Cebu Business Law

AN ACT PROVIDING FOR AN ECOLOGICAL SOLID WASTE
MANAGEMENT PROGRAM, CREATING THE NECESSARY
INSTITUTIONAL MECHANISMS AND INCENTIVES, DECLARING CERTAIN ACTS PROHIBITED AND PROVIDING PENALTIES, APPROPRIATING FUNDS THEREFOR, AND FOR OTHER PURPOSES.

CHAPTER I
BASIC POLICIES
Article 1
General Provisions
SECTION 1. Short Title. - This Act shall be known as the “Ecological Solid Waste Management Act of 2000.”
Sec. 2. Declaration of Policies. - It is hereby declared the policy of the State to adopt a systematic, comprehensive and ecological solid waste management program which shall:
(a) Ensure the protection of the public health and environment;
(b) Utilize environmentally-sound methods that maximize the utilization of valuable resources and encourage resource conservation and recovery;
(c) Set guidelines and targets for solid waste avoidance and volume reduction through source reduction and waste minimization measures, including composting, recycling, re-use, recovery, green charcoal process, and others, before collection, treatment and disposal in appropriate and environmentally sound solid waste management facilities in accordance with ecologically sustainable development principles;
(d) Ensure the proper segregation, collection, transport, storage, treatment and disposal of solid waste through the formulation and adoption of the best environmental practice in ecological waste management excluding incineration;
(e) Promote national research and development programs for improved solid waste management and resource conservation techniques, more effective institutional arrangement and indigenous and improved methods of waste reduction, collection, separation and recovery;
(f) Encourage greater private sector participation in solid waste management;
(g) Retain primary enforcement and responsibility of solid waste management with local government units while establishing a cooperative effort among the national government, other local government units, non- government organizations, and the private sector;
(h) Encourage cooperation and self-regulation among waste generators through the application of market-based instruments;
(i) Institutionalize public participation in the development and implementation of national and local integrated, comprehensive, and ecological waste management programs; and
(j) Strength the integration of ecological solid waste management and resource conservation and recovery topics into the academic curricula of formal and non-formal education in order to promote environmental awareness and action among the citizenry.
Article 2
Definition of Terms
Sec. 3. Definition of Terms. - For the purposes of this Act:
(a) Agricultural waste shall refer to waste generated from planting or harvesting of crops, trimming or pruning of plants and wastes or run-off materials from farms or fields;
(b) Bulky wastes shall refer to waste materials which cannot be appropriately placed in separate containers because of either its bulky size, shape or other physical attributes. These include large worn-out or broken household, commercial, and industrial items such as furniture, lamps, bookcases, filing cabinets, and other similar items;
(c) Bureau shall refer to the Environmental Management Bureau;
(d) Buy-back center shall refer to a recycling center that purchases of otherwise accepts recyclable materials from the public for the purpose of recycling such materials;
(e) Collection shall refer to the act of removing solid waste from the source or from a communal storage point;
(f) Composting shall refer to the controlled decomposition of organic matter by micro-organisms, mainly bacteria and fungi, into a humus-like product;
(g) Consumer electronics shall refer to special waste that includes worn-out, broken, and other discarded items such as radios, stereos, and TV sets;
(h) Controlled dump shall refer to a disposal site at which solid waste is deposited in accordance with the minimum prescribed standards of site operation;
(i) Department shall refer to the Department of Environment and Natural Resources;
(j) Disposal shall refer to the discharge, deposit, dumping, spilling, leaking or placing of any solid waste into or in an land;
(k) Disposal site shall refer to a site where solid waste is finally discharged and deposited;
(l) Ecological solid waste management shall refer to the systematic administration of activities which provide for segregation at source, segregated transportation, storage, transfer, processing, treatment, and disposal of solid waste and all other waste management activities which do not harm the environment;
(m) Environmentally acceptable shall refer to the quality of being re-usable, biodegradable or compostable, recyclable and not toxic or hazardous to the environment;
(n) Generation shall refer to the act or process of producing solid waste;
(o) Generator shall refer to a person, natural or juridical, who last uses a material and makes it available for disposal or recycling;
(p) Hazardous waste shall refer to solid waste management or combination of solid waste which because of its quantity, concentration or physical, chemical or infectious characteristics may:
(1) cause, or significantly contribute to an increase in mortality or an increase in serious irreversible, or incapacitating reversible, illness; or
(2) pose a substantial present or potential hazard to human health or the environment when improperly treated, stored, transported, or disposed of, or otherwise managed;
(q) Leachate shall refer to the liquid produced when waste undergo decomposition, and when water percolate through solid waste undergoing decomposition. It is contaminated liquid that contains dissolved and suspended materials;
(r) Materials recovery facility - includes a solid waste transfer station or sorting station, drop-off center, a composting facility, and a recycling facility;
(s) Municipal waste shall refer to wastes produced from activities within local government units which include a combination of domestic, commercial, institutional and industrial wastes and street litters;
(t) Open dump shall refer to a disposal area wherein the solid wastes are indiscriminately thrown or disposed of without due planning and consideration for environmental and Health standards;
(u) Opportunity to recycle shall refer to the act of providing a place for collecting source-separated recyclable material, located either at a disposal site or at another location more convenient to the population being served, and collection at least once a month of source-separated recyclable material from collection service customers and to providing a public education and promotion program that gives notice to each person of the opportunity to recycle and encourage source separation of recyclable material;
(v) Person(s) shall refer to any being, natural or judicial, susceptible of rights and obligations, or of being the subject of legal relations;
(w) Post-consumer material shall refer only to those materials or products generated by a business or consumer which have served their intended end use, and which have been separated or diverted from solid waste for the purpose of being collected, processed and used as a raw material in the manufacturing of recycled product, excluding materials and by-products generated from, and by-products generated from, and commonly used within an original manufacturing process, such as mill scrap;
(x) Receptacles shall refer to individual containers used for the source separation and the collection of recyclable materials;
(y) Recovered material shall refer to material and by products that have been recovered or diverted from solid waste for the purpose of being collected, processed and used as a raw material in the manufacture of a recycled product;
(z) Recyclable material shall refer to any waste material retrieved from the waste stream and free from contamination that can still be converted into suitable beneficial use or for other purposes, including, but not limited to, newspaper, ferrous scrap metal, non-ferrous scrap metal, used oil, corrugated cardboard, aluminum, glass, office paper, tin cans and other materials as may be determined by the Commission;
(aa) Recycled material shall refer to post-consumer material that has been recycled and returned to the economy;
(bb) Recycling shall refer to the treating of used or waste materials through a process of making them suitable for beneficial use and for other purposes, and includes any process by which solid waste materials are transformed into new products in such a manner that the original product may lose their identity, and which maybe used as raw materials for the production of other goods or services: Provided, That the collection, segregation and re-use of previously used packaging material shall be deemed recycling under this Act;
(cc) Resource conversation shall refer to the reduction of the amount of solid waste that are generated or the reduction of overall resource consumption, and utilization of recovered resources;
(dd) Resources recovery shall refer to the collection, extraction or recovery of recyclable materials from the waste stream for the purpose of recycling, generating energy or producing a product suitable for beneficial use: Provided, That such resource recovery facilities exclude incineration;
(ee) Re-use shall refer to the process of recovering materials intended for the same or different purpose without the alteration of physical and chemical characteristics;
(ff) Sanitary landfill shall refer to a waste disposal site designed, constructed, operated and maintained in a manner that exerts engineering control over significant potential environment impacts arising from the development and operation of the facility;
(gg) Schedule of Compliance shall refer to an enforceable sequence of actions or operations to be accomplished within a stipulated time frame leading to compliance with a limitation, prohibition or standard set forth in this Act or any rule of regulation issued pursuant thereto;
(hh) Secretary landfill shall refer to the Secretary of the Department of Environment and Natural Resources;
(ii) Segregation shall refer to a solid waste management practice of separating different materials found in solid waste in order to promote recycling and re-use of resources and to reduce the volume of waste for collection and disposal;
(jj) Segregation at source shall refer to a solid waste management practice of separating, at the point of origin, different materials found in solid waste in order to promote recycling and re-use of resources and to reduce the volume of waste for collection and disposal;
(kk) Solid waste shall refer to all discarded household, commercial waste, non-hazardous institutional and industrial waste, street sweepings, construction debris, agricultural waste, and other non-hazardous/non-toxic solid waste.
Unless specifically noted otherwise, the term “solid waste” as used in this Act shall not include:
(1) Waste identified or listed as hazardous waste of a solid, liquid, contained gaseous or semisolid form which may cause or contribute to an increase in mortality or in serious or incapacitating reversible illness, or acute/chronic effect on the health of persons and other organisms;
(2) Infectious waste from hospitals such as equipment, instruments, utensils, and fomites of a disposable nature from patients who are suspected to have or have been diagnosed as having communicable diseases and must therefore be isolated as required by public health agencies, laboratory wastes such as pathological specimens (i.e. all tissues, specimens of blood elements, excreta, and secretions obtained from patients or laboratory animals) and disposable fomites that may harbor or transmit pathogenic organisms, and surgical operating room pathologic materials from outpatient areas and emergency rooms; and
(3) Waste resulting from mining activities, including contaminated soil and debris.
