issuer that the number of its holders holding at least one hundred (100)
shares is reduced to less than One hundred (100).chan robles virtual law library

17.3. Every issuer of a security listed for trading on an Exchange shall file with the Exchange a copy of any report filed
with the Commission under Subsection 17.1 hereof.

17.4. All reports (including financial statements) required to be filed with the Commission pursuant to Subsection 17.1
hereof shall be in such form, contain such information and be filed at such times as the Commission shall prescribe,
and shall be in lieu of any periodical or current reports or financial statements otherwise required to be filed under
the Corporation Code.

17.5. Every issuer which has a class of equity securities satisfying any of the requirements in Subsection 17.2 shall
furnish to each holder of such equity security an annual report in such form and containing such information as the
Commission shall prescribe.

17.6. Within such period as the Commission may prescribe preceding the annual meeting of the holders of any equity
security of a class entitled to vote at such meeting, the issuer shall transmit to such holders an annual report in
conformity with Subsection 17.5.

SEC. 18. Reports by Five per centum (5%) Holders of Equity Securities. - 18.1. In every case in which an issuer
satisfies the requirements of Subsection 17.2 hereof, any person who acquires directly or indirectly the beneficial
ownership of more than five per centum (5%) of such class or in excess of such lesser per centum as the Commission
by rule may prescribe, shall, within ten (10) days after such acquisition or such reasonable time as fixed by the
Commission, submit to the issuer of the security, to the Exchange where the security is traded, and to the Commission
a sworn statement containing the following information and such other information as the Commission may require in
the public interest or for the protection of investors:

(a) The personal background, identity, residence, and citizenship of, and the nature of such beneficial ownership by,
such person and all other persons by whom or on whose behalf the purchases are effected; in the event the beneficial
owner is a juridical person, the lines of business of the beneficial owner shall also be reported;

(b) If the purpose of the purchases or prospective purchases is to acquire control of the business of the issuer of the
securities, any plans or proposals which such persons may have that will effect a major change in its business or
corporate structure;

(c) The number of shares of such security which are beneficially owned, and the number of shares concerning which
there is a right to acquire, directly or indirectly, by: (i) such person, and (ii) each associate of such person, giving the
background, identity, residence, and citizenship of each such associate; and

(d) Information as to any contracts, arrangements, or understanding with any person with respect to any securities of
the issuer including but not limited to transfer, joint ventures, loan or option arrangements, puts or calls, guarantees or

41

division of losses or profits, or proxies naming the persons with whom such contracts, arrangements, or understanding
have been entered into, and giving the details thereof.

18.2. If any change occurs in the facts set forth in the statements, an amendment shall be transmitted to the issuer, the
Exchange and the Commission.

18.3. The Commission, may permit any person to file in lieu of the statement required by Subsection 17.1 hereof, a
notice stating the name of such person, the shares of any equity securities subject to Subsection 17.1 which are owned
by him, the date of their acquisition and such other information as the Commission may specify, if it appears to the
Commission that such securities were acquired by such person in the ordinary course of his business and were not
acquired for the purpose of and do not have the effect of changing or influencing the control of the issuer nor in
connection with any transaction having such purpose or effect.
CHAPTER
Protection of Shareholder Interests

VI

SEC. 19. Tender Offers. –19.1. (a) Any person or group of persons acting in concert who intends to acquire at least
fifteen per cent (15%) of any class of any equity security of a listed corporation or of any class of any equity security of
a corporation with assets of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more
stockholders with at least one hundred (100) shares each or who intends to acquire at least thirty per cent (30%) of
such equity over a period of twelve (12) months shall make a tender offer to stockholders by filing with the Commission
a declaration to that effect; and furnish the issuer, a statement containing such of the information required in Section 17
of this Code as the Commission may prescribe. Such person or group of persons shall publish all requests or
invitations for tender, or materials making a tender offer or requesting or inviting letters of such a security. Copies of
any additional material soliciting or requesting such tender offers subsequent to the initial solicitation or request shall
contain such information as the Commission may prescribe, and shall be filed with the Commission and sent to the
issuer not later than the time copies of such materials are first published or sent or given to security holders.

(b) Any solicitation or recommendation to the holders of such a security to accept or reject a tender offer or request or
invitation for tenders shall be made in accordance with such rules and regulations as the Commission may prescribe.

(c) Securities deposited pursuant to a tender offer or request or invitation for tenders may be withdrawn by or on behalf
of the depositor at any time throughout the period that the tender offer remains open and if the securities deposited
have not been previously accepted for payment, and at any time after sixty (60) days from the date of the original
tender offer or request or invitation, except as the Commission may otherwise prescribe.chan robles virtual law library

(d) Where the securities offered exceed that which a person or group of persons is bound or willing to take up and pay
for, the securities that are subject of the tender offer shall be taken up as nearly as may be pro rata, disregarding
fractions, according to the number of securities deposited by each depositor. The provisions of this subsection shall
also apply to securities deposited within ten (10) days after notice of an increase in the consideration offered to security
holders, as described in paragraph (e) of this subsection, is first published or sent or given to security holders.

(e) Where any person varies the terms of a tender offer or request or invitation for tenders before the expiration thereof
by increasing the consideration offered to holders of such securities, such person shall pay the increased consideration
to each security holder whose securities are taken up and paid for whether or not such securities have been taken up
by such person before the variation of the tender offer or request or invitation.

19.2. It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not
misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender

42

offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such
offer, request, or invitation. The Commission shall, for the purposes of this subsection, define and prescribe means
reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative.

SEC. 20. Proxy Solicitations. – 20.1. Proxies must be issued and proxy solicitation must be made in accordance with
rules and regulations to be issued by the Commission;

20.2. Proxies must be in writing, signed by the stockholder or his duly authorized representative and filed before the
scheduled meeting with the corporate secretary.

20.3. Unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy
shall be valid and effective for a period longer than five (5) years at one time.

20.4. No broker or dealer shall give any proxy, consent or authorization, in respect of any security carried for the
account of a customer, to a person other than the customer, without the express written authorization of such customer.

20.5. A broker or dealer who holds or acquires the proxy for at least ten per centum (10%) or such percentage as the
Commission may prescribe of the outstanding share of the issuer, shall submit a report identifying the beneficial owner
within ten (10) days after such acquisition, for its own account or customer, to the issuer of the security, to the
Exchange where the security is traded and to the Commission.

SEC. 21. Fees for Tender Offers and Certain Proxy Solicitations. - At the time of filing with the Commission of any
statement required under Section 19 for any tender offer or Section 72.2 for issuer repurchases, or Section 20 for proxy
or consent solicitation, the Commission may require that the person making such filing pay a fee of not more than onetenth (1/10) of one percentum (1%) of:

21.1. The proposed aggregate purchase price in the case of a transaction under Sections 20 or 72.2; orchan robles
virtual law library

21.2. The proposed payment in cash, and the value of any securities or property to be transferred in the acquisition,
merger or consolidation, or the cash and value of any securities proposed to be received upon the sale or disposition of
such assets in the case of a solicitation under Section 20. The Commission shall prescribe by rule diminishing fees in
inverse proportion to the value of the aggregate price of the offering.

SEC. 22. Internal Record Keeping and Accounting Controls. - Every issuer which has a class of securities that satisfies
the requirements of Subsection 17.2 shall:

22.1. Make and keep books, records, and accounts which, in reasonable detail accurately and fairly reflect the
transactions and dispositions of assets of the issuer;

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22.2. Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that: (a)
Transactions and access to assets are pursuant to management authorization; (b) Financial statements are prepared in
conformity with generally accepted accounting principles that are adopted by the Accounting Standards Council and the
rules promulgated by the Commission with regard to the preparation of financial statements; and (c) Recorded assets
are compared with existing assets at reasonable intervals and differences are reconciled.

SEC. 23. Transactions of Directors, Officers and Principal Stockholders. - 23.1. Every person who is directly or
indirectly the beneficial owner of more than ten per centum (10%) of any class of any equity security which satisfies the
requirements of Subsection 17.2, or who is a director or an officer of the issuer of such security, shall file, at the time
either such requirement is first satisfied or within ten days after he becomes such a beneficial owner, director, or officer,
a statement with the Commission and, if such security is listed for trading on an Exchange, also with the Exchange, of
the amount of all equity securities of such issuer of which he is the beneficial owner, and within ten (10) days after the
close of each calendar month thereafter, if there has been a change in such ownership during such month, shall file
with the Commission, and if such security is listed for trading on an Exchange, shall also file with the Exchange, a
statement indicating his ownership at the close of the calendar month and such changes in his ownership as have
occurred during such calendar month.

23.2. For the purpose of preventing the unfair use of information which may have been obtained by such beneficial
owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and
sale, or any sale and purchase, of any equity security of such issuer within any period of less than six (6) months,
unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be
recoverable by the issuer, irrespective of any intention of holding the security purchased or of not repurchasing the
security sold for a period exceeding six (6) months. Suit to recover such profit may be instituted before the Regional
Trial Court by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the
issuer shall fail or refuse to bring such suit within sixty (60) days after request or shall fail diligently to prosecute the
same thereafter, but no such suit shall be brought more than two (2) years after the date such profit was realized. This
subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time
of the purchase and sale, or the sale and 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.

23.3. It shall be unlawful for any such beneficial owner, director, or officer, directly or indirectly, to sell any equity
security of such issuer if the person selling the security or his principal: (a) Does not own the security sold; or (b) If
owning the security, does not deliver it against such sale within twenty (20) days thereafter, or does not within five (5)
days after such sale deposit it in the mails or other usual channels of transportation; but no person shall be deemed to
have violated this subsection if he proves that notwithstanding the exercise of good faith he was unable to make such
delivery or deposit within such time, or that to do so would cause undue inconvenience or expense.

23.4. The provisions of Subsection 23.2 shall not apply to any purchase and sale, or sale and purchase, and the
provisions of Subsection 23.3 shall not apply to any sale, of an equity security not then or thereafter held by him in an
investment account, by a dealer in the ordinary course of his business and incident to the establishment or
maintenance by him of a primary or secondary market, otherwise than on an Exchange, for such security. The
Commission may, by such rules and regulations as it deems necessary or appropriate in the public interest, define and
prescribe terms and conditions with respect to securities held in an investment account and transactions made in the
ordinary course of business and incident to the establishment or maintenance of a primary or secondary market.

CHAPTER
Prohibitions on Fraud, Manipulation and Insider Trading

VII

SEC. 24. Manipulation of Security Prices; Devices and Practices. - 24.1 It shall be unlawful for any person acting for
himself or through a dealer or broker, directly or indirectly:

44

(a) To create a false or misleading appearance of active trading in any listed security traded in an Exchange or any
other trading market (hereafter referred to purposes of this Chapter as“Exchange”):

(i) By effecting any transaction in such security which involves no change in the beneficial ownership thereof;

(ii) By entering an order or orders for the purchase or sale of such security with the knowledge that a simultaneous
order or orders of substantially the same size, time and price, for the sale or purchase of any such security, has or will
be entered by or for the same or different parties; or

(iii) By performing similar act where there is no change in beneficial ownership.

(b) To effect, alone or with others, a series of transactions in securities that:
(i) Raises their price to induce the purchase of a security, whether of the same or a different class of the same issuer or
of a controlling, controlled, or commonly controlled company by others;
(ii) Depresses their price to induce the sale of a security, whether of the same or a different class, of the same issuer or
of a controlling, controlled, or commonly controlled company by others; or
(iii) Creates active trading to induce such a purchase or sale through manipulative devices such as marking the close,
painting the tape, squeezing the float, hype and dump, boiler room operations and such other similar devices.chan
robles virtual law library

(c) To circulate or disseminate information that the price of any security listed in an Exchange will or is likely to rise or
fall because of manipulative market operations of any one or more persons conducted for the purpose of raising or
depressing the price of the security for the purpose of inducing the purchase or sale of such security.

(d) To make false or misleading statement with respect to any material fact, which he knew or had reasonable ground
to believe was so false or misleading, for the purpose of inducing the purchase or sale of any security listed or traded in
an Exchange.

(e) To effect, either alone or others, any series of transactions for the purchase and/or sale of any security traded in an
Exchange for the purpose of pegging, fixing or stabilizing the price of such security, unless otherwise allowed by this
Code or by rules of the Commission.

24.2. No person shall use or employ, in connection with the purchase or sale of any security any manipulative or
deceptive device or contrivance. Neither shall any short sale be effected nor any stop-loss order be executed in
connection with the purchase or sale of any security except in accordance with such rules and regulations as the
Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

24.3. The foregoing provisions notwithstanding, the Commission, having due regard to the public interest and the
protection of investors, may, by rules and regulations, allow certain acts or transactions that may otherwise be
prohibited under this Section.

SEC. 25. Regulation of Option Trading. – No member of an Exchange shall, directly or indirectly endorse or guarantee
the performance of any put, call, straddle, option or privilege in relation to any security registered on a securities
exchange.

45

The terms “put”, “call”, “straddle”, “option”, or “privilege”shall not include any registered warrant, right or convertible
security.

SEC. 26. Fraudulent Transactions. - It shall be unlawful for any person, directly or indirectly, in connection with the
purchase or sale of any securities to:

26.1. Employ any device, scheme, or artifice to defraud;

26.2. Obtain money or property by means of any untrue statement of a material fact of any omission to state a material
fact necessary in order to make the statements made, in the light of the circumstances under which they were made,
not misleading; or

26.3. Engage in any act, transaction, practice or course of business which operates or would operate as a fraud or
deceit upon any person.

SEC. 27. Insider’s Duty to Disclose When Trading. - 27.1. It shall be unlawful for an insider to sell or buy a security of
the issuer, while in possession of material information with respect to the issuer or the security that is not generally
available to the public, unless: (a) The insider proves that the information was not gained from such relationship; or (b)
If the other party selling to or buying from the insider (or his agent) is identified, the insider proves: (i) that he disclosed
the information to the other party, or (ii) that he had reason to believe that the other party otherwise is also in
possession of the information. A purchase or sale of a security of the issuer made by an insider defined in Subsection
3.8, or such insider’s spouse or relatives by affinity or consanguinity within the second degree, legitimate or commonlaw, shall be presumed to have been effected while in possession of material non-public information if transacted after
such information came into existence but prior to dissemination of such information to the public and the lapse of a
reasonable time for the market to absorb such information:Provided, however, That this presumption shall be rebutted
upon a showing by the purchaser or seller that he was not aware of the material non-public information at the time of
the purchase or sale.

27.2. For purposes of this Section, information is “material non-public” if: (a) It has not been generally disclosed to the
public and would likely affect the market price of the security after being disseminated to the public and the lapse of a
reasonable time for the market to absorb the information; or (b) would be considered by a reasonable person important
under the circumstances in determining his course of action whether to buy, sell or hold a security.

27.3. It shall be unlawful for any insider to communicate material non-public information about the issuer or the security
to any person who, by virtue of the communication, becomes an insider as defined in Subsection 3.8, where the insider
communicating the information knows or has reason to believe that such person will likely buy or sell a security of the
issuer while in possession of such information.

27.4. (a) It shall be unlawful where a tender offer has commenced or is about to commence for:

(i) Any person (other than the tender offeror) who is in possession of material non-public information relating to such
tender offer, to buy or sell the securities of the issuer that are sought or to be sought by such tender offer if such person
knows or has reason to believe that the information is non-public and has been acquired directly or indirectly from the
tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer, or any
insider of such issuer; and

46

(ii) Any tender offeror, those acting on its behalf, the issuer of the securities sought or to be sought by such tender offer,
and any insider of such issuer to communicate material non-public information relating to the tender offer to any other
person where such communication is likely to result in a violation of Subsection 27.4 (a)(i).

(b) For purposes of this subsection the term “securities of the issuer sought or to be sought by such tender offer” shall
include any securities convertible or exchangeable into such securities or any options or rights in any of the foregoing
securities.

CHAPTER
Regulation of Securities Market Professionals

VIII

SEC. 28. Registration of Brokers, Dealers, Salesmen and Associated Persons. - 28.1. No person shall engage in the
business of buying or selling securities in the Philippines as a broker or dealer, or act as a salesman, or an associated
person of any broker or dealer unless registered as such with the Commission.

28.2. No registered broker or dealer shall employ any salesman or any associated person, and no issuer shall employ
any salesman, who is not registered as such with the Commission.

28.3. The Commission, by rule or order, may conditionally or unconditionally exempt from Subsections 28.1 and 28.2
any broker, dealer, salesman, associated person of any broker or dealer, or any class of the foregoing, as it deems
consistent with the public interest and the protection of investors.

28.4. The Commission shall promulgate rules and regulations prescribing the qualifications for registration of each
category of applicant, which shall, among other things, require as a condition for registration that:

(a) If a natural person, the applicant satisfactorily pass a written examination as to his proficiency and knowledge in the
area of activity for which registration is sought;chan robles virtual law library

(b) In the case of a broker or dealer, the applicant satisfy a minimum net capital as prescribed by the Commission, and
provide a bond or other security as the Commission may prescribe to secure compliance with the provisions of this
Code; and

(c) If located outside of the Philippines, the applicant files a written consent to service of process upon the Commission
pursuant to Section 65 hereof.

28.5. A broker or dealer may apply for registration by filing with the Commission a written application in such form and
containing such information and documents concerning such broker or dealer as the Commission by rule shall
prescribe.

28.6. Registration of a salesman or of an associated person of a registered broker or dealer may be made upon written
application filed with the Commission by such salesman or associated person. The application shall be separately
signed and certified by the registered broker or dealer to which such salesman or associated person is to become
affiliated, or by the issuer in the case of a salesman employed, appointed or authorized solely by such issuer. The
application shall be in such form and contain such information and documents concerning the salesman or associated

47

person as the Commission by rule shall prescribe. For purposes of this Section, a salesman shall not include any
employee of an issuer whose compensation is not determined directly or indirectly on sales of securities of the issuer.

28.7. Applications filed pursuant to Subsections 28.5 and 28.6 shall be accompanied by a registration fee in such
reasonable amount prescribed by the Commission.

28.8. Within thirty (30) days after the filing of any application under this Section, the Commission shall by order: (a)
Grant registration if it determines that the requirements of this Section and the qualifications for registration set forth in
its rules and regulations have been satisfied; or (b) Deny said registration.

28.9. The names and addresses of all persons approved for registration as brokers, dealers, associated persons or
salesmen and all orders of the Commission with respect thereto shall be recorded in a Register of Securities Market
Professionals kept in the office of the Commission which shall be open to public inspection.

28.10. Every person registered pursuant to this Section shall file with the Commission, in such form as the Commission
shall prescribe, information necessary to keep the application for registration current and accurate, including in the
case of a broker or dealer changes in salesmen, associated persons and owners thereof.

28.11. Every person registered pursuant to this Section shall pay to the Commission an annual fee at such time and in
such reasonable amount as the Commission shall prescribe. Upon notice by the Commission that such annual fee has
not been paid as required, the registration of such person shall be suspended until payment has been made.

28.12. The registration of a salesman or associated person shall be automatically terminated upon the cessation of his
affiliation with said registered broker or dealer, or with an issuer in the case of a salesman employed, appointed or
authorized by such issuer. Promptly following any such cessation of affiliation, the registered broker or dealer, or issuer,
as the case may be, shall file with the Commission a notice of separation of such salesman or associated person.

SEC. 29. Revocation, Refusal or Suspension of Registration of Brokers, Dealers, Salesmen and Associated Persons.
– 29.1. Registration under Section 28 of this Code may be refused, or any registration granted thereunder may be
revoked, suspended, or limitations placed thereon, by the Commission if, after due notice and hearing, the Commission
determines the applicant or registrant:

(a) Has willfully violated any provision of this Code, any rule, regulation or order made hereunder, or any other law
administered by the Commission, or in the case of a registered broker, dealer or associated person has failed to
supervise, with a view to preventing such violation, another person who commits such violation;chan robles virtual law
library

(b) Has willfully made or caused to be made a materially false or misleading statement in any application for
registration or report filed with the Commission or a self-regulatory organization, or has willfully omitted to state any
material fact that is required to be stated therein;

(c) Has failed to satisfy the qualifications or requirements for registration prescribed under Section 28 and the rules and
regulations of the Commission promulgated thereunder;

48

(d) Has been convicted, by a competent judicial or administrative body of an offense involving moral turpitude, fraud,
embezzlement, counterfeiting, theft, estafa, misappropriation, forgery, bribery, false oath, or perjury, or of a violation of
securities, commodities, banking, real estate or insurance laws;

(e) Is enjoined or restrained by a competent judicial or administrative body from engaging in securities, commodities,
banking, real estate or insurance activities or from willfully violating laws governing such activities;

(f) Is subject to an order of a competent judicial or administrative body refusing, revoking or suspending any
registration, license or other permit under this Code, the rules and regulations promulgated thereunder, any other law
administered by the Commission;

(g) Is subject to an order of a self-regulatory organization suspending or expelling him from membership or participation
therein or from association with a member or participant thereof;

(h) Has been found by a competent judicial or administrative body to have willfully violated any provisions of securities,
commodities, banking, real estate or insurance laws, or has willfully aided, abetted, counseled, commanded, induced or
procured such violation; or

(i) Has been judicially declared insolvent.
For purposes of this subsection, the term “competent judicial or administrative body” shall include a foreign court of
competent jurisdiction and a foreign financial regulator.

29.2. (a) In cases of charges against a salesman or associated person, notice thereof shall also be given the broker,
dealer or issuer employing such salesman or associated person.

(b) Pending the hearing, the Commission shall have the power to order the suspension of such broker’s, dealer’s,
associated person’s or salesman’s registration: Provided, That such order shall state the cause for such suspension.
Until the entry of a final order, the suspension of such registration, though binding upon the persons notified thereof,
shall be deemed confidential, and shall not be published, unless it shall appear that the order of suspension has been
violated after notice.chan robles virtual law library

29.3. The order of the Commission refusing, revoking, suspending or placing limitations on a registration as herein
above provided, together with its findings, shall be entered in the Register of Securities Market Professionals. The
suspension or revocation of the registration of a dealer or broker shall also automatically suspend the registration of all
salesmen and associated persons affiliated with such broker or dealer.