(ll) Solid waste management shall refer to the discipline associated with the control of generation, storage, collection, transfer and transport, processing, and disposal of solid wastes in a manner that is in accord with the best principles of public health, economics, engineering, conservation, aesthetics, and other environmental considerations, and that is also responsive to public attitudes;
(mm) Solid waste management facility shall refer to any resource recovery system or component thereof; any system, program, or facility for resource conservation; any facility for the collection, source separation, storage, transportation, transfer, processing, treatment, or disposal of solid waste;
(nn) Source reduction shall refer to the reduction of solid waste before it enters the solid waste stream by methods such as product design, materials substitution, materials re-use and packaging restrictions;
(oo) Source separation shall refer to the sorting of solid waste into some or all of its component parts at the point of generation;
(pp) Special wastes shall refer to household hazardous wastes such as paints, thinners, household batteries, lead-acid batteries, spray canisters and the like. These include wastes from residential and commercial sources that comprise of bulky wastes, consumer electronics, white goods, yard wastes that are collected separately, batteries, oil, and tires. These wastes are usually handled separately from other residential and commercial wastes;
(qq) Storage shall refer to the interim containment of solid wastes after generation and prior to collection for ultimate recovery or disposal;
(rr) Transfer stations shall refer to those facilities utilized to receive solid wastes, temporarily store, separate, convert, or otherwise process the materials in the solid wastes, or to transfer the solid wastes directly from smaller to larger vehicles for transport. This term does not include any of the following:
(1) a facility whose principal function is to receive, store, separate, convert or otherwise process in accordance with national minimum standards, manure;
(2) a facility, whose principal function is to receive, store, convert, or otherwise process wastes which have already been separated for re-use and are intended for disposals, and
(3) the operations premises of a duly licensed solid waste handling operator who is receives, stores, transfers, or otherwise processes wastes as an activity incidental to the conduct of a refuse collection and disposal business.
(ss) Waste diversion shall refer to activities which reduce or eliminate the amount of solid waste from waste disposal facilities;
(tt) White goods shall refer to large worn-out or broken household, commercial, and industrial appliances such as stoves, refrigerators, dishwashers, and clothes washers and dryers collected separately. White goods ate usually dismantled for the recovery of specific materials (e.g., copper, aluminum, etc.);
(uu) Yard waste shall refer to wood, small or chipped branches, leaves, grass clippings, garden debris, vegetable residue that is recognized as part of a plant or vegetable and other materials identified by the Commission.
CHAPTER II
INSTITUTIONAL MECHANISM
Sec. 4. National Solid Waste Management Commission. - There is hereby established a National Solid Waste Management Commission, hereinafter referred to as the Commission, under the Office of the President. The Commissioner shall be composed of fourteen (14) members from the government sector and three members from the private sector. The government sector shall be represented by the heads of the following agencies in their ex officio capacity:
(1) Department of Environment and Natural Resources (DENR);
(2) Department of the Interior and Local Government (DILG);
(3) Department of Science and Technology (DOST);
(4) Department of Public Works and Highways (DPWH);
(5) Department of Health (DOH);
(6) Department of Trade and Industry (DTI);
(7) Department of Agriculture (DA);
(8) Metro Manila Development Authority (MMDA);
(9) League of provincial governors;
(10) League of city mayors;
(11) League of municipal mayors;
(12) Association of barangay councils;
(13) Technical Education and Skills Development Authority (TESDA); and
(14) Philippine Information Agency.
The private sector shall be represented by the following:
(a) A representative from non-government organizations (NGOs) whose principal purpose is to promote recycling and the protection of air and water quality;
(b) A representative from the recycling industry; and
(c) A representative from the manufacturing or packaging industry;
The Commission may, from time to time, call on any other concerned agencies or sectors as it may deem necessary: Provided, That representatives from the NGOs, recycling and manufacturing or packaging industries shall be nominated through a process designed by themselves and shall be appointed by the President for a term of three (3) years: Provided, further, That the Secretaries of the member agencies of the Commission shall formulate action plans for their respective agencies to complement the National Solid Waste Management Framework.
The Department Secretary and a private sector representative of the Commission shall serve as chairman and vice chairman, respectively. The private sector representatives of the Commission shall be appointed on the basis of their integrity, high decree of professionalism and having distinguished themselves in environmental and resource management. The members of the Commission shall serve and continue to hold office until their successors shall have been appointed and qualified. Should a member of the Commission fail to complete his/her term, the unexpired portion of the term. Finally, the members shall be entitled to reasonable traveling expenses and honoraria.
The Department, through the Environmental Management Bureau, shall provide secretariat support to the Commission. The Secretariat shall be headed by an executive director who shall be nominated by the members of the Commission and appointed by the chairman.
Sec. 5. Powers and Functions of the Commission. - The Commission shall oversee the implementation of solid waste management plans and prescribe policies to achieve the objectives of this Act. The Commission shall undertake the following activities:
(a) Prepare the national solid waste management framework;
(b) Approve local solid waste management plans in accordance with its rules and regulations;
(c) Review and monitor the implementation of local solid waste management plans;
(d) Coordinate the operation of local solid waste management boards in the provincial and city/municipal levels;
(e) To the maximum extent feasible, utilizing existing resources, assist provincial, city and municipal solid waste management plans;
(f) Develop a model provincial, city and municipal solid waste management plan that will establish prototypes of the content and format which provinces, cities and municipalities may use in meeting the requirements of the National Solid Waste Management Framework;
(g) Adopt a program to provide technical and other capability building assistance and support to local government units in the development and implementation of source reduction programs;
(h) Develop and implement a program to assist local government units in the identification of markets for materials that are diverted from disposal facilities through re-use, recycling, and composting, and other environment-friendly methods;
(i) Develop a mechanism for the imposition of sanctions for the violations environmental rules and regulations;
(j) Manage the Solid Waste Management Fund;
(k) Develop and prescribe procedures for the issuance of appropriate permits and clearances.
(l) Review the incentives scheme for effective solid waste management, for purpose of ensuring relevance and efficiency in achieving the objectives of this Act;
(m) Formulate the necessary education promotion and information campaign strategies;
(n) Establish, after notice and hearing of the parties concerned, standards, criteria, guidelines, and formula that are fair, equitable and reasonable, in establishing tipping charges and rates that the proponent will charge in the operation and management of solid waste management facilities and technologies.
(o) Develop safety nets and alternative livelihood programs for small recyclers and other sectors that will be affected as a result of the construction and/or operation of solid waste management recycling plant or facility.
(p) Formulate and update a list of non-environmentally acceptable materials in accordance with the provisions of this Act. For this purpose, it shall be necessary that proper consultation be conducted by the Commission with all concerned industries to ensure a list that is based on technological and economic viability.
(q) Encourage private sector initiatives, community participation and investments resource recovery-based livelihood programs for local communities.
(r) Encourage all local government agencies and all local government units to patronize products manufactured using recycled and recyclable materials;
(s) Propose and adopt regulations requiring the source separation and post separation collection, segregated collection, processing, marketing and sale of organic and designated recyclable material generated in each local government unit; and
(t) Study and review of the following:
(i) Standards, criteria and guidelines for promulgation and implementation of an integrated national solid waste management framework; and
(ii) Criteria and guidelines for siting, design, operation and maintenance of solid waste management facilities.
Sec. 6. Meetings. - The Commission shall meet at least once a month. The presence of at least a majority of the members shall constitute a quorum. The chairman, or in his absence the vice-chairman, shall be the presiding officer. In the absence of the heads of the agencies mentioned in Sec. 4 of this Act, they may designate permanent representatives to attend the meetings.
Sec. 7. The National Ecology Center. - There shall be established a National Ecology Center under the Commission which shall provide consulting, information, training, and networking services for the implementation of the provisions of this Act.
In this regard, it shall perform the following functions:
(a) Facilitate training and education in integrated ecological solid waste management;
(b) Establish and manage a solid waste management information data base, in coordination with the DTI and other concerned agencies:
(1) on solid waste generation and management techniques as well as the management, technical and operational approaches to resource recovery; and
(2) of processors/recyclers, the list of materials being recycled or bought by them and their respective prices;

(c) Promote the development of a recycling market through the establishment of a national recycling network that will enhance the opportunity to recycle;
(d) Provide or facilitate expert assistance in pilot modeling of solid waste management facilities; and
(e) Develop, test, and disseminate model waste minimization and reduction auditing procedures for evaluating options.
The National Ecology Center shall be headed by the director of the Bureau in his ex officio capacity. It shall maintain a multi-sectoral, multi-disciplinary pool of experts including those from the academe, inventors, practicing professionals, business and industry, youth, women and other concerned sectors, who shall be screened according to qualifications set by the Commission.
Sec. 8. Role of the Department. - For the furtherance of the objectives of this Act, the Department shall have the following functions:
(a) Chair the Commission created pursuant to this Act;
(b) Prepare an annual National Solid Waste Management Status Report;
(c) Prepare and distribute information, education and communication materials on solid waste management;
(d) Establish methods and other parameters for the measurement of waste reduction, collection and disposal;
(e) Provide technical and other capability building assistance and support to the LGUs in the development and implementation of local solid waste management plans and programs;
(f) Recommend policies to eliminate barriers to waste reduction programs;
(g) Exercise visitorial and enforcement powers to ensure strict compliance with this Act;
(h) Perform such other powers and functions necessary to achieve the objectives of this Act; and
(i) Issue rules and regulations to effectively implement the provisions of this Act.