29.4. It shall be sufficient cause for refusal, revocation or suspension of a broker's or dealer’s registration, if any
associated person thereof or any juridical entity controlled by such associated person has committed any act or
omission or is subject to any disability enumerated in paragraphs (a) through (i) of Subsection 29.1 hereof.

SEC. 30. Transactions and Responsibility of Brokers and Dealers. - 30.1. No broker or dealer shall deal in or otherwise
buy or sell, for its own account or for the account of customers, securities listed on an Exchange issued by any
corporation where any stockholder, director, associated person or salesman, or authorized clerk of said broker or
dealer and all the relatives of the foregoing within the fourth civil degree of consanguinity or affinity, is at the time

49

holding office in said issuer corporation as a director, president, vice-president, manager, treasurer, comptroller,
secretary or any office of trust and responsibility, or is a controlling person of the issuer.

30.2. No broker or dealer shall effect any transaction in securities or induce or attempt to induce the purchase or sale of
any security except in compliance with such rules and regulations as the Commission shall prescribe to ensure fair and
honest dealings in securities and provide financial safeguards and other standards for the operation of brokers and
dealers, including the establishment of minimum net capital requirements, the acceptance of custody and use of
securities of customers, and the carrying and use of deposits and credit balances of customers.

SEC. 31. Development of Securities Market Professionals. - The Commission, in joint undertaking with self regulatory
organizations, organizations and associations of finance professionals as well as private educational and research
institutions shall undertake or facilitate/organize continuing training, conferences/ seminars, updating programs,
research and development as well as technology transfer at the latest and advanced trends in issuance and trading of
securities, derivatives, commodity trades and other financial instruments, as well as securities markets of other
countries.

CHAPTER
Exchanges and Other Securities Trading Markets

IX

SEC. 32. Prohibition on Use of Unregistered Exchange; Regulation of Over-the-Counter Markets. – 32.1. No broker,
dealer, salesman, associated person of a broker or dealer, or Exchange, directly or indirectly, shall make use of any
facility of an Exchange in the Philippines to effect any transaction in a security, or to report such transaction, unless
such Exchange is registered as such under Section 33 of this Code.

32.2. (a) No broker, dealer, salesman or associated person of a broker or dealer, singly or in concert with any other
person, shall make, create or operate, or enable another to make, create or operate, any trading market, otherwise
than on a registered Exchange, for the buying and selling of any security, except in accordance with rules and
regulations the Commission may prescribe.

(b) The Commission may promulgate rules and regulations governing transactions by brokers, dealers, salesmen or
associated persons of a broker or dealer, over any facilities of such trading market and may require such market to be
administered by a self-regulatory organization determined by the Commission as capable of insuring the protection of
investors comparable to that provided in the case of a registered Exchange. Such self-regulatory organization must
provide a centralized marketplace for trading and must satisfy requirements comparable to those prescribed for
registration of Exchanges in Section 33 of this Code.

SEC. 33. Registration of Exchanges. - 33.1. Any Exchange may be registered as such with the Commission under the
terms and conditions hereinafter provided in this Section and Section 40 hereof, by filing an application for registration
in such form and containing such information and supporting documents as the Commission by rule shall prescribe,
including the following:

(a) An undertaking to comply and enforce compliance by its members with the provisions of this Code, its implementing
rules or regulations and the rules of the Exchange;

(b) The organizational charts of the Exchange, rules of procedure, and a list of its officers and members;

(c) Copies of the rules of the Exchange; and

50

(d) An undertaking that in the event a member firm becomes insolvent or when the Exchange shall have found that the
financial condition of its member firm has so deteriorated that it cannot readily meet the demands of its customers for
the delivery of securities and/or payment of sales proceeds, the Exchange shall, upon order of the Commission, take
over the operation of the insolvent member firm and immediately proceed to settle the member firm’s liabilities to its
customers.

33.2. Registration of an Exchange shall be granted upon compliance with the following provisions:

(a) That the applicant is organized as a stock corporation:Provided, That any registered Exchange existing prior to the
effectivity of this Code shall within one (1) year reorganize as a stock corporation pursuant to a demutualization plan
approved by the Commission;

(b) That the applicant is engaged solely in the business of operating an exchange: Provided, however, That the
Commission may adopt rules, regulations or issue an order, upon application, exempting an Exchange organized as a
stock corporation and owned and controlled by another juridical person from this restriction;
c) Where the Exchange is organized as a stock corporation, that no person may beneficially own or control, directly or
indirectly, more than five percent (5%) of the voting rights of the Exchange and no industry or business group may
beneficially own or control, directly or indirectly, more than twenty percent (20%) of the voting rights of the
Exchange: Provided, however, That the Commission may adopt rules, regulations or issue an order, upon application,
exempting an applicant from this prohibition where it finds that such ownership or control will not negatively impact on
the exchange’s ability to effectively operate in the public interest;

(d) The expulsion, suspension, or disciplining of a member and persons associated with a member for conduct or
proceeding inconsistent with just and equitable principles of fair trade, and for violations of provisions of this Code, or
any other Act administered by the Commission, the rules, regulations and orders thereunder, or the rules of the
Exchange;

(e) A fair procedure for the disciplining of members and persons associated with members, the denial of membership to
any person seeking to be a member, the barring of any person from association with a member, and the prohibition or
limitation of any person from access to services offered by the Exchange;

(f) That the brokers in the board of the Exchange shall comprise of not more than forty-nine percent (49%) of such
board and shall proportionately represent the Exchange membership in terms of volume/value of trade and paid up
capital, and that any natural person associated with a juridical entity that is a member shall himself be deemed to be a
member for this purpose: Provided,That any registered Exchange existing prior to the effectivity of this Code shall
immediately comply with this requirement;

(g) For the board of the Exchange to include in its composition (i) the president of the Exchange, and (ii) no less than
fifty one percent (51%) of the remaining members of the board to be comprised of three (3) independent directors and
persons who represent the interests of issuers, investors, and other market participants, who are not associated with
any broker or dealer or member of the Exchange for a period of two (2) years prior to his/her appointment. No officer or
employee of a member, its subsidiaries or affiliates or related interests shall become an independent director: Provided,
however, That the Commission may by rule, regulation, or order upon application, permit the exchange organized as a
stock corporation to use a different governance structure: Provided, further, That the Commission is satisfied that the
Exchange is acting in the public interest and is able to effectively operate as a self-regulatory organization under this
Code:Provided, finally, That any registered exchange existing prior to the effectivity of this Code shall immediately
comply with this requirement.

(h) The president and other management of the Exchange to consist only of persons who are not members and are not
associated in any capacity, directly or indirectly with any broker or dealer or member or listed company of the
Exchange: Provided, That the Exchange may only appoint, and a person may only serve, as an officer of the exchange
if such person has not been a member or affiliated with any broker, dealer, or member of the Exchange for a period of
at least two (2) years prior to such appointment;

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(i) The transparency of transactions on the Exchange;

(j) The equitable allocation of reasonable dues, fees, and other charges among members and issuers and other
persons using any facility or system which the Exchange operates or controls;

(k) Prevention of fraudulent and manipulative acts and practices, promotion of just and equitable principles of trade,
and, in general, protection of investors and the public interest; and

(l) The transparent, prompt and accurate clearance and settlement of transactions effected on the Exchange.

33.3. If the Commission finds that the applicant Exchange is capable of complying and enforcing compliance by its
members, and persons associated with such members, with the provisions of this Code, its rules and regulations, and
the rules of the Exchange, and that the rules of the Exchange are fair, just and adequate, the Commission shall cause
such Exchange to be registered. If, after notice due and hearing, the Commission finds otherwise, the application shall
be denied.

33.4. Within ninety (90) days after the filing of the application the Commission may issue an order either granting or
denying registration as an Exchange, unless the Exchange applying for registration shall withdraw its application or
shall consent to the Commission’s deferring action on its application for a stated longer period after the date of filing.
The filing with the Commission of an application for registration by an Exchange shall be deemed to have taken place
upon the receipt thereof. Amendments to an application may be made upon such terms as the Commission may
prescribe.

33.5. Upon the registration of an Exchange, it shall pay a fee in such amount and within such period as the
Commission may fix.

33.6. Upon appropriate application in accordance with the rules and regulations of the Commission and upon such
terms as the Commission may deem necessary for the protection of investors, an Exchange may withdraw its
registration or suspend its operations or resume the same.

SEC. 34. Segregation and Limitation of Functions of Members, Brokers and Dealers. - 34.1. It shall be unlawful for any
member-broker of an Exchange to effect any transaction on such Exchange for its own account, the account of an
associated person, or an account with respect to which it or an associated person thereof exercises investment
discretion: Provided, however, That this section shall not make unlawful -

(a) Any transaction by a member-broker acting in the capacity of a market maker;

(b) Any transaction reasonably necessary to carry on an odd-lot transactions;

(c) Any transaction to offset a transaction made in error; and

(d) Any other transaction of a similar nature as may be defined by the Commission.

34.2. In all instances where the member-broker effects a transaction on an Exchange for its own account or the
account of an associated person or an account with respect to which it exercises investment discretion, it shall disclose

52

to such customer at or before the completion of the transaction it is acting for its own account: Provided, further, That
this fact shall be reflected in the order ticket and the confirmation slip.

34.3. Any member-broker who violates the provisions of this Section shall be subject to the administrative sanctions
provided in Section 54 of this Code.

SEC. 35. Additional Fees of Exchanges. - In addition to the registration fee prescribed in Section 33 of this Code, every
Exchange shall pay to the Commission, on a semestral basis on or before the tenth day of the end of every semester of
the calendar year, a fee in such an amount as the Commission shall prescribe, but not more than one-hundredth of
one per centum (1%) of the aggregate amount of the sales of securities transacted on such Exchange during the
preceding calendar year, for the privilege of doing business, during the preceding calendar year or any part thereof.

SEC. 36. Powers with Respect to Exchanges and Other Trading Market. - 36.1. The Commission is authorized, if in its
opinion such action is necessary or appropriate for the protection of investors and the public interest so requires,
summarily to suspend trading in any listed security on any Exchange or other trading market for a period not exceeding
thirty (30) days or, with the approval of the President of the Philippines, summarily to suspend all trading on any
securities Exchange or other trading market for a period of more than thirty (30) but not exceeding ninety (90)
days: Provided, however, That the Commission, promptly following the issuance of the order of suspension, shall notify
the affected issuer of the reasons for such suspension and provide such issuer with an opportunity for hearing to
determine whether the suspension should be lifted.chan robles virtual law library

36.2. Wherever two or more Exchanges or other trading markets exist, the Commission may require and enforce
uniformity of trading regulations in and/or between or among said Exchanges or other trading markets.