Sec. 9. Visitorial Powers of the Department. - The Department or its duly authorized representative shall have access to, and the right to copy therefrom, the records required to be maintained pursuant to the provisions of this Act. The Secretary or the duly authorized representative shall likewise have the right to enter the premises of any generator, recycler or manufacturer, or other facilities any time to question any employee or investigate any fact, condition or matter which may be necessary to determine any violation, or which may aid in the effective enforcement of this Act and its implementing rules and regulations. This Section shall not apply to private dwelling places unless the visitorial power is otherwise judicially authorized.
Sec. 10. Role of LGUs in Solid Waste Management. - Pursuant to the relevant provisions of R. A. No. 7160, otherwise known as the Local government code, the LGUs shall be primarily responsible for the implementation and enforcement of the provisions of this Act within their respective jurisdictions.
Segregation and collection of solid waste shall be conducted at the barangay level specifically for biodegradable, compostable and reusable wastes: Provided, That the collection of non-recyclable materials and special wastes shall be the responsibility of the municipality or city.
Sec. 11. Provincial Solid Waste Management Board. - A Provincial Solid Waste Management board shall be established in every province, to be chaired by the governor. Its members shall include:
(a) All the mayors of its component cities and municipalities;
(b) One (1) representative from the Sangguniang Panlalawigan to be represented by the chairperson of either the Committees on Environment or Health or their equivalent committees, to be nominated by the presiding officer;
(c) The provincial health and/or general services officers, whichever may be recommended by the governor;
(d) The provincial environment and natural resources officer;
(e) The provincial engineer;
(f) Congressional representatives from each congressional district within the province;
(g) A representative from the NGO sector whose principal purpose is to promote recycling and the protection of air and water quality;
(h) A representative from the recycling industry;
(i) A representative from the manufacturing or packaging industry; and
(j) A representative of each concerned government agency possessing relevant technical and marketing expertise as may be determined by the board.
The Provincial Solid Waste Management Board may, from time to time, call on any other concerned agencies or sectors as it may deem necessary: Provided, That representatives from the NGOs, recycling and manufacturing or packaging industries shall be selected through a process designed by themselves and shall be endorsed by the government agency of representatives of the Board: Provided, further, that in the Province of Palawan, the Board shall be chaired by the chairman of the Palawan Council for Sustainable Development, pursuant to Republic Act No. 7611.
In the case of Metro Manila, the Board shall be chaired by the chairperson of the MMDA and its members shall include:
(i) all mayors of its component cities and municipalities;
(ii) a representative from the NGO sector whose principal purpose is to promote recycling and the protection of air and water quality;
(iii) a representative from the recycling industry; and
(iv) a representative from the manufacturing or packaging industry.
The Board may, from time to time, call on any other concerned agencies or sectors as it may deem necessary: Provided, That representatives from the NGOs, recycling and manufacturing or packaging industries shall be selected through a process designed by themselves and shall be endorsed by the government agency representatives of the Board.
The Provincial Solid Waste Management Board shall have the following functions and responsibilities:
(1) Develop a provincial solid waste management plan from the submitted solid waste management plans of the respective city and municipal solid waste management boards herein created. It shall review and integrate the submitted plans of all its component cities and municipalities and ensure that the various plan complement each other, and have the requisite components. The Provincial Solid Waste Management Plan shall be submitted to the Commission for approval.
The Provincial Plans shall reflect the general program of action and initiatives of the provincial government and implementing a solid waste management program that would support the various initiatives of its component cities and municipalities.
(2) Provide the necessary logistical and operational support to its component cities and municipalities in consonance with subsection (f) of Sec.17 of the Local Government Code;
(3) Recommend measures and safeguards against pollution and for the preservation of the natural ecosystem;
(4) Recommend measures to generate resources, funding and implementation of project and activities as specified in the duly approved solid waste management plans;
(5) Identify areas within its jurisdiction which have common solid waste management problems and are appropriate units are planning local solid waste management services in accordance with Section 41 hereof;
(6) Coordinate the efforts of the component cities and municipalities in the implementation of the Provincial Solid Waste Management Plan;
(7) Develop an appropriate incentive scheme as an integral component of the Provincial Solid Waste Management Plan;
(8) Convene joint meetings of the provincial, city and municipal solid waste management boards at least every quarter for purposes of integrating, synchronizing, monitoring and evaluating the development and implementation of its provincial solid waste management plan;
(9) Represent any of its component city or municipality in coordinating its resource and operational requirements with agencies of the national government;
(10) Oversee the implementation of the Provincial Solid Waste Management Plant;
(11) Review every two (2) years or as the need arises the Provincial Solid Waste Management Plan for purposes of ensuring its sustainability, viability, effectiveness and relevance in relation to local and international development in the field of solid waste management; and
(12) Allow for the clustering of LGUs for the solution of common solid waste management problems.
Sec. 12. City and Municipal Solid Waste Management Board. - Each city or municipality shall form a City or Municipal Waste Management Board that shall prepare, submit and implement a plan for the safe and sanitary management of solid waste generated in areas under in geographic and political coverage.
The City or Municipal Solid Waste Management Board shall be composed of the city or municipal mayor as head with the following as members:
a) One (1) representative of Sangguniang Panlungsod or the Sangguniang Bayan, preferably chairpersons of either the Committees on Environment or Health, who will be designated by the presiding officer;
b) President of the Association of Barangay Councils in the municipality or city;
c) Chairperson of the Sangguniang Kabataan Federation;
d) A representative from NGOs whose principal purpose is to promote recycling and the protection of air and water quality;
e) A representative from the recycling industry;
f) A representative from the manufacturing or packaging industry; and
g) A representative of each concerned government agency possessing relevant technical and marketing expertise as may be determined by the Board.
The City or Municipal Solid Waste Management Board may, from time to time, call on any concerned agencies or sectors as it may deem necessary: Provided, That representatives from NGOs, recycling and manufacturing or packaging industries shall be selected through a process designed by themselves and shall be endorsed by the government agency representatives of the Board.
The City and Municipal Solid Waste Management Boards shall have the following duties and responsibilities:
(1) Develop the City or Municipal Solid Waste Management Plan that shall ensure the long-term management of solid waste, as well as integrate the various solid waste management plans and strategies of the barangays in its area of jurisdiction. In the development of the Solid Waste Management Plan, it shall conduct consultations with the various sectors of the community;
(2) Adopt measures to promote and ensure the viability and effective implementation of solid waste management programs in its component barangays;
(3) Monitor the implementation of the City or Municipal Solid Waste Management Plan through its various political subdivisions and in cooperation with the private sector and the NGOs;
(4) Adopt specific revenue-generating measures to promote the viability of its Solid Waste Management Plan;
(5) Convene regular meetings for purposes of planning and coordinating the implementation of the solid waste management plans of the respective component barangays;
(6) Oversee the implementation of the City or Municipal Solid Waste Management Plan;
(7) Review every two (2) years or as the need arises the City or Municipal Solid Waste Management Plan for purposes of ensuring its sustainability, viability, effectiveness and relevance in relation to local and international developments in the field of solid waste management;
(8) Develop the specific mechanics and guidelines for the implementation of the City or Municipal Solid Waste Management Plan;
(9) Recommended to appropriate local government authorities specific measures or proposals for franchise or build-operate-transfer agreements with duly recognized institutions, pursuant to R. A.6957, to provide either exclusive or non-exclusive authority for the collection, transfer, storage, processing, recycling or disposal of municipal solid waste. The proposals shall take into consideration appropriate government rules and regulations on contracts, franchise and build-operate-transfer agreements;
(10) Provide the necessary logistical and operational support to its component cities and municipalities in consonance with subsection (f) of Sec. 17 of the Local Government Code;
(11) Recommended measures and safeguards against pollution and for the preservation of the natural ecosystem; and
(12) Coordinates the efforts of its components barangays in the implementation of the city or municipal Solid Waste Management Plan.
Sec. 13. Establishment of Multi-Purpose Environment Cooperatives or Association in Every LGU. - Multi-purpose cooperatives and associations that shall undertake activities to promote the implementation and/ or directly undertake projects in compliance with the provisions of this Act shall be encouraged and promoted in every LGU.
CHAPTER III
COMPREHENSIVE SOLID WASTE MANAGEMENT
Article 1
General Provisions
Sec. 14. National Solid Waste Management Status Report. - The Department, in coordination with the DOH and other concerned agencies, shall within six (6) months after the effectivity of this Act, prepare a National Solid Waste Management Status Report which shall be used as a basis in formulating the National Solid Waste Management Framework provided in Sec. 15 of this Act. The concerned agencies shall submit to the Department relevant data necessary for the completion of the said report within three (3) months following the effectivity of this Act. The said report shall include, but shall not be limited to, the following:
(a) Inventory of existing solid waste facilities;
(b) General waste characterization, taking into account the type, quantity of waste generated and estimation of volume and type of waste for reduction and recycling;
(c) Projection of waste generation;
(d) The varying regional geologic, hydrologic, climatic, and other factors vital in the implementation of solid waste practices to ensure the reasonable protection of:
(1) the quality of surface and groundwater from leachate contamination;
(2) the quality of surface waters from surface run-off contamination; and
(3) ambient air quality.