36.3. In addition to the existing Philippine Stock Exchange, the Commission shall have the authority to determine the
number, size and location of stock Exchanges, other trading markets and commodity Exchanges and other similar
organizations in the light of national or regional requirements for such activities with the view to promote, enhance,
protect, conserve or rationalize investment.

36.4. The Commission, having due regard to the public interest, the protection of investors, the safeguarding of
securities and funds, and maintenance of fair competition among brokers, dealers, clearing agencies, and transfer
agents, shall promulgate rules and regulations for the prompt and accurate clearance and settlement of securities
transactions.

36.5. (a) The Commission may establish or facilitate the establishment of trust funds which shall be contributed by
Exchanges, brokers, dealers, underwriters, transfer agents, salesmen and other persons transacting in securities, as
the Commission may require, for the purpose of compensating investors for the extraordinary losses or damage they
may suffer due to business failure or fraud or mismanagement of the persons with whom they transact, under such
rules and regulations as the Commission may from time to time prescribe or approve in the public interest.

(b) The Commission may, having due regard to the public interest or the protection of investors, regulate, supervise,
examine, suspend or otherwise discontinue such and other similar funds under such rules and regulations which the
Commission may promulgate, and which may include taking custody and management of the fund itself as well as
investments in and disbursements from the funds under such forms of control and supervision by the Commission as it
may from time to time require. The authority granted to the Commission under this subsection shall also apply to all
funds established for the protection of investors, whether established by the Commission or otherwise.chan robles
virtual law library

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SEC. 37. Registration of Innovative and Other Trading Markets. - The Commission, having due regard for national
economic development, shall encourage competitiveness in the market by promulgating within six (6) months upon the
enactment of this Code, rules for the registration and licensing of innovative and other trading markets or Exchanges
covering, but not limited to, the issuance and trading of innovative securities, securities of small, medium, growth and
venture enterprises, and technology-based ventures pursuant to Section 33 of this Code.

SEC. 38. Independent Directors. - Any corporation with a class of equity securities listed for trading on an Exchange or
with assets in excess of Fifty million pesos (P50,000,000.00) and having two hundred (200) or more holders, at least of
two hundred (200) of which are holding at least one hundred (100) shares of a class of its equity securities or which
has sold a class of equity securities to the public pursuant to an effective registration statement in compliance with
Section 12 hereof shall have at least two (2) independent directors or such independent directors shall constitute at
least twenty percent (20%) of the members of such board, whichever is the lesser. For this purpose, an “independent
director” shall mean a person other than an officer or employee of the corporation, its parent or subsidiaries, or any
other individual having a relationship with the corporation, which would interfere with the exercise of independent
judgment in carrying out the responsibilities of a director.

CHAPTER
Registration,
Oversight of Self-Regulatory Organizations

Responsibilities

X
and

SEC. 39. Associations of Securities Brokers, and Dealers, and Other Securities Related Organizations. -39.1. The
Commission shall have the power to register as a self-regulatory organization, or otherwise grant licenses, and to
regulate, supervise, examine, suspend or otherwise discontinue, as a condition for the operation of organizations
whose operations are related to or connected with the securities market such as but not limited to associations of
brokers and dealers, transfer agents, custodians, fiscal and paying agents, computer services, news disseminating
services, proxy solicitors, statistical agencies, securities rating agencies, and securities information processors which
are engaged in the business of: (a) Collecting, processing, or preparing for distribution or publication, or assisting,
participating in, or coordinating the distribution or publication of, information with respect to transactions in or quotations
for any security; or (b) Distributing or publishing, whether by means of a ticker tape, a communications network, a
terminal display device, or otherwise, on a current and continuing basis, information with respect to such transactions
or quotations. The Commission may prescribe rules and regulations which are necessary or appropriate in the public
interest or for the protection of investors to govern self-regulatory organizations and other organizations licensed or
regulated pursuant to the authority granted in Subsection 39.1 including the requirement of cooperation within and
among, and electronic integration of the records of, all participants in the securities market to ensure transparency and
facilitate exchange of information.

39.2. An association of brokers and dealers may be registered as a securities association pursuant to Subsection 39.3
by filing with the Commission an application for registration in such form as the Commission, by rule, may prescribe
containing the rules of the association and such other information and documents as the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or for the protection of investors.

39.3. An association of brokers and dealers shall not be registered as a securities association unless the Commission
determines that:

(a) The association is so organized and has the capacity to be able to carry out the purposes of this Code and to
comply with, and to enforce compliance by its members and persons associated with its members, with the provisions
of this Code, the rules and regulations thereunder, and the rules of the association.
(b) The rules of the association, notwithstanding anything in the Corporation Code to the contrary, provide that:
(i) Any registered broker or dealer may become a member of the association;

54

(ii) There exist a fair representation of its members to serve on the Board of Directors of the association and in the
administration of its affairs, and that any natural person associated with a juridical entity that is a member shall himself
be deemed to be a member for this purpose;
(iii) The Board of Directors of the association includes in its composition: (a) The president of the association and (b)
Persons who represent the interests of issuers and public investors and are not associated with any broker or dealer or
member of the association; that the president and other management of the association not be a member or associated
with any broker, dealer or member of the association;
(iv) For the equitable allocation of reasonable dues, fees, and other charges among members and issuers and other
persons using any facility or system which the association operates or controls;
(v) For the prevention of fraudulent and manipulative acts and practices, the promotion of just and equitable principles
of trade, and, in general, the protection of investors and the public interest;
(vi) That its members and persons associated with its members shall be appropriately disciplined for violation of any
provision of this Code, the rules or regulations thereunder, or the rules of the association;
(vii) That a fair procedure for the disciplining of members and persons associated with members, the denial of
membership to any person seeking membership therein, the barring of any person from becoming associated with a
member thereof, and the prohibition or limitation by the association of any person with respect to access to services
offered by the association or a member thereof.
39.4. (a) A registered securities association shall deny membership to any person who is not a registered broker or
dealer.

(b) A registered securities association may deny membership to, or condition the membership of, a registered broker or
dealer if such broker or dealer:

(i) Does not meet the standards of financial responsibility, operational capability, training, experience, or competence
that are prescribed by the rules of the association; or
(ii) Has engaged, and there is a reasonable likelihood it will again engage, in acts or practices inconsistent with just and
equitable principles of fair trade.
(c) A registered securities association may deny membership to a registered broker or dealer not engaged in a type of
business in which the rules of the association require members to be engaged:Provided, however, That no registered
securities association may deny membership to a registered broker or dealer by reason of the amount of business
done by the broker or dealer.

A registered securities association may examine and verify the qualifications of an applicant to become a member in
accordance with procedures established by the rules of the association.

(d) A registered securities association may bar a salesman or person associated with a broker or dealer from being
employed by a member or set conditions for the employment of a salesman or associated if such person:

(i) Does not meet the standards of training, experience, or competence that are prescribed by the rules of the
association; or
(ii) Has engaged, and there is a reasonable likelihood he will again engage, in acts or practices inconsistent with just
and equitable principles of fair trade.

55

A registered securities association may examine and verify the qualifications of an applicant to become a salesman or
associated person employed by a member in accordance with procedures established by the rules of the association. A
registered association also may require a salesman or associated person employed by a member to be registered with
the association in accordance with procedures prescribed in the rules of the association.

39.5. In any proceeding by a registered securities association to determine whether a person shall be denied
membership, or barred from association with a member, the association shall provide notice to the person under review
of the specific grounds being considered for denial, afford him an opportunity to defend against the allegations, and
keep a record of the proceedings. A determination by the association to deny membership shall be supported by a
statement setting forth the specific grounds on which the denial is based.

SEC. 40. Powers with Respect to Self-Regulatory Organizations. - 40.1. Upon the filing of an application for registration
as an Exchange under Section 33, a registered securities association under Section 39, a registered clearing agency
under Section 42, or other self-regulatory organization under this Section, the Commission shall have ninety (90) days
within which to either grant registration or institute a proceeding to determine whether registration should be denied. In
the event proceedings are instituted, the Commission shall have two hundred seventy (270) days within which to
conclude such proceedings at which time it shall, by order, grant or deny such registration.

40.2. Every self-regulatory organization shall comply with the provisions of this Code, the rules and regulations
thereunder, and its own rules, and enforce compliance therewith, notwithstanding any provision of the Corporation
Code to the contrary, by its members, persons associated with its members or its participants.

40.3. (a) Each self-regulatory organization shall submit to the Commission for prior approval any proposed rule or
amendment thereto, together with a concise statement of the reason and effect of the proposed amendment.

(b) Within sixty (60) days after submission of a proposed amendment, the Commission shall, by order, approve the
proposed amendment. Otherwise, the same may be made effective by the self-regulatory organization.

(c) In the event of an emergency requiring action for the protection of investors, the maintenance of fair and orderly
markets, or the safeguarding of securities and funds, a self-regulatory organization may put a proposed amendment
into effect summarily: Provided, however, That a copy of the same shall be immediately submitted to the Commission.

40.4. The Commission is further authorized, if after making appropriate request in writing to a self-regulatory
organization that such organization effect on its own behalf specified changes in its rules and practices and, after due
notice and hearing it determines that such changes have not been effected, and that such changes are necessary, by
rule or regulation or by order, may alter, abrogate or supplement the rules of such self-regulatory organization in so far
as necessary or appropriate to effect such changes in respect of such matters as:

(a) Safeguards in respect of the financial responsibility of members and adequate provision against the evasion of
financial responsibility through the use of corporate forms or special partnerships;
(b) The supervision of trading practices;
(c) The listing or striking from listing of any security;
(d) Hours of trading;

56

(e) The manner, method, and place of soliciting business;
(f) Fictitious accounts;
(g) The time and method of making settlements, payments, and deliveries, and of closing accounts;
(h) The transparency of securities transactions and prices;
(i) The fixing of reasonable rates of fees, interest, listing and other charges, but not rates of commission;
(j) Minimum units of trading;
(k) Odd-lot purchases and sales;
(l) Minimum deposits on margin accounts; and
(m) The supervision, auditing and disciplining of members or participants.
40.5. The Commission, after due notice and hearing, is authorized, in the public interest and to protect investors:

(a) To suspend for a period not exceeding twelve (12) months or to revoke the registration of a self-regulatory
organization, or to censure or impose limitations on the activities, functions, and operations of such self-regulatory
organization, if the Commission finds that such a self-regulatory organization has willfully violated or is unable to
comply with any provision of this Code or of the rules and regulations thereunder, or its own rules, or has failed to
enforce compliance therewith by a member of, person associated with a member, or a participant in such selfregulatory organization;
(b) To expel from a self-regulatory organization any member thereof or any participant therein who is subject to an
order of the Commission under Section 29 of this Code or is found to have willfully violated any provision of this Code
or suspend for a period not exceeding twelve (12) months for violation of any provision of this Code or any other laws
administered by the Commission, or the rules and regulations thereunder, or effected, directly or indirectly, any
transaction for any person who, such member or participant had reason to believe, was violating in respect of such
transaction any of such provisions; and
(c) To remove from office or censure any officer or director of a self-regulatory organization if it finds that such officer or
director has violated any provision of this Code, any other law administered by the Commission, the rules or regulations
thereunder, or the rules of such self-regulatory organization, abused his authority, or without reasonable justification or
excuse has failed to enforce compliance with any of such provisions.chan robles virtual law library
40.6. (a) A self-regulatory organization is authorized to discipline a member of or participant in such self-regulatory
organization, or any person associated with a member, including the suspension or expulsion of such member or
participant, and the suspension or bar from being associated with a member, if such person has engaged in acts or
practices inconsistent with just and equitable principles of fair trade or in willful violation of any provision of the Code,
any other law administered by the Commission, the rules or regulations thereunder, or the rules of the self-regulatory
organization. In any disciplinary proceeding by a self-regulatory organization (other than a summary proceeding
pursuant to paragraph (b) of this subsection) the self-regulatory organization shall bring specific charges, provide notice
to the person charged, afford the person charged with an opportunity to defend against the charges, and keep a record
of the proceedings. A determination to impose a disciplinary sanction shall be supported by a written statement of the
offense, a summary of the evidence presented and a statement of the sanction imposed.