(e) Population density, distribution and projected growth;
(f) The political, economic, organizational, financial and management problems affecting comprehensive solid waste management;
(g) Systems and techniques of waste reduction, re-use and recycling;
(h) Available markets for recyclable materials;
(i) Estimated cost of collecting, storing, transporting, marketing and disposal of wastes and recyclable materials; and
(j) Pertinent qualitative and quantitative information concerning the extent of solid waste management problems and solid waste management activities undertaken by local government units and the waste generators: Provided, That the Department, in consultation with concerned agencies, shall review, update and publish a National Solid Waste Management Status Report every two (2) years or as the need arises.
Sec. 15. National Solid Waste Management Framework. - Within six (6) months from the completion of the national solid waste management status report under Sec. 14 of this Act, the Commission created under Sec. 4 of this Act shall, with public participation, formulate and implement a National Solid Waste Management Framework. Such framework shall consider and include:
(a) Analysis and evaluation of the current state, trends, projections of solid waste management on the national, provincial and municipal levels;
(b) Identification of critical solid waste facilities and local government units which will need closer monitoring and/or regulation;
(c) Characteristics and conditions of collection, storage, processing, disposal, operating methods, techniques and practices, location of facilities where such operating methods, techniques and practices are conducted, taking into account the nature of the waste;
(d) Waste diversion goal pursuant to Sec. 20 of this Act;
(e) Schedule for the closure and/or upgrading of open and controlled dumps pursuant to Sec. 37 of this Act;
(f) Methods of closing or upgrading open dumps for purposes of eliminating potential health hazards;
(g) The profile of sources, including industrial, commercial, domestic, and other sources;
(h) Practical applications of environmentally sound techniques of water minimization such as, but not limited to, resource conservation, segregation at source, recycling, resource recovery, including waste-to-energy generation, re-use and composting;
(i) A technical and economic description of the level of performance that can be attained by various available solid waste management practices which provide for the protection of public health and the environment;
(j) Appropriate solid waste facilities and conservation systems;
(k) Recycling programs for the recyclable materials, such as but not limited to glass, paper, plastic and metal;
(l) Venues for public participation from all sectors at all phases/stages of the waste management program/project;
(m) Information and education campaign strategies;
(n) A description of levels of performance and appropriate methods and degrees of control that provide, at the minimum, for protection of public health and welfare through:
(1) Protection of the quality of groundwater and surface waters from leachate and run-off contamination;
(2) Disease and epidemic prevention and control;
(3) Prevention and control of offensive odor; and
(4) Safety and aesthetics.
(o) Minimum criteria to be used by the local government units to define ecological solid waste management practices. As much as practicable, such guidelines shall also include minimum information for use in deciding the adequate location, design and construction of facilities associated with solid waste management practices, including the consideration of regional, geographic, demographic and climatic factors; and
(p) The method and procedure for the phaseout and the eventual closure within eighteen (18) months from the effectivity of this Act in case of existing open dumps and/or sanitary landfills located within an aquifer, groundwater reservoir or watershed area.
Sec. 16. Local Government Solid Waste Management Plans. - The province, city or municipality, through its local solid waste management boards, shall prepare its respective 10-year solid waste management plans consistent with the national solid waste management framework: Provided, That the waste management plan shall be for the re-use, recycling and composting of wastes generated in their respective jurisdictions: Provided, further, That the solid waste management plan of the LGU shall ensure the efficient management of solid waste generated within its jurisdiction. The plan shall place primary emphasis on implementation of all feasible re-use, recycling, and composting programs while identifying the amount of landfill and transformation capacity that will be needed for solid waste which cannot be re-used, recycled, or composted. The plan shall contain all the components provided in Sec. 17 of this Act and a timetable for the implementation of the solid waste management program in accordance with the National Framework and pursuant to the provisions of this Act: Provided, finally, That it shall be reviewed and updated every year by the provincial, city or municipal solid waste management board.
For LGUs which have considered solid waste management alternatives to comply with Sec. 37 of this Act, but are unable to utilize such alternatives, a timetable or schedule of compliance specifying the remedial measure and eventual compliance shall be included in the plan.
All local government solid waste management plans shall be subjected to the approval of the Commission. The plan shall be consistent with the national framework and in accordance with the provisions of this Act and of the policies set by the Commission; Provided, That in the province of Palawan, the local government solid waste management plan shall be approved by the Palawan Council for Sustainable Development, pursuant to R. A. No. 7611.
Sec. 17. The Components of the Local Government Solid Waste Management Plan. - The solid waste management plan shall include, but not limited to, the following components:
(a) City or Municipal Profile - The plan shall indicate the following background information on the city or municipality and its component barangays, covering important highlights of the distinct geographic and other conditions:
(1) Estimated population of each barangay within the city or municipality and population project for a 10-year period;
(2) Illustration or map of the city/municipality, indicating locations of residential, commercial, and industrial centers, and agricultural area, as well as dump, landfills and other solid waste facilities. The illustration shall indicate as well, the proposed sites for disposal and other solid waste facilities;
(3) Estimated solid waste generation and projection by source, such as residential, market, commercial, industrial, construction/demolition, street waste, agricultural, agro-industrial, institutional, other waste; and
(4) Inventory of existing waste disposal and other solid waste facilities and capacities.
(b) Waste characterization - For the initial source reduction and recycling element of a local waste management plan, the LGU waste characterization component shall identify the constituent materials which comprise the solid waste generated within the jurisdiction of the LGU. The information shall be representative of the solid waste generated and disposed of within the area. The constituent materials shall be identified by volume, percentage in weight or its volumetric equivalent, material type, and source of generation which includes residential, commercial, industrial, governmental, or other materials. Future revisions of waste characterization studies shall identify the constituent materials which comprise the solid waste disposed of at permitted disposal facilities.
(c) Collection and Transfer - The plan shall take into account the geographic subdivisions to define the coverage of the solid waste collection area in every barangay. The barangay shall be responsible for ensuring that a 100% collection efficiency from residential, commercial, industrial and agricultural sources, where necessary within its area of coverage, is achieved. Toward this end, the plan shall define and identify the specific strategies and activities to be undertaken by its component barangays, taking into account the following concerns:
(1) Availability and provision of properly designed containers or receptacles in selected collection points for the temporary storage of solid waste while awaiting collection and transfer to processing sites or to final disposal sites;
(2) Segregation of different types of solid waste for re-use, recycling and composting;
(3) Hauling and transfer of solid waste from source or collection points to processing sites or final disposal sites;
(4) Issuance and enforcement of ordinances to effectively implement a collection system in the barangay; and
(5) Provision of properly trained officers and workers to handle solid waste disposal.
The plan shall define and specify the methods and systems for the transfer of solid waste from specific collection points to solid waste management facilities.
(d) Processing - The Plan shall define the methods and the facilities required to process the solid waste, including the use of intermediate treatment facilities for composting, recycling, conversion and other waste processing systems. Other appropriate waste processing technologies may also be considered provided that such technologies conform with internationally-acceptable and other standards set in other standards set in other laws and regulations.
(e) Source reduction - The source reduction component shall include a program and implementation schedule which shows the methods by which the LGU will, in combination with the recycling and composting components, reduce a sufficient amount of solid waste disposed of in accordance with the diversion requirements of Sec. 20.
The source reduction component shall describe the following:
(1) strategies in reducing the volume of solid waste generated at source;
(2) measures for implementing such strategies and the resources necessary to carry out such activities;
(3) other appropriate waste reduction technologies that may also be considered, provided that such technologies conform with the standards set pursuant to this Act;
(4) the types of wastes to be reduced pursuant to Sec. 15 of this Act;
(5) the methods that the LGU will use to determine the categories of solid wastes to be diverted from disposal at a disposal facility through re-use, recycling and composting; and
(6) new facilities and expansion of existing facilities which will be needed to implement re-use, recycling and composting.

The LGU source reduction component shall include the evaluation and identification of rate structures and fees for the purpose of reducing the amount of waste generated, an other source reduction strategies, including but not limited to, programs and economic incentives provided under Sec. 46 of this Act to reduce the use of non-recyclable materials, replace disposable materials and products with reusable materials and products, reduce packaging, and increase the efficiency of the use of paper, cardboard, glass, metal, and other materials. The waste reduction activities of the community shall also take into account, among others, local capability, economic viability, technical requirements, social concerns’ disposition of residual waste and environmental impact: Provided, That, projection of future facilities needed and estimated cost shall be incorporated in the plan.
(f) Recycling - The recycling component shall include a program and implementation schedule which shows the methods by which the LGU shall, in combination with source reduction and composting components, reduce a sufficient amount of solid waste disposed of in accordance with the diversion requirements set in Sec .20.
The LGU recycling component shall describe the following:
(1) The types of materials to be recycled under the programs;
(2) The methods for determining the categories of solid wastes to be diverted from disposal at a disposal facility through recycling; and
(3) New facilities and expansion of existing facilities needed to implement the recycling component.
The LGU recycling component shall described methods for developing the markets for recycled materials, including, but not limited to, an evaluation of the feasibility of procurement preferences for the purchase of recycled products. Each LGU may determine and grant a price preference to encourage the purchase of recycled products.
The five-year strategy for collecting, processing, marketing and selling the designated recyclable materials shall take into account persons engaged in the business of recycling or persons otherwise providing recycling services before the effectivity of this Act. Such strategy may be base upon the results of the waste composition analysis performed pursuant to this Section or information obtained in the course of past collection of solid waste by the local government unit, and may include recommendations with respect to increasing the number of materials designated for recycling pursuant to this Act.
The LGU recycling component shall evaluate industrial, commercial, residential, agricultural, governmental and other curbside, mobile, drop-off and buy-back recycling programs, manual and automated materials recovery facilities, zoning, building code changes and rate structures which encourage recycling of materials. The Solid Waste Management Plan shall indicate the specific measures to be undertaken to meet the waste diversion specified under Sec. 20 of this Act.
Recommended revisions to the building ordinances, requiring newly-constructed buildings and buildings undergoing specified alterations to contain storage space, devices or mechanisms that facilitate source separation and storage of designated recyclable materials to enable the local government unit to efficiently collect, process, market and sell the designated materials. Such recommendations shall include, but shall not be limited to separate chutes to facilitate source separation in multi-family dwellings, storage areas that conform to fire and safety code regulations, and specialized storage containers.
The Solid Waste Management Plan shall indicate the specific measures to be undertaken to meet the recycling goals pursuant to the objectives of this Act.
(g) Composting - The composting component shall include a program and implementation schedule which shows the methods by which the LGU shall, in combination with the source reduction and recycling components, reduce a sufficient amount of solid waste disposed of within its jurisdiction to comply with the diversion requirements of Sec. 20 hereof.
The LGU composting component shall describe the following:
(1) The types of materials which will be composted under the programs;
(2) The methods for determining the categories of solid wastes to be diverted from disposal at a disposal facility through composting; and
(3) New facilities, and expansion of existing facilities needed to implement the composting component.
The LGU composting component shall describe methods for developing the markets for composted materials, including, but not limited to, an evaluation of the feasibility of procurement preferences for the purchase of composted products. Each LGU may determine and grant a price preference to encourage the purchase of composted products.
(h) Solid waste facility capacity and final disposal - The solid waste facility component shall include, but shall not be limited to, a projection of the amount of disposal capacity needed to accommodate the solid waste generated, reduced by the following:
(1) Implementation of source reduction, recycling and composting programs required in this Section or through implementation of other waste diversion activities pursuant to Sec. 20 of this Act;
(2) Any permitted disposal facility which will be available during the 10-year planning period; and
(3) All disposal capacity which has been secured through an agreement with another LGU, or through an agreement with a solid waste enterprise.
The plan shall identify existing and proposed disposal sites and waste management facilities in the city or municipality or in other areas. The plan shall specify the strategies for the efficient disposal of waste through existing disposal facilities and the identification of prospective sites for future use. The selection and development of disposal sites shall be made on the basis of internationally accepted standards and on the guidelines set in Sec. 41 and 42 of this Act.
Strategies shall be included to improve said existing sites to reduce adverse impact on health and the environment, and to extent life span and capacity. The plan shall clearly define projections for future disposal site requirements and the estimated cost for these efforts.
Open dump sites shall not be allowed as final disposal sites. If an open dump site is existing within the city or municipality, the plan shall make provisions for its closure or eventual phase out within the period specified under the framework and pursuant to the provisions under Sec. 37 of this Act. As an alternative, sanitary landfill sites shall be developed and operated as a final disposal site for solid and, eventually, residual wastes of a municipality or city or a cluster of municipality and/or cities. Sanitary landfills shall be designed and operated in accordance with the guidelines set under Secs. 40 and 41 of this Act.
(i) Education and public information - The education and public information component shall describe how the LGU will educate and inform its citizens about the source reduction, recycling and composting programs.
The plan shall make provisions to ensure that information on waste collection services, solid waste management and related health and environmental concerns are widely disseminated among the public. This shall be undertaken through the print and broadcast media and other government agencies in the municipality. The DECS and the Commission on Higher Education shall ensure that waste management shall be incorporated in the curriculum of primary, secondary and college students.
(j) Special Waste - The special waste component shall include existing waste handling and disposal practices for special wastes or household hazardous wastes, and the identification of current and proposed programs to ensure the proper handling, re-use, and long-term disposal of special wastes;
(k) Resource requirement and funding - The funding component includes identification and description of project costs, revenues, and revenue sources the LGU will use to implement all components of the LGU solid waste management plan;
The plan shall likewise indicate specific projects, activities, equipment and technological requirements for which outside sourcing of funds or materials may be necessary to carry out the specific components of the plan. It shall define the specific uses for its resource requirement s and indicate its costs. The plan shall likewise indicate how the province, city or municipality intends to generate the funds for the acquisition of its resource requirements. It shall also indicate if certain resource requirements are being or will be sourced from fees, grants, donations, local funding and other means. This will serve as basis for the determination and assessment of incentives which may be extended to the province, city or municipality as provided for in Sec. 45 of this Act.
(l) Privatization of solid waste management projects - The plan shall likewise indicate specific measures to promote the participation of the private sector in the management of solid wastes, particularly in the generation and development of the essential technologies for solid waste management. Specific projects or component activities of the plan which may be offered as private sector investment activity shall be identified and promoted as such. Appropriate incentives for private sector involvement in solid waste management shall likewise be established and provided for in the plan, in consonance with Sec. 45 hereof and other existing laws, policies and regulations; and
(m) Incentive programs - A program providing for incentives, cash or otherwise, which shall encourage the participation of concerned sectors shall likewise be included in the plan.
Sec. 18. Owner and Operator. - Responsibility for compliance with the standards in this Act shall rest with the owner and/or operator. If specifically designated, the operator is considered to have primary responsibility for compliance; however, this does not relieve the owner of the duty to take all reasonable steps to assure compliance with these standards and any assigned conditions. When the title to a disposal is transferred to another person, the new owner shall be notified by the previous owner of the existence of these standards and of the conditions assigned to assure compliance.
Sec. 19. Waste characterization. - The Department in coordination with the LGUs, shall be responsible for the establishment of the guidelines for the accurate characterization of wastes including determination of whether or not wastes will be compatible with containment features and other wastes, and whether or not wastes are required to be managed as hazardous wastes under R. A. 6969, otherwise known as the Toxic Substance and Hazardous and Nuclear Wastes Control Act.
Sec. 20. Establishing Mandatory Solid Waste Diversion. - Each LGU plan shall include an implementation schedule which shows that within five (5) years after the effectivity of this Act, the LGU shall divert at least 25% of all solid waste from waste disposal facilities through re-use, recycling and composting activities and other resource recovery activities: Provided, That the waste diversion goals shall be increased every three (3) years thereafter; Provided, further, That nothing in this Section prohibits a local government unit from implementing re-use, recycling, and composting activities designed to exceed the goal.

Article 2
Segregation of Wastes
Sec. 21. Mandatory Segregation of Solid Wastes. - The LGUs shall evaluate alternative roles for the public and private sectors in providing collection services, type of collection system, or combination of systems, that best meet their needs: Provided, That segregation of wastes shall primarily be conducted at the source, to include household, institutional, industrial, commercial and agricultural sources: Provided, further; That wastes shall be segregated into the categories provided in Sec. 22 of this Act.
For premises containing six (6) or more residential units, the local government unit shall promulgate regulations requiring the owner or person in charge of such premises to:
(a) provide for the residents a designated area and containers in which to accumulate source separated recyclable materials to be collected by the municipality or private center; and
(b) notify the occupants of each buildings of the requirements of this Act and the regulations promulgated pursuant thereto.
Sec. 22. Requirements for the Segregation and Storage of Solid Waste. - The following shall be the minimum standards and requirements for segregation and storage of solid waste pending collection:
(a) There shall be a separate container for each type of waste from all sources: Provided, That in the case of bulky waste, it will suffice that the same be collected and placed in a separate designated area; and
(b) The solid waste container depending on its use shall be properly marked or identified for on-site collection as “compostable”, “non-recyclable”, “recyclable” or “special waste”, or any other classification as may be determined by the Commission.
Article 3
Collection and Transport of Solid Wastes
Sec. 23. Requirements for Collection of Solid Wastes. - The following shall be the minimum standards and requirements for the collection of solid waste:
(a) All collectors and other personnel directly dealing with collection of solid waste shall be equipped with personal protective equipment to protect them from the hazards of handling wastes;
(b) Necessary training shall be given to the collectors and personnel to ensure that the solid wastes are handled properly and in accordance with the guidelines pursuant to this Act; and
(c) Collection of solid waste shall be done in a manner which prevents damage to the container and spillage or scattering of solid waste within the collection vicinity.