(b) A self-regulatory organization may summarily: (i) Suspend a member, participant or person associated with a
member who has been or is expelled or suspended from any other self-regulatory organization; or (ii) Suspend a
member who the self-regulatory organization finds to be in such financial or operating difficulty that the member or
participant cannot be permitted to continue to do business as a member with safety to investors, creditors, other
members, participants or the self-regulatory organization: Provided,That the self-regulatory organization immediately

57

notifies the Commission of the action taken. Any person aggrieved by a summary action pursuant to this paragraph
shall be promptly afforded an opportunity for a hearing by the association in accordance with the provisions of
paragraph (a) of this subsection. The Commission, by order, may stay a summary action on its own motion or upon
application by any person aggrieved thereby, if the Commission determines summarily or after due notice and hearing
(which hearing may consist solely of the submission of affidavits or presentation of oral arguments) that a stay is
consistent with the public interest and the protection of investors.

40.7. A self-regulatory organization shall promptly notify the Commission of any disciplinary sanction on any member
thereof or participant therein, any denial of membership or participation in such organization, or the imposition of any
disciplinary sanction on a person associated with a member or a bar of such person from becoming so associated.
Within thirty (30) days after such notice, any aggrieved person may appeal to the Commission from, or the Commission
on its own motion within such period, may institute review of, the decision of the self-regulatory organization, at the
conclusion of which, after due notice and hearing (which may consist solely of review of the record before the selfregulatory organization), the Commission shall affirm, modify or set aside the sanction. In such proceeding the
Commission shall determine whether the aggrieved person has engaged or omitted to engage in the acts and practices
as found by the self-regulatory organization, whether such acts and practices constitute willful violations of this Code,
any other law administered by the Commission, the rules or regulations thereunder, or the rules of the self-regulatory
organization as specified by such organization, whether such provisions were applied in a manner consistent with the
purposes of this Code, and whether, with due regard for the public interest and the protection of investors the sanction
is excessive or oppressive.

40.8. The powers of the Commission under this section shall apply to organized exchanges and registered clearing
agencies.
CHAPTER
Acquisition
and
Settlement of Transactions in Securities

Transfer

of

Securities

XI
and

SEC. 41. Prohibition on Use of Unregistered Clearing Agency. - It shall be unlawful for any broker, dealer, salesman,
associated person of a broker or dealer, or clearing agency, directly or indirectly, to make use of any facility of a
clearing agency in the Philippines to make deliveries in connection with transactions in securities or to reduce the
number of settlements of securities transactions or to allocate securities settlement responsibilities or to provide for the
central handling of securities so that transfers, loans and pledges and similar transactions can be made by
bookkeeping entry or otherwise to facilitate the settlement of securities transactions without physical delivery of
securities certificates, unless such clearing agency is registered as such under Section 42 of this Code or is exempted
from such registration upon application by the clearing agency because, in the opinion of the Commission, by reason of
the limited volume of transactions which are settled using the clearing agency, it is not practicable and not necessary or
appropriate in the public interest or for the protection of investors to require such registration.

SEC. 42. Registration of Clearing Agencies. – 42.1. Any clearing agency may be registered as such with the
Commission under the terms and conditions hereinafter provided in this Section, by filing an application for registration
in such form and containing such information and supporting documents as the Commission by rule shall prescribe,
including the following:

(a) An undertaking to comply and enforce compliance by its participants with the provisions of this Code, and any
amendment thereto, and the implementing rules or regulations made or to be made thereunder, and the clearing
agency’s rules;
(b) The organizational charts of the Exchange, its rules of procedure, and a list of its officers and participants;
(c) Copies of the clearing agency’s rules.
42.2. No registration of a clearing agency shall be granted unless the rules of the clearing agency include provision for:

(a) The expulsion, suspension, or disciplining of a participant for violations of this Code, or any other Act administered
by the Commission, the rules, regulations, and orders thereunder, or the clearing agency’s rules;

58

(b) A fair procedure for the disciplining of participants, the denial of participation rights to any person seeking to be a
participant, and the prohibition or limitation of any person from access to services offered by the clearing agency;
(c) The equitable allocation of reasonable dues, fees, and other charges among participants;
(d) Prevention of fraudulent and manipulative acts and practices, promotion of just and equitable principles of trade,
and, in general, protection of investors and the public interest; and
(e) The transparent, prompt and accurate clearance and settlement of transactions in securities handled by the clearing
agency.

(f) The establishment and oversight of a fund to guarantee the prompt and accurate clearance and settlement of
transactions executed on an exchange, including a requirement that members each contribute an amount based on
their volume and a relevant percentage of the daily exposure of the four (4) largest trading brokers which adequately
reflects trading risks undertaken or pursuant to another formula set forth in Commission rules or regulations or order,
upon application: Provided, however, That a clearing agency engaged in the business of a securities depository shall
be exempt from this requirement.chan robles virtual law library
42.3. In the case of an application filed pursuant to this Section, the Commission shall grant registration if it finds that
the requirements of this Code and the rules and regulations thereunder with respect to the applicant have been
satisfied, and shall deny registration if it does not make such finding.

42.4. Upon appropriate application in accordance with the rules and regulations of the Commission and upon such
terms as the Commission may deem necessary for the protection of investors, a clearing agency may withdraw its
registration or suspend its operation or resume the same.

42.5. Section 32 of this Code shall apply to every registered clearing agency.

SEC. 43. Uncertificated Securities. - Notwithstanding Section 63 of the Corporation Code of the Philippines:

43.1. A corporation whose securities are registered pursuant to this Code or listed on a securities Exchange may:

(a) If so resolved by its Board of Directors and agreed by a shareholder, investor or securities intermediary, issue
shares to, or record the transfer of some or all of its shares into the name of said shareholders, investors or, securities
intermediary in the form of uncertificated securities. The use of uncertificated securities in these circumstances shall be
without prejudice to the rights of the securities intermediary subsequently to require the corporation to issue a
certificate in respect of any shares recorded in its name; and

(b) If so provided in its articles of incorporation and by-laws, issue all of the shares of a particular class in the form of
uncertificated securities and subject to a condition that investors may not require the corporation to issue a certificate in
respect of any shares recorded in their name.chan robles virtual law library

43.2. The Commission by rule may allow other corporations to provide in their articles of incorporation and by-laws for
the use of uncertificated securities.

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43.3. Transfers of securities, including an uncertificated securities, may be validly made and consummated by
appropriate book-entries in the securities accounts maintained by securities intermediaries, or in the stock and transfer
book held by the corporation or the stock transfer agent and such bookkeeping entries shall be binding on the parties to
the transfer. A transfer under this subsection has the effect of the delivery of a security in bearer form or duly indorsed
in blank representing the quantity or amount of security or right transferred, including the unrestricted negotiability of
that security by reason of such delivery. However, transfer of uncertificated shares shall only be valid, so far as the
corporation is concerned, when a transfer is recorded in the books of the corporation so as to show the names of the
parties to the transfer and the number of shares transferred.

However, nothing in this Code shall preclude compliance by banking and other institutions under the supervision of
the Bangko Sentral ng Pilipinas and their stockholders with the applicable ceilings on shareholdings prescribed under
pertinent banking laws and regulations.

SEC. 44. Evidentiary Value of Clearing Agency Record. - The official records and book entries of a clearing agency
shall constitute the best evidence of such transactions between clearing agency and its participants and members,
without prejudice to the right of participants’ or members’ clients to prove their rights, title and entitlement with respect
to the book-entry security holdings of the participants or members held on behalf of the clients. However, the
corporation shall not be bound by the foregoing transactions unless the corporate secretary is duly notified in such
manner as the Commission may provide.

SEC. 45. Pledging a Security or Interest Therein. - In addition to other methods recognized by law, a pledge of, or
release of a pledge of, a security, including an uncertificated security, is properly constituted and the instrument proving
the right pledged shall be considered delivered to the creditor under Articles 2093 and 2095 of the Civil Code if a
securities intermediary indicates by book-entry that such security has been credited to a specially designated pledge
account in favor of the pledgee. A pledge under this subsection has the effect of the delivery of a security in bearer form
or duly indorsed in blank representing the quantity or amount of such security or right pledged. In the case of a
registered clearing agency, the procedures by which, and the exact time at which, such book-entries are created shall
be governed by the registered clearing agency’s rules. However, the corporation shall not be bound by the foregoing
transactions unless the corporate secretary is duly notified in such manner as the Commission may provide.chan
robles virtual law library
SEC. 46. Issuer’s Responsibility for Wrongful Transfer to Registered Clearing Agency. - The registration of a transfer of
a security into the name of and by a registered clearing agency or its nominee shall be final and conclusive unless the
clearing agency had notice of an adverse claim before the registration was made. The above provision shall be without
prejudice to any rights which the claimant may have against the issuer for wrongful registration in such circumstances.
SEC. 47. Power of the Commission With Respect to Securities Ownership. - The Commission is authorized, having
due regard to the public interest and the protection of investors, to promulgate rules and regulations which:
47.1. Validate the transfer of securities by book-entries rather than the delivery of physical certificates;
47.2. Establish when a person acquires a security or an interest therein and when delivery of a security to a purchaser
occurs;

47.3.Establish which records constitute the best evidence of a person’s interests in a security and the effect of any
errors in electronic records of ownership;

47.4. Codify the rights of investors who choose to hold their securities indirectly through a registered clearing agency
and/or other securities intermediaries;

47.5. Codify the duties of securities intermediaries (including clearing agencies) who hold securities on behalf of
investors; and

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47.6. Give first priority to any claims of a registered clearing agency against a participant arising from a failure by the
participant to meet its obligations under the clearing agency’s rules in respect of the clearing and settlement of
transactions in securities, in a dissolution of the participant, and any such rules and regulations shall bind the issuers of
the securities, investors in the securities, any third parties with interests in the securities, and the creditors of a
participant of a registered clearing agency.