Sec. 24. Requirements for the Transport of Solid Waste. - The use of separate collection schedules and/or separate trucks or haulers shall be required for specific types of wastes. Otherwise, vehicles used for the collection and transport of solid wastes shall have the appropriate compartments to facilitate efficient storing of sorted wastes while in transit.
Vehicles shall be designed to consider road size, condition and capacity to ensure the sage and efficient collection and transport of solid wastes.
The waste compartment shall have a cover to ensure the containment of solid wastes while in transit.
For the purpose of identification, vehicles shall bear the body number, the name, and the telephone number of the contractor/agency collecting solid waste.
Sec. 25. Guidelines for Transfer Stations. - Transfer stations shall be designed and operated for efficient waste handling capacity and in compliance with environmental standards and guidelines set pursuant to this Act and other regulations: Provided, That no waste shall be stored in such station beyond twenty-four (24) hours.
The siting of the transfer station shall consider the land use plan, proximity to collection area, and accessibility of haul routes to disposal facility. The design shall give primary consideration to size and space sufficiency in order to accommodate the waste for storage and vehicles for loading and unloading of wastes.
Article 4
Recycling Program
Sec. 26. Inventory of Existing Markets for Recyclable Materials. - The DTI shall within six (6) months from the effectivity of this Act and in cooperation with the Department, the DILG and other concerned agencies and sectors, publish a study of existing markets for processing and purchasing recyclable materials and the potential steps necessary to expand these markets. Such study shall include, but not be limited to, an inventory of existing markets for recyclable materials, product standards for recyclable and recycled materials, and a proposal, developed in conjunction with the appropriate agencies, to stimulate the demand for the production of products containing post consumer and recovered materials.
Sec. 27. Requirement for Eco-Labeling. - The DTI shall formulate and implement a coding system for packaging materials and products to facilitate waste and recycling and re-use.
Sec. 28. Reclamation Programs and Buy-back Centers for Recyclables and Toxics. - The National Ecology Center shall assist LGUs in establishing and implementing deposit or reclamation programs in coordination with manufacturers, recyclers and generators to provide separate collection systems or convenient drop-off locations for recyclable materials and particularly for separated toxic components of the waste stream like dry cell batteries and tires to ensure that they are not incinerated or disposed of in a landfill. Upon effectivity of this Act, toxic materials present in the waste stream should be separated at source, collected separately and further screened and sent to appropriate hazardous waste treatment and disposal plants, consistent with the provisions of R. A. No. 6969.
Sec. 29. Non-Environmentally Acceptable Products. - Within one (1) year from the effectivity of this Act, the Commission shall, after public notice and hearing, prepare a list of non-environmentally acceptable products as defined in this Act that shall be prohibited according to a schedule that shall be prepared by the Commission: Provided, however, That non-environmentally acceptable products shall not be prohibited unless the Commission first finds that there are alternatives available which are available to consumers at no more than ten percent (10%) greater cost than the disposable product.
Notwithstanding any other provisions to the contrary, this section shall not apply to:
(a) Packaging used at hospitals, nursing homes or other medical facilities; and
(b) Any packaging which is not environmentally acceptable, but for which there is no commercially available alternatives as determined by the Commission.
The Commission shall annually review and update the list of prohibited non-environmentally acceptable products.
Sec. 30. Prohibition on the Use of Non-Environmentally Acceptable Packaging. - No person owning, operating or conducting a commercial establishment in the country shall sell or convey at retail or possess with the intent to sell or convey at retail any products that are placed, wrapped or packaged in or on packaging which is not environmentally acceptable packaging: Provided, That the Commission shall determine a phaseout period after proper consultation and hearing with the stakeholders or with the sectors concerned. The presence in the commercial establishment of non-environmentally acceptable packaging shall constitute a rebuttable presumption of intent to sell or convey the same at retail to customers.
Any person who is a manufacturer, broker or warehouse operator engaging in the distribution or transportation of commercial products within the country shall file a report with the concerned local government within one (1) year from the effectivity of this Act, and annually thereafter, a listing of any products in packaging which is not environmentally acceptable. The Commission shall prescribe the form of such report in its regulations.
A violation of this Section shall be sufficient grounds for the revocation, suspension, denial or non-renewal of any license for the establishment in which the violation occurs.
Sec. 31. Recycling Market Development. - The Commission together with the National Ecology Center, the DTI and the Department of Finance shall establish procedures, standards and strategies to market recyclable materials and develop the local market for recycle goods, including but not limited to:
(a) measures providing economic incentives and assistance including loans and grants for the establishment of privately-owned facilities to manufacture finished products from post-consumer materials;
(b) guarantees by the national and local governments to purchase a percentage of the output of the facility; and
(c) maintaining a list of prospective buyers, establishing contact with prospective buyers and reviewing and making any necessary changes in collecting or processing the materials to improve their marketability.
In order to encourage establishments of new facilities to produce goods from post-consumer and recovered materials generated within local government units, and to conserve energy by reducing materials transportation, whenever appropriate, each local government unit may arranged for long-term contracts to purchase a substantial share of the product output of a proposed facility which will be based in the jurisdiction of the local government unit if such facility will manufacture such finished products form post-consumer and recovered materials.
Sec. 32. Establishment of LGU Materials Recovery Facility. - There shall be established a Materials Recovery Facility (MRF) in every barangay or cluster of barangays. The facility shall be established in a barangay-owned or -leased land or any suitable open space to be determined by the barangay through its Sanggunian. For this purpose, the barangay or cluster of barangays shall allocate a certain parcel of land for the MRF. The MRF shall receive mixed waste for final sorting, segregation, composting, and recycling. The resulting residual wastes shall be transferred to a long term storage or disposal facility or sanitary landfill.
Sec. 33. Guidelines for Establishment of Materials Recovery Facility. - Materials recovery facilities shall be designed to receive, sort, process and store compostable and recyclable material efficiently and in an environmentally sound manner. The facility shall address the following considerations:
(a) The building and/or land layout and equipment must be designed to accommodate efficient and safe materials processing, movement, and storage; and
(b) The building must be designed to allow efficient and safe external access and to accommodate internal flow.
Article 5
Composting
Sec. 34. Inventory of Markets of Composts. - Within six (6) months after the effectivity of this Act, the DA shall publish an inventory of existing markets and demands for composts. Said inventory shall thereafter be updated and published annually: Provided, That the composting of agricultural wastes and other compostable materials, including but not limited to garden wastes, shall be encouraged.
Sec. 35. Guidelines for Compost Quality. - Compost products intended to be distributed commercially shall conform with the standards for organic fertilizers set by the DA. The DA shall assist the compost producers to ensure that the compost products conform to such standards.

Article 6
Waste Management Facilities
Sec. 36. Inventory of Waste Disposal Facilities. - Within six (6) months from the effectivity of this Act, the Department, in cooperation with the DOH, DILG and other concerned agencies, shall publish an inventory of all solid waste disposal facilities or sites in the country.
Sec. 37. Prohibition Against the Use of Open Dumps for Solid Waste. - No open dumps shall be established and operated, nor any practice or disposal of solid waste by any person, including LGUs, which constitutes the use of open dumps for solid wastes, be allowed after the effectivity of this Acts: Provided, That within three (3) years after the effectivity of this Act, every LGU shall convert its open dumps into controlled dumps, in accordance with the guidelines set in Sec. 41 of this Act: Provided, further, That no controlled dumps shall be allowed five (5) years following the effectivity of this Act.
Sec. 38. Permit for Solid Waste Management Facility Construction and Expansion. - No person shall commence operation, including site preparation and construction of a new solid waste management facility or the expansion of an existing facility until said person obtains an Environment Compliance Certificate (ECC) from the Department pursuant to P.D. 1586 and other permits and clearances form concerned agencies.
Sec. 39. Guidelines for Controlled Dumps. - The following shall be the minimum considerations for the establishments of controlled dumps:
(a) Regular inert cover;
(b) Surface water and peripheral site drainage control;
(c) Provision for aerobic and anaerobic decomposition;
(d) Restriction of waste deposition to small working areas;
(e) Fence, including provisions for litter control;
(f) Basic record-keeping;
(g) Provision of maintained access road;
(h) Controlled waste picking and trading;
(i) Post-closure site cover and vegetation; and
(j) Hydro geological siting.
Sec. 40. Criteria for Siting a Sanitary Landfill. - The following shall be the minimum criteria for the siting of sanitary landfills:
(a) The site selected must be consistent with the overall land use plan of the LGU;
(b) The site must be accessible from major roadways or thoroughfares;
(c) The site should have an adequate quantity of earth cover material that is easily handled and compacted;
(d) The site must be chosen with regard for the sensitivities of the community’s residents;
(e) The site must be located in an area where the landfill’s operation will not detrimentally affect environmentally sensitive resources such as aquifer, groundwater reservoir or watershed area;
(f) The site should be large enough to accommodate the community’s wastes for a period of five (5) years during which people must internalize the value of environmentally sound and sustainable solid waste disposal;
(g) The site chosen should facilitate developing a landfill that will satisfy budgetary constraints, including site development, operation for many years, closure, post-closure care and possible remediation costs;
(h) Operating plans must include provisions for coordinating with recycling and resource recovery projects; and
(i) Designation of a separate containment area for household hazardous wastes.
Sec. 41. Criteria for Establishment of Sanitary Landfill. - The following shall be the minimum criteria for the establishment of sanitary landfills:
(a) Liners - a system of clay layers and/or geosynthethic membranes used to contain leachate and reduce or prevent contaminant flow to groundwater;
(b) Leachate collection and treatment system - installation of pipes at the low areas of the liner to collect leachate for storage and eventual treatment and discharge;
(c) Gas control and recovery system - a series of vertical wells or horizontal trenches containing permeable materials and perforated piping placed in the landfill to collect gas for treatment or productive use as an energy source;
(d) Groundwater monitoring well system - wells placed at an appropriate location and depth for taking water that are representative of ground water quality;
(e) Cover - two (2) forms of cover consisting of soil and geosynthetic materials to protect the waste from long-term contact with the environment:
(i) a daily cover placed over the waste at the close of each day’s operations, and;
(ii) a final cover, or cap, which is the material placed over the completed landfill to control infiltration of water, gas emission to the atmosphere, and erosion.
(f) Closure procedure with the objectives of establishing low maintenance cover systems and final cover that minimizes the infiltration of precipitation into the waste. Installation of the final cover must be completed within six (6) months of the last receipt of waste;
(g) Post-closure care procedure - During this period, the landfill owner shall be responsible for providing for the general upkeep of the landfill, maintaining all of the landfill’s environmental protection features, operating monitoring equipment, remediating groundwater should it become contaminated and controlling landfill gas migration or emission.
Sec. 42. Operating Criteria for Sanitary Landfills. - In the operation of a sanitary land fill, each site operator shall maintain the following minimum operating equipment:
(a) Disposal site records of, but not limited to:
(1) Records of weights or volumes accepted in a form and manner approved by the Department. Such records shall be submitted to the Department upon request, accurate to within ten percent (10%) and adequate for overall planning purposes and forecasting the rate of site filling;
(2) Records of excavations which may affect the safe and proper operation of the site or cause damage to adjoining properties;
(3) Daily log book or file of the following information: fires, landslides, earthquake damage, unusual and sudden settlement, injury and property damage, accidents, explosions, receipts or rejection of unpermitted wastes, flooding and other unusual occurrences;
(4) Record of personnel training; and
(5) Copy of written notification to the Department, local health agency, and fire authority of names, addresses and telephone numbers of the operator or responsible party of the site;
(b) Water quality monitoring of surface and ground waters and effluent, and gas emissions;
(c) Documentation of approvals, determinations and other requirements by the Department;
(d) Signs:
(1) Each point of access from a public road shall be posted with an easily visible sigh indicating the facility name and other pertinent information as required by the Department;
(2) If the site is open to the public, there shall be an easily visible sign at the primary entrance of the site indicating the name of the site operator, the operator’s telephone number, and hours of operation; an easily visible sign at an appropriate point shall indicate the schedule of changes and the general types of materials which will either be accepted or not;
(3) If the site is open to the public, there shall be an easily visible road sign and/or traffic control measures which direct traffic to the active face and other areas where wastes or recyclable materials will be deposited; and
(4) Additional signs and/or measures may be required at a disposal site by the Department to protect personnel and public health and safety;
(e) Monitoring of quality of surface, ground and effluent waters, and gas emissions;
(f) The site shall be designed to discourage unauthorized access by persons and vehicles by using a perimeter barrier or topographic constraints. Areas within the site where open storage, or pounding of hazardous materials occurs shall be separately fenced or otherwise secured as determined by the Department. The Department may also require that other areas of the site be fenced to create an appropriate level of security;
(g) Roads within the permitted facility boundary shall be designed to minimize the generation of dust and the tracking of material onto adjacent public roads. Such roads shall be kept in safe condition and maintained such that vehicle access and unloading can be conducted during inclement weather;
(h) Sanitary facilities consisting of adequate number of toilets and handwashing facilities, shall be available to personnel at or in the immediate vicinity of the site;
(i) Safe and adequate drinking water supply for the site personnel shall be available;
(j) The site shall have communication facilities available to site personnel to allow quick response to emergencies;
(k) Where operations are conducted during hours of darkness, the site and/or equipment shall be equipped with adequate lighting as approved by the Department to ensure safety and to monitor the effectiveness of operations;
(l) Operating and maintenance personnel shall wear and use appropriate safety equipment as required by the Department;
(m) Personnel assigned to operate the site shall be adequately trained in subject pertinent to the site operation and maintenance, hazardous materials recognition and screening, and heavy equipment operations, with emphasis on safety, health, environmental controls and emergency procedures. A record of such training shall be placed in the operating record;
(n) The site operator shall provide adequate supervision of a sufficient number of qualified personnel to ensure proper operation of the site in compliance with all applicable laws, regulations, permit conditions and other requirements. The operator shall notify the Department and local health agency in writing of the names, addresses, and telephone number of the operator or responsible party. A copy of the written notification shall be placed in the operation record;
(o) Any disposal site open to the public shall have an attendant present during public operating hours or the site shall be inspected by the operator on a regularly scheduled basis, as determined by the Department;
(p) Unloading of solid wastes shall be confined to a small area as possible to accommodate the number of vehicles using the area without resulting in traffic, personnel, or public safety hazards. Waste materials shall normally be deposited at the toe of the fill, or as otherwise approved by the Department;
(q) Solid waste shall be spread and compacted in layers with repeated passages of the landfill equipment to minimize voids within the cell and maximize compaction. The loose layer shall not exceed a depth approximately two feet before compaction. Spreading and compacting shall be accomplished as rapidly as practicable, unless otherwise approved by the Department;
(r) Covered surfaces of the disposal area shall be graded to promote lateral runoff of precipitation and to prevent pounding. Grades shall be established of sufficient slopes to account for future settlement of the fill surface. Other effective maintenance methods may be allowed by the Department; and
(s) Cover material or native material unsuitable for cover, stockpiled on the site for use or removal, shall be placed so as not to cause problems or interfere with unloading, spreading, compacting, access, safety drainage, or other operations.
Article 7
Local Government Solid Waste Management
Sec. 43. Guidelines for Identification of Common Solid Waste Management Problems. - For purposes of encouraging and facilitating the development of local government plans for solid waste management, the Commission shall, as soon as practicable but not later than six (6) months from the effectivity of this Act, publish guidelines for the identification of those areas which have common solid waste management problems and are appropriate units for clustered solid waste management services. The guidelines shall be based on the following:
(a) the size and location of areas which should be included;
(b) the volume of solid waste which would be generated;
(c) the available means of coordinating local government planning between and among the LGUs and for the integration of such with the national plan; and
(d) possible lifespan of the disposal facilities.
Sec. 44. Establishment of Common Waste Treatment and Disposal Facilities. - Pursuant to Sec. 33 of R. A. 7160, otherwise known as the Local Government Code, all provinces, cities, municipalities and barangays, through appropriate ordinances, are hereby mandated to consolidate, or coordinate their efforts, services, and resources for purposes of jointly addressing common solid waste management problems and/or establishing common waste disposal facilities.
The Department, the Commission and local solid waste management boards shall provide technical and marketing assistance to the LGUs.
CHAPTER IV
INCENTIVES
Sec. 45. Incentives. - (a) Rewards, monetary or otherwise, shall be provided to individuals, private organizations and entitles, including non-government organizations, that have undertaken outstanding and innovative projects, technologies, processes and techniques or activities in re-use, recycling and reduction. Said rewards shall be sourced from the Fund herein created.
(b) An incentive scheme is hereby provided for the purpose of encouraging LGUs, enterprises, or private entities, including NGOs, to develop or undertake an effective solid waste management, or actively participate in any program geared towards the promotion thereof as provided for in this Act.
(1) Fiscal Incentives. - Consistent with the provisions of E. O. 226, otherwise known as the Omnibus Investments Code, the following tax incentives shall be granted:

(a) Tax and Duty Exemption on Imported Capital Equipment and Vehicles - Within ten (10) years upon effectively of this Act, LGUs, enterprises or private entities shall enjoy tax and duty free importation of machinery, equipment, vehicles and spare parts used for collection, transportation, segregation, recycling, re-use and composing of solid wastes: Provided, That the importation of such machinery, equipment, vehicle and spare parts shall comply with the following conditions:

(i) They are not manufactured domestically in sufficient quantity, of comparable quality and at reasonable prices;
(ii) They are reasonably needed and will be used actually, directly and exclusively for the above mentioned activities;
(iii) The approval of the Board of Investment (BOI) of the DTI for the importation of such machinery, equipment, vehicle and spare parts.

Provided, further, That the sale, transfer or disposition of such machinery, equipment, vehicle and spare parts, without prior approval of the (BOI), within five (5) years from the date of acquisition shall be prohibited, otherwise, the LGU concerned, enterprise or private entities and the vendee, transferee, or assignee shall be solidarily liable to pay twice the amount of tax and duty exemption given it.

(b) Tax Credit on Domestic Equipment - Within ten (10) years from the effectivity of this Act, a tax credit equivalent to 50% of the value of the national internal revenue taxes and customs duties that would have been waived on the machinery, equipment, vehicle and spare parts, had these items been imported shall be given to enterprises, private entities, including NGOs, subject to the same conditions and prohibition cited in the preceding paragraph.