CHAPTER
Margin and Credit

XII

SEC. 48. Margin Requirements. - 48.1. For the purpose of preventing the excessive use of credit for the purchase or
carrying of securities, the Commission, in accordance with the credit and monetary policies that may be promulgated
from time to time by the Monetary Board of the Bangko Sentral ng Pilipinas, shall prescribe rules and regulations with
respect to the amount of credit that may be extended on any security. For the extension of credit, such rules and
regulations shall be based upon the following standard:

An amount not greater than whichever is the higher of -

(a) Sixty-five per centum (65%) of the current market price of the security; or
(b) One hundred per centum (100%) of the lowest market price of the security during the preceding thirty-six (36)
calendar months, but not more than seventy-five per centum (75%) of the current market price.
However, the Monetary Board may increase or decrease the above percentages, in order to achieve the objectives of
the Government with due regard for promotion of the economy and prevention of the use of excessive credit.

Such rules and regulations may make appropriate provision with respect to the carrying of undermargined accounts for
limited periods and under specified conditions; the withdrawal of funds or securities; the transfer of accounts from one
lender to another; special or different margin requirements for delayed deliveries, short sales, arbitrage transactions,
and securities to which letter (b) of the second paragraph of this subsection does not apply; the bases and the methods
to be used in calculating loans, and margins and market prices; and similar administrative adjustments and details.

48.2. No member of an Exchange or broker or dealer shall, directly or indirectly, extend or maintain credit or arrange for
the extension or maintenance of credit to or for any customer:chan robles virtual law library

(a) On any security unless such credit is extended and maintained in accordance with the rules and regulations which
the Commission shall prescribe under this Section including rules setting credit in relation to net capital of such
member, broker or dealer;
(b) Without collateral or on any collateral other than securities, except (i) to maintain a credit initially extended in
conformity with the rules and regulations of the Commission; and (ii) in cases where the extension or maintenance of
credit is not for the purpose of purchasing or carrying securities or of evading or circumventing the provisions of
paragraph (a) of this subsection.
48.3. Any person not subject to Subsection 48.2 hereof shall extend or maintain credit or arrange for the extension or
maintenance of credit for the purpose of purchasing or carrying any security, only in accordance with such rules and
regulations as the Commission shall prescribe to prevent the excessive use of credit for the purchasing or carrying of or
trading in securities in circumvention of the other provisions of this Section. Such rules and regulations may impose
upon all loans made for the purpose of purchasing or carrying securities limitations similar to those imposed upon
members, brokers, or dealers by Subsection 48.2 and the rules and regulations thereunder. This subsection and the
rules and regulations thereunder shall not apply: (a) To a credit extension made by a person not in the ordinary course

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of business; (b) To a loan to a dealer to aid in the financing of the distribution of securities to customers not through the
medium of an Exchange; or (c) To such other credit extension as the Commission shall exempt from the operation of
this subsection and the rules and regulations thereunder upon specified terms and conditions or for stated period.

SEC. 49. Restrictions on Borrowings by Members, Brokers, and Dealers. - It shall be unlawful for any registered broker
or dealer, or member of an Exchange, directly or indirectly:

49.1. To permit in the ordinary course of business as a broker or dealer his aggregate indebtedness including
customers’ credit balances, to exceed such percentage of the net capital (exclusive of fixed assets and value of
Exchange membership) employed in the business, but not exceeding in any case two thousand per centum(2,000%),
as the Commission may by rules and regulations prescribe as necessary or appropriate in the public interest or for the
protection of investors.

49.2. To pledge, mortgage, or otherwise encumber or arrange for the pledge, mortgage or encumbrance of any security
carried for the account of any customer under circumstances: (a) That will permit the commingling of his securities,
without his written consent, with the securities of any customer; (b) That will permit such securities to be commingled
with the securities of any person other than abona fide customer; or (c) That will permit such securities to be pledged,
mortgaged or encumbered, or subjected to any lien or claim of the pledgee, for a sum in excess of the aggregate
indebtedness of such customers in respect of such securities. However, the Commission, having due regard to the
protection of investors, may, by rules and regulations, allow certain transactions that may otherwise be prohibited under
this subsection.

49.3. To lend or arrange for the lending of any security carried for the account of any customer without the written
consent of such customer or in contravention of such rules and regulations as the Commission shall prescribe.
SEC. 50. Enforcement of Margin Requirements and Restrictions on Borrowing. - To prevent indirect violations of the
margin requirements under Section 48, the broker or dealer shall require the customer in non-margin transactions to
pay the price of the security purchased for his account within such period as the Commission may prescribe, which
shall in no case exceed the prescribed settlement date. Otherwise, the broker shall sell the security purchased starting
on the next trading day but not beyond ten (10) trading days following the last day for the customer to pay such
purchase price, unless such sale cannot be effected within said period for justifiable reasons. The sale shall be without
prejudice to the right of the broker or dealer to recover any deficiency from the customer. To prevent indirect violation of
the restrictions on borrowings under Section 49, the broker shall, unless otherwise directed by the customer, pay the
net sales price of the securities sold for a customer within the same period as above prescribed by the
Commission: Provided, That the customer shall be required to deliver the instruments evidencing the securities as a
condition for such payment upon demand by the broker.chan robles virtual law library

CHAPTER
General Provisions

XIII

SEC. 51. Liabilities of Controlling Persons, Aider and Abettor and Other Secondary Liability. – 51.1. Every person who,
by or through stock ownership, agency, or otherwise, or in connection with an agreement or understanding with one or
more other persons, controls any person liable under this Code or the rules or regulations of the Commission
thereunder, shall also be liable jointly and severally with and to the same extent as such controlled persons to any
person to whom such controlled person is liable, unless the controlling person proves that, despite the exercise of due
diligence on his part, he has no knowledge of the existence of the facts by reason of which the liability of the controlled
person is alleged to exist.

51.2. It shall be unlawful for any person, directly or indirectly, to do any act or thing which it would be unlawful for such
person to do under the provisions of this Code or any rule or regulation thereunder.chan robles virtual law library

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51.3. It shall be unlawful for any director or officer of, or any owner of any securities issued by, any issuer required to
file any document, report or other information under this Code or any rule or regulation of the Commission thereunder,
without just cause, to hinder, delay or obstruct the making or filing of any such document, report, or information.

51.4. It shall be unlawful for any person to aid, abet, counsel, command, induce or procure any violation of this Code,
or any rule, regulation or order of the Commission thereunder.

51.5. Every person who substantially assists the act or omission of any person primarily liable under Sections 57, 58,
59 and 60 of this Code, with knowledge or in reckless disregard that such act or omission is wrongful, shall be jointly
and severally liable as an aider and abettor for damages resulting from the conduct of the person primarily
liable: Provided, however, That an aider and abettor shall be liable only to the extent of his relative contribution in
causing such damages in comparison to that of the person primarily liable, or the extent to which the aider and abettor
was unjustly enriched thereby, whichever is greater.

SEC. 52. Accounts and Records, Reports, Examination of Exchanges, Members, and Others. - 52.1. Every registered
Exchange, broker or dealer, transfer agent, clearing agency, securities association, and other self-regulatory
organization, and every other person required to register under this Code, shall make, keep and preserve for such
periods, records, furnish such copies thereof, and make such reports, as the Commission by its rules and regulations
may prescribe. Such accounts, correspondence, memoranda, papers, books, and other records shall be subject at any
time to such reasonable periodic, special or other examinations by representatives of the Commission as the
Commission may deem necessary or appropriate in the public interest or for the protection of investors.

52.2. Any broker, dealer or other person extending credit, who is subject to the rules and regulations prescribed by the
Commission pursuant to this Code, shall make such reports to the Commission as may be necessary or appropriate to
enable it to perform the functions conferred upon it by this Code.

52.3. For purposes of this Section, the term “records” refers to accounts, correspondence, memoranda, tapes, discs,
papers, books and other documents or transcribed information of any type, whether written or electronic in character.

SEC. 53. Investigations, Injunctions and Prosecution of Offenses . - 53.1. The Commission may, in its discretion, make
such investigations as it deems necessary to determine whether any person has violated or is about to violate any
provision of this Code, any rule, regulation or order thereunder, or any rule of an Exchange, registered securities
association, clearing agency, other self-regulatory organization, and may require or permit any person to file with it a
statement in writing, under oath or otherwise, as the Commission shall determine, as to all facts and circumstances
concerning the matter to be investigated. The Commission may publish information concerning any such violations, and
to investigate any fact, condition, practice or matter which it may deem necessary or proper to aid in the enforcement of
the provisions of this Code, in the prescribing of rules and regulations thereunder, or in securing information to serve as
a basis for recommending further legislation concerning the matters to which this Code relates: Provided,
however, That any person requested or subpoenaed to produce documents or testify in any investigation shall
simultaneously be notified in writing of the purpose of such investigation: Provided, further, That all criminal complaints
for violations of this Code, and the implementing rules and regulations enforced or administered by the Commission
shall be referred to the Department of Justice for preliminary investigation and prosecution before the proper
court: Provided, furthermore, That in instances where the law allows independent civil or criminal proceedings of
violations arising from the same act, the Commission shall take appropriate action to implement the same: Provided,
finally, That the investigation, prosecution, and trial of such cases shall be given priority.

53.2. For the purpose of any such investigation, or any other proceeding under this Code, the Commission or any
officer designated by it is empowered to administer oaths and affirmations,subpoena witnesses, compel attendance,

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take evidence, require the production of any book, paper, correspondence, memorandum, or other record which the
Commission deems relevant or material to the inquiry, and to perform such other acts necessary in the conduct of such
investigation or proceedings.

53.3. Whenever it shall appear to the Commission that any person has engaged or is about to engage in any act or
practice constituting a violation of any provision of this Code, any rule, regulation or order thereunder, or any rule of an
Exchange, registered securities association, clearing agency or other self-regulatory organization, it may issue an order
to such person to desist from committing such act or practice: Provided, however, That the Commission shall not
charge any person with violation of the rules of an Exchange or other self regulatory organization unless it appears to
the Commission that such Exchange or other self-regulatory organization is unable or unwilling to take action against
such person. After finding that such person has engaged in any such act or practice and that there is a reasonable
likelihood of continuing, further or future violations by such person, the Commission may issue ex-parte a cease and
desist order for a maximum period of ten (10) days, enjoining the violation and compelling compliance with such
provision. The Commission may transmit such evidence as may be available concerning any violation of any provision
of this Code, or any rule, regulation or order thereunder, to the Department of Justice, which may institute the
appropriate criminal proceedings under this Code.

53.4. Any person who, within his power but without cause, fails or refuses to comply with any lawful order, decision
or subpoenaissued by the Commission under Subsection 53.2 or Subsection 53.3 or Section 64 of this Code, shall
after due notice and hearing, be guilty of contempt of the Commission. Such person shall be fined in such reasonable
amount as the Commission may determine, or when such failure or refusal is a clear and open defiance of the
Commission’s order, decision or subpoena, shall be detained under an arrest order issued by the Commission, until
such order, decision or subpoena is complied with.chan robles virtual law library

SEC. 54. Administrative Sanctions. - 54.1. If, after due notice and hearing, the Commission finds that: (a) There is a
violation of this Code, its rules, or its orders; (b) Any registered broker or dealer, associated person thereof has failed
reasonably to supervise, with a view to preventing violations, another person subject to supervision who commits any
such violation; (c) Any registrant or other person has, in a registration statement or in other reports, applications,
accounts, records or documents required by law or rules to be filed with the Commission, made any untrue statement
of a material fact, or omitted to state any material fact required to be stated therein or necessary to make the
statements therein not misleading; or, in the case of an underwriter, has failed to conduct an inquiry with reasonable
diligence to insure that a registration statement is accurate and complete in all material respects; or (d) Any person has
refused to permit any lawful examinations into its affairs, it shall, in its discretion, and subject only to the limitations
hereinafter prescribed, impose any or all of the following sanctions as may be appropriate in light of the facts and
circumstances:

(i) Suspension, or revocation of any registration for the offering of securities;
(ii) A fine of no less than Ten thousand pesos (P10,000.00) nor more than One million pesos (P1,000,000.00) plus not
more than Two thousand pesos (P2,000.00) for each day of continuing violation;
(iii) In the case of a violation of Sections 19.2, 20, 24, 26 and 27, disqualification from being an officer, member of the
Board of Directors, or person performing similar functions, of an issuer required to file reports under Section 17 of this
Code or any other act, rule or regulation administered by the Commission;
(iv) In the case of a violation of Section 34, a fine of no more than three (3) times the profit gained or loss avoided as a
result of the purchase, sale or communication proscribed by such Section; and
(v) Other penalties within the power of the Commission to impose.
54.2. The imposition of the foregoing administrative sanctions shall be without prejudice to the filing of criminal charges
against the individuals responsible for the violation.

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54.3. The Commission shall have the power to issue writs of execution to enforce the provisions of this Section and to
enforce payment of the fees and other dues collectible under this Code.

SEC. 55. Settlement Offers. – 55.1. At any time, during an investigation or proceeding under this Code, parties being
investigated and/or charged may propose in writing an offer of settlement with the Commission.

55.2. Upon receipt of such offer of settlement, the Commission may consider the offer based on timing, the nature of
the investigation or proceeding, and the public interest.

55.3. The Commission may only agree to a settlement offer based on its findings that such settlement is in the public
interest. Any agreement to settle shall have no legal effect until publicly disclosed. Such decision may be made without
a determination of guilt on the part of the person making the offer.

55.4. The Commission shall adopt rules and procedures governing the filing, review, withdrawal, form of rejection and
acceptance of such offers.

SEC. 56. Civil Liabilities on Account of False Registration Statement. - 56.1. Any person acquiring a security, the
registration statement of which or any part thereof contains on its effectivity an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to make such statements not misleading, and
who suffers damage, may sue and recover damages from the following enumerated persons, unless it is proved that at
the time of such acquisition he knew of such untrue statement or omission:chan robles virtual law library

(a) The issuer and every person who signed the registration statement;
(b) Every person who was a director of, or any other person performing similar functions, or a partner in, the issuer at
the time of the filing of the registration statement or any part, supplement or amendment thereof with respect to which
his liability is asserted;
(c) Every person who is named in the registration statement as being or about to become a director of, or a person
performing similar functions, or a partner in, the issuer and whose written consent thereto is filed with the registration
statement;
(d) Every auditor or auditing firm named as having certified any financial statements used in connection with the
registration statement or prospectus.
(e) Every person who, with his written consent, which shall be filed with the registration statement, has been named as
having prepared or certified any part of the registration statement, or as having prepared or certified any report or
valuation which is used in connection with the registration statement, with respect to the statement, report, or valuation,
which purports to have been prepared or certified by him.
(f) Every selling shareholder who contributed to and certified as to the accuracy of a portion of the registration
statement, with respect to that portion of the registration statement which purports to have been contributed by him.
(g) Every underwriter with respect to such security.
56.2. If the person who acquired the security did so after the issuer has made generally available to its security holders
an income statement covering a period of at least twelve months beginning from the effective date of the registration
statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the
security relying upon such untrue statement in the registration statement or relying upon the registration statement and
not knowing of such income statement, but such reliance may be established without proof of the reading of the
registration statement by such person.

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SEC. 57. Civil Liabilities Arising in Connection With Prospectus, Communications and Reports. - 57.1. Any person
who:

(a) Offers to sell or sells a security in violation of Chapter III; or
(b) Offers to sell or sells a security, whether or not exempted by the provisions of this Code, by the use of any means or
instruments of transportation or communication, by means of a prospectus or other written or oral communication,
which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were made, not misleading (the purchaser not knowing
of such untruth or omission), and who shall fail in the burden of proof that he did not know, and in the exercise of
reasonable care could not have known, of such untruth or omission, shall be liable to the person purchasing such
security from him, who may sue to recover the consideration paid for such security with interest thereon, less the
amount of any income received thereon, upon the tender of such security, or for damages if he no longer owns the
security.
57.2. Any person who shall make or cause to be made any statement in any report, or document filed pursuant to this
Code or any rule or regulation thereunder, which statement was at the time and in the light of the circumstances under
which it was made false or misleading with respect to any material fact, shall be liable to any person who, not knowing
that such statement was false or misleading, and relying upon such statements shall have purchased or sold a security
at a price which was affected by such statement, for damages caused by such reliance, unless the person sued shall
prove that he acted in good faith and had no knowledge that such statement was false or misleading.chan robles virtual
law library

SEC. 58. Civil Liability For Fraud in Connection With Securities Transactions. - Any person who engages in any act or
transaction in violation of Sections 19.2, 20 or 26, or any rule or regulation of the Commission thereunder, shall be
liable to any other person who purchases or sells any security, grants or refuses to grant any proxy, consent or
authorization, or accepts or declines an invitation for tender of a security, as the case may be, for the damages
sustained by such other person as a result of such act or transaction.
SEC. 59. Civil Liability For Manipulation of Security Prices. - Any person who willfully participates in any act or
transaction in violation of Section 24 shall be liable to any person who shall purchase or sell any security at a price
which was affected by such act or transaction, and the person so injured may sue to recover the damages sustained as
a result of such act or transaction.

SEC. 60. Civil Liability With Respect to Commodity Futures Contracts and Pre-need Plans. - 60.1. Any person who
engages in any act or transaction in willful violation of any rule or regulation promulgated by the Commission under
Section 11 or 16, which the Commission denominates at the time of issuance as intended to prohibit fraud in the offer
and sale of pre-need plans or to prohibit fraud, manipulation, fictitious transactions, undue speculation, or other unfair
or abusive practices with respect to commodity future contracts, shall be liable to any other person sustaining damage
as a result of such act or transaction.

60.2. As to each such rule or regulation so denominated, the Commission by rule shall prescribe the elements of proof
required for recovery and any limitations on the amount of damages that may be imposed.
SEC. 61. Civil Liability on Account of Insider Trading. - 61.1. Any insider who violates Subsection 27.1 and any person
in the case of a tender offer who violates Subsection 27.4 (a)(i), or any rule or regulation thereunder, by purchasing or
selling a security while in possession of material information not generally available to the public, shall be liable in a suit
brought by any investor who, contemporaneously with the purchase or sale of securities that is the subject of the
violation, purchased or sold securities of the same class unless such insider, or such person in the case of a tender
offer, proves that such investor knew the information or would have purchased or sold at the same price regardless of
disclosure of the information to him.

61.2. An insider who violates Subsection 27.3 or any person in the case of a tender offer who violates Subsection 27.4
(a), or any rule or regulation thereunder, by communicating material non-public information, shall be jointly and

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severally liable under Subsection 61.1 with, and to the same extent as, the insider, or person in the case of a tender
offer, to whom the communication was directed and who is liable under Subsection 61.1 by reason of his purchase or
sale of a security.

SEC. 62. Limitation of Actions. - 62.1. No action shall be maintained to enforce any liability created under Section 56 or
57 of this Code unless brought within two (2) years after the discovery of the untrue statement or the omission, or, if the
action is to enforce a liability created under Subsection 57.1(a), unless brought within two (2) years after the violation
upon which it is based. In no event shall any such action be brought to enforce a liability created under Section 56 or
Subsection 57.1 (a) more than five (5) years after the security was bona fide offered to the public, or under Subsection
57.1 (b) more than five (5) years after the sale.

62.2. No action shall be maintained to enforce any liability created under any other provision of this Code unless
brought within two (2) years after the discovery of the facts constituting the cause of action and within five (5) years
after such cause of action accrued.

SEC. 63. Amount of Damages to be Awarded. - 63.1. All suits to recover damages pursuant to Sections 56, 57, 58, 59,
60 and 61 shall be brought before the Regional Trial Court, which shall have exclusive jurisdiction to hear and decide
such suits. The Court is hereby authorized to award damages in an amount not exceeding triple the amount of the
transaction plus actual damages.

Exemplary damages may also be awarded in cases of bad faith, fraud, malevolence or wantonness in the violation of
this Code or the rules and regulations promulgated thereunder.

The Court is also authorized to award attorney’s fees not exceeding thirty percentum (30%) of the award.

63.2. The persons specified in Sections 56, 57, 58, 59, 60 and 61 hereof shall be jointly and severally liable for the
payment of damages. However, any person who becomes liable for the payment of such damages may recover
contribution from any other person who, if sued separately, would have been liable to make the same payment, unless
the former was guilty of fraudulent representation and the latter was not.

63.3. Notwithstanding any provision of law to the contrary, all persons, including the issuer, held liable under the
provisions of Sections 56, 57, 58, 59, 60 and 61 shall contribute equally to the total liability adjudged herein. In no case
shall the principal stockholders, directors and other officers of the issuer or persons occupying similar positions therein,
recover their contribution to the liability from the issuer. However, the right of the issuer to recover from the guilty
parties the amount it has contributed under this Section shall not be prejudiced.

SEC. 64. Cease and Desist Order. – 64.1. The Commission, after proper investigation or verification, motu proprio, or
upon verified complaint by any aggrieved party, may issue a cease and desist order without the necessity of a prior
hearing if in its judgment the act or practice, unless restrained, will operate as a fraud on investors or is otherwise likely
to cause grave or irreparable injury or prejudice to the investing public.

64.2. Until the Commission issues a cease and desist order, the fact that an investigation has been initiated or that a
complaint has been filed, including the contents of the complaint, shall be confidential. Upon issuance of a cease and
desist order, the Commission shall make public such order and a copy thereof shall be immediately furnished to each
person subject to the order.

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64.3. Any person against whom a cease and desist order was issued may, within five (5) days from receipt of the order,
file a formal request for a lifting thereof. Said request shall be set for hearing by the Commission not later than fifteen
(15) days from its filing and the resolution thereof shall be made not later than ten (10) days from the termination of the
hearing. If the Commission fails to resolve the request within the time herein prescribed, the cease and desist order
shall automatically be lifted.

SEC. 65. Substituted Service Upon the Commission. - Service of summons or other process shall be made upon the
Commission in actions or legal proceedings against an issuer or any person liable under this Code who is not domiciled
in the Philippines. Upon receipt by the Commission of such summons, the Commission shall within ten (10) days
thereafter, transmit by registered mail a copy of such summons and the complaint or other legal process to such issuer
or person at his last known address or principal office. The sending thereof by the Commission, the expenses for which
shall be advanced by the party at whose instance it is made, shall complete such service.

SEC. 66. Revelation of Information Filed with the Commission. – 66.1. All information filed with the Commission in
compliance with the requirements of this Code shall be made available to any member of the general public, upon
request, in the premises and during regular office hours of the Commission, except as set forth in this Section.

66.2. Nothing in this Code shall be construed to require, or to authorize the Commission to require, the revealing of
trade secrets or processes in any application, report, or document filed with the Commission.

66.3. Any person filing any such application, report or document may make written objection to the public disclosure of
information contained therein, stating the grounds for such objection, and the Commission may hear objections as it
deems necessary. The Commission may, in such cases, make available to the public the information contained in any
such application, report, or document only when a disclosure of such information is required in the public interest or for
the protection of investors; and copies of information so made available may be furnished to any person having a
legitimate interest therein at such reasonable charge and under such reasonable limitations as the Commission may
prescribe.

66.4. It shall be unlawful for any member, officer, or employee of the Commission to disclose to any person other than a
member, officer or employee of the Commission or to use for personal benefit, any information contained in any
application, report, or document filed with the Commission which is not made available to the public pursuant to
Subsection 66.3.

66.5. Notwithstanding anything in Subsection 66.4 to the contrary, on request from a foreign enforcement authority of
any country whose laws grant reciprocal assistance as herein provided, the Commission may provide assistance in
accordance with this subsection, including the disclosure of any information filed with or transmitted to the Commission,
if the requesting authority states that it is conducting an investigation which it deems necessary to determine whether
any person has violated, is violating, or is about to violate any laws relating to securities or commodities matters that
the requesting authority administers or enforces. Such assistance may be provided without regard to whether the facts
stated in the request would also constitute a violation of law of the Philippines.

SEC. 67. Effect of Action of Commission and Unlawful Representations with Respect Thereto. - 67.1. No action or
failure to act by the Commission in the administration of this Code shall be construed to mean that the Commission has
in any way passed upon the merits of or given approval to any security or any transaction or transactions therein, nor
shall such action or failure to act with regard to any statement or report filed with or examined by the Commission
pursuant to this Code or the rules and regulations thereunder to be deemed a finding by the Commission that such
statements or report is true and accurate on its face or that it is not false or misleading. It shall be unlawful to make, or

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cause to be made, to any prospective purchaser or seller of a security any representation that any such action or failure
to act by the Commission is to be so construed or has such effect.

67.2. Nothing contained in Subsection 67.1 shall, however, be construed as an exemption from liability of an employee
or officer of the Commission for any nonfeasance, misfeasance or malfeasance in the discharge of his official duties.

SEC. 68. Special Accounting Rules. – The Commission shall have the authority to make, amend, and rescind such
accounting rules and regulations as may be necessary to carry out the provisions of this Code, including rules and
regulations governing registration statements and prospectuses for various classes of securities and issuers, and
defining accounting, technical and trade terms used in this Code. Among other things, the Commission may prescribe
the form or forms in which required information shall be set forth, the items or details to be shown in the balance sheet
and income statement, and the methods to be followed in the preparation of accounts, appraisal or valuation of assets
and liabilities, determination of depreciation and depletion, differentiation of recurring and non-recurring income,
differentiation of investment and operating income, and in the preparation, where the Commission deems it necessary
or desirable, of consolidated balance sheets or income accounts of any person directly or indirectly controlling or
controlled by the issuer, or any person under direct or indirect common control with, the issuer.
SEC. 69. Effect on Existing Law. - The rights and remedies provided by this Code shall be in addition to any and all
other rights and remedies that may now exist. However, except as provided in Sections 56 and 63 hereof, no person
permitted to maintain a suit for damages under the provisions of this Code shall recover, through satisfaction of
judgment in one or more actions, a total amount in excess of his actual damages on account of the act complained
of:Provided, That exemplary damages may be awarded in cases of bad faith, fraud, malevolence or wantonness in the
violation of this Code or the rules and regulations promulgated thereunder.

SEC. 70. Judicial Review of Commission Orders. - Any person aggrieved by an order of the Commission may appeal
the order to the Court of Appeals by petition for review in accordance with the pertinent provisions of the Rules of
Court.
SEC. 71. Validity of Contracts. - 71.1. Any condition, stipulation, provision binding any person to waive compliance with
any provision of this Code or of any rule or regulation thereunder, or of any rule of an Exchange required thereby, as
well as the waiver itself, shall be void.
71.2. Every contract made in violation of any provision of this Code or of any rule or regulation thereunder, and every
contract, including any contract for listing a security on an Exchange heretofore or hereafter made, the performance of
which involves the violation of, or the continuance of any relationship or practice in violation of, any provision of this
Code, or any rule or regulation thereunder, shall be void:

(a) As regards the rights of any person who, in violation of any such provision, rule or regulation, shall have made or
engaged in the performance of any such contract; and
(b) As regards the rights of any person who, not being a party to such contract, shall have acquired any right
thereunder with actual knowledge of the facts by reason of which the making or performance of such contract was in
violation of any such provision, rule or regulation.
71.3. Nothing in this Code shall be construed:

(a) To affect the validity of any loan or extension of credit made or of any lien created prior or subsequent to the
effectivity of this Code, unless at the time of the making of such loan or extension of credit or the creating of such lien,
the person making such loan or extension of credit or acquiring such lien shall have actual knowledge of the facts by
reason of which the making of such loan or extension of credit or the acquisition of such lien is a violation of the
provisions of this Code or any rules or regulations thereunder; or
(b) To afford a defense to the collection of any debt, obligation or the enforcement of any lien by any person who shall
have acquired such debt, obligation or lien in good faith, for value and without actual knowledge of the violation of any
provision of this Code or any rule or regulation thereunder affecting the legality of such debt, obligation or lien.

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SEC. 72. Rules and Regulations; Effectivity. - 72.1. This Code shall be self-executory. To effect the provisions and
purposes of this Code, the Commission may issue, amend, and rescind such rules and regulations and orders
necessary or appropriate, including rules and regulations defining accounting, technical, and trade terms used in this
Code, and prescribing the form or forms in which information required in registration statements, applications, and
reports to the Commission shall be set forth. For purposes of its rules or regulations, the Commission may classify
persons, securities, and other matters within its jurisdiction, prescribe different requirements for different classes of
persons, securities, or matters, and by rule or order, conditionally or unconditionally exempt any person, security, or
transaction, or class or classes of persons, securities or transactions, from any or all provisions of this Code.

Failure on the part of the Commission to issue rules and regulations shall not in any manner affect the self-executory
nature of this Code.

72.2. The Commission shall promulgate rules and regulations providing for reporting, disclosure and the prevention of
fraudulent, deceptive or manipulative practices in connection with the purchase by an issuer, by tender offer or
otherwise, of and equity security of a class issued by it that satisfies the requirements of Subsection 17.2. Such rules
and regulations may require such issuer to provide holders of equity securities of such dates with such information
relating to the reasons for such purchase, the source of funds, the number of shares to be purchased, the price to be
paid for such securities, the method of purchase and such additional information as the Commission deems necessary
or appropriate in the public interest or for the protection of investors, or which the Commission deems to be material to
a determination by holders whether such security should be sold.

72.3. For the purpose of Subsection 72.2, a purchase by or for the issuer or any person controlling, controlled by, or
under common control with the issuer, or a purchase subject to the control of the issuer or any such person, shall be
deemed to be a purchased by the issuer. The Commission shall have the power to make rules and regulations
implementing this subsection, including exemptive rules and regulations covering situations in which the Commission
deems it unnecessary or inappropriate that a purchase of the type described in this subsection shall be deemed to be a
purchase by the issuer for the purpose of some or all of the provisions of Subsection 72.2.

72.4. The rules and regulations promulgated by the Commission shall be published in two (2) newspapers of general
circulation in the Philippines, and unless otherwise prescribed by the Commission, the same shall be effective fifteen
(15) days after the date of the last publication.

SEC. 73. Penalties. - Any person who violates any of the provisions of this Code, or the rules and regulations
promulgated by the Commission under authority thereof, or any person who, in a registration statement filed under this
Code, makes any untrue statement of a material fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, shall, upon conviction, suffer a fine of not less than Fifty
thousand pesos (P50,000.00) nor more than Five million pesos (P5,000,000.00) or imprisonment of not less than seven
(7) years nor more than twenty- one (21) years, or both in the discretion of the court. If the offender is a corporation,
partnership or association or other juridical entity, the penalty may in the discretion of the court be imposed upon such
juridical entity and upon the officer or officers of the corporation, partnership, association or entity responsible for the
violation, and if such officer is an alien, he shall in addition to the penalties prescribed, be deported without further
proceedings after service of sentence.

SEC. 74. Transitory Provisions. - The Commission, as organized under existing laws, shall continue to exist and
exercise its powers, functions and duties under such laws and this Code: Provided, That until otherwise mandated by a
subsequent law, the Commission shall continue to regulate and supervise commodity futures contracts as provided in
Section 11 and pre-need plans and the pre-need industry as provided in Section 16 of this Code.

All further requirements herein shall be complied with upon approval of this Code: Provided, however, That compliance

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may be deferred for such reasonable time as the Commission may determine but not to exceed one (1) year from
approval of this Code: Provided, further, That securities which are being offered at the time of effectivity of this Code
pursuant to an effective registration and permit, may continue to be offered and sold in accordance with the provisions
of the Revised Securities Act in effect immediately prior to approval of this Code.

All unexpended funds for the calendar year, properties, equipment and records of the Securities and Exchange
Commission are hereby retained by the Commission as reorganized under this Code and the amount of Two hundred
million (P200,000,000.00) or such amount necessary to carry out the reorganization provided in this Code is hereby
appropriated.

All employees of the Commission who voluntarily retire or are separated from the service with the Commission and
whose retirement or separation has been approved by the Commission, shall be paid retirement or separation benefits
and other entitlements granted under existing laws.

SEC. 75. Partial Use Of Income. - To carry out the purposes of this Code, the Commission is hereby authorized, in
addition to its annual budget, to retain and utilize an amount equal to one hundred million pesos (P100,000,000.00)
from its income.

The use of such additional amount shall be subject to the auditing requirements, standards and procedures under
existing laws.

SEC. 76. Repealing Clause. - TheRevised Securities Act (Batas Pambansa Blg. 178), as amended, in its entirety, and
Sections 2, 4 and 8 of Presidential Decree 902-A as amended, are hereby repealed. All other laws, orders, rules and
regulations, or parts thereof, inconsistent with any provision of this Code are hereby repealed or modified accordingly.

SEC. 77. Separability Clause. - If any portion or provision of this Code is declared unconstitutional or invalid, the other
portions or provisions hereof, which are not affected thereby shall continue in full force and effect.

SEC. 78. Effectivity. - This Code shall take effect fifteen (15) days after its publication in the Official Gazette or in two
(2) newspapers of general circulation.

Approved: July 19, 2000

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