(c) Tax and Duty Exemption of Donations, Legacies and Gift - All legacies, gifts and donations to LGUs, enterprises or private entities, including NGOs, for the support and maintenance of the program for effective solid waste management shall be exempt from all internal revenue taxes and customs duties, and shall be deductible in full from the gross income of the donor for income tax purposes.
(2) Non-Fiscal Incentives. - LGUs, enterprises or private entities availing of tax incentives under this Act shall also be entitled to applicable non-fiscal incentives provided for under E. O. 226, otherwise known as the Omnibus Investments Code.
The Commission shall provide incentives to businesses and industries that are engaged in the recycling of wastes and which are registered with the Commission and have been issued ECCs in accordance with the guidelines established by the Commission. Such incentives shall include simplified procedures for the importation of equipment, spare parts, new materials, and supplies, and for the export of processed products.
(3) Financial Assistance Program. - Government financial institutions such as the Development Bank of the Philippines (DBP), Landbank of the Philippines (LBP), Government Service Insurance System (GSIS), and such other government institutions providing financial services shall, in accordance with and to the extent allowed by the enabling provisions of their respective charters or applicable laws, accord high priority to extend financial services to individuals, enterprises, or private entities engaged in solid waste management.
(4) Extension of Grants to LGUs. - Provinces, cities and municipalities whose solid waste management plans have been duly approved by the Commission or who have been commended by the Commission for adopting innovative solid waste management programs may be entitled to receive grants for the purpose of developing their technical capacities toward actively participating in the program for effectively and sustainable solid waste management.
(5) Incentives to Host LGUs. - Local government units who host common waste management facilities shall be entitled to incentives.
CHAPTER V
FINANCING SOLID WASTE MANAGEMENT
Sec. 46. Solid Waste Management Fund. - There is hereby created, as a special account in the National Treasury, a Solid Waste Management Fund to be administered by the Commission. Such fund shall be sourced from the following:
(a) Fines and penalties imposed, proceeds of permits and licenses issued by the Department under this Act, donations, endowments, grants and contributions from domestic and foreign sources; and
(b) Amounts specifically appropriated for the Fund under the annual General Appropriations Act;
The Fund shall be used to finance the following:
(1) products, facilities, technologies and processes to enhance proper solid waste management;
(2) awards and incentives;
(3) research programs;
(4) information, education, communication and monitoring activities;
(5) technical assistance; and
(6) capability building activities.
LGUs are entitled to avail of the Fund on the basis of their approved solid waste management plan. Specific criteria for the availment of the Fund shall be prepared by the Commission.
The fines collected under Section 49 shall be allocated to the LGU where the fined prohibited acts are committed in order to finance the solid waste management of said LGU. Such allocation shall be based on a sharing scheme between the Fund and the LGU concerned.
In no case, however, shall the Fund be used for the creation of positions or payment of salaries and wages.
Sec. 47. Authority to Collect Solid Waste Management Fees. - The local government unit shall impose fees in amounts sufficient to pay the costs of preparing, adopting, and implementing a solid waste management plan prepared pursuant to this Act. The fees shall be based on the following minimum factors:
(a) types of solid waste;
(b) amount/volume of waste; and
(c) distance of the transfer station to the waste management facility.
The fees shall be used to pay the actual costs incurred by the LGU in collecting the local fees. In determining the amounts of the fees, an LGU shall include only those costs directly related to the adoption and implementation of the plan and the setting and collection of the local fees.
CHAPTER VI
PENAL PROVISIONS
Sec. 48. Prohibited Acts. - The following acts are prohibited:
(1) Littering, throwing, dumping of waste matters in public places, such as roads, sidewalks, canals, esteros or parks, and establishment, or causing or permitting the same;
(2) Undertaking activities or operating, collecting or transporting equipment in violation of sanitation operation and other requirements or permits set forth in established pursuant;
(3) The open burning of solid waste;
(4) Causing or permitting the collection of non-segregated or unsorted wastes;
(5) Squatting in open dumps and landfills;
(6) Open dumping, burying of biodegradable or non-biodegradable materials in flood prone areas;
(7) Unauthorized removal of recyclable material intended for collection by authorized persons;
(8) The mixing of source-separated recyclable material with other solid waste in any vehicle, box, container or receptacle used in solid waste collection or disposal;
(9) Establishment or operation of open dumps as enjoined in this Act, or closure of said dumps in violation of Sec. 37;
(10) The manufacture, distribution or use of non-environmentally acceptable packaging materials;
(11) Importation of consumer products packaged in non-environmentally acceptable materials;
(12) Importation of toxic wastes misrepresented as “recyclable” or “with recyclable content”;
(13) Transport and dumplog in bulk of collected domestic, industrial, commercial, and institutional wastes in areas other than centers or facilities prescribe under this Act;
(14) Site preparation, construction, expansion or operation of waste management facilities without an Environmental Compliance Certificate required pursuant to Presidential Decree No. 1586 and this Act and not conforming with the land use plan of the LGU;
(15) The construction of any establishment within two hundred (200) meters from open dumps or controlled dumps, or sanitary landfill; and
(16) The construction or operation of landfills or any waste disposal facility on any aquifer, groundwater reservoir, or watershed area and or any portions thereof.
Sec. 49. Fines and Penalties. - (a) Any person who violates Section 48 paragraph (1) shall, upon conviction, be punished with a fine of not less than Three hundred pesos (P300.00) but not more than One thousand pesos (P1,000.00) or render community service for not less than one (1) day to not more than fifteen (15) days to an LGU where such prohibited acts are committed, or both;
(b) Any person who violates Section 48, pars. (2) and (3), shall, upon conviction be punished with a fine of not less than Three hundred pesos (P300.00) but not more than One thousand pesos (P1,000.00) or imprisonment of not less than one (1) day but to not more than fifteen (15) days, or both;
(c) Any person who violates Section 48, pars. (4), (5), (6) and (7) shall, upon conviction, be punished with a fine of not less than One thousand pesos (P1,000.00) but not more than Three thousand pesos (P3,000.00) or imprisonment of not less than fifteen (15) day but to not more than six (6) months, or both;
(d) Any person who violates Section 48, pars (8), (9), (10) and (11) for the first time shall, upon conviction, pay a fine of Five hundred thousand pesos (P500,000.00) plus and amount not less than five percent (5%) but not more than ten percent (10%) of his net annual income during the previous year.
The additional penalty of imprisonment of a minimum period of one (1) year but not to exceed three (3) years at the discretion of the court, shall be imposed for second or subsequent violations of Section 48, pars. (9) and (10).
(e) Any person who violates Section 48, pars. (12) and (13) shall, upon conviction, be punished with a fine not less than Ten thousand pesos (P10,000.00) but not more than Two hundred thousand pesos (P200,000.00) or imprisonment of not less than thirty (30) days but not more than three (3) years, or both;
(f) Any person who violates Section 48, pars. (14), (15) and (16) shall, upon conviction, be punished with a fine not less than One hundred thousand pesos (P100,000.00) but not more than One million pesos (P1,000,000.00), or imprisonment not less than one (1) year but not more than six (6) years, or both.
If the offense is committed by a corporation, partnership, or other juridical identity duly recognized in accordance with the law, the chief executive officer, president, general manager, managing partner or such other officer-in-charge shall be liable for the commission of the offense penalized under this Act.
If the offender is an alien, he shall, after service of the sentence prescribed above, be deported without further administrative proceedings.
The fines herein prescribed shall be increased by at lest ten (10%) percent every three years to compensate for inflation and to maintain the deterrent functions of such fines.
Sec. 50. Administrative Sanctions. - Local government officials and officials of government agencies concerned who fail to comply with and enforce rules and regulations promulgated relative to this Act shall be charged administratively in accordance with R. A. 7160 and other existing laws, rules and regulations.

CHAPTER VII
MISCELLANEOUS PROVISIONS
Sec. 51. Mandatory Public Hearings. - Mandatory public hearings for national framework and local government solid waste management plans shall be undertaken by the Commission and the respective Boards in accordance with process to be formulated in the implementing rules and regulations.
Sec. 52. Citizens Suits. - For the purposes of enforcing the provisions of this Act or its implementing rules and regulations, any citizen may file an appropriate civil, criminal or administrative action in the proper courts/bodies against:
(a) Any person who violates or fails to comply with the provisions of this Act its implementing rules and regulations; or
(b) The Department or other implementing agencies with respect to orders, rules and regulations issued inconsistent with this Act; and/or
(c) Any public officer who willfully or grossly neglects the performance of an act specifically enjoined as a duty by this Act or its implementing rules and regulations; or abuses his authority in the performance of his duty; or, in any many improperly performs his duties under this Act or its implementing rules and regulations; Provided, however, That no suit can be filed until after thirty-day (30) notice has been given to the public officer and the alleged violator concerned and no appropriate action has been taken thereon.
The Court shall exempt such action from the payment of filing fees and statements likewise, upon prima facie showing of the non-enforcement or violation complained of, exempt the plaintiff from the filing of an injunction bond for the issuance of preliminary injunction.
In the event that the citizen should prevail, the Court shall award reasonable attorney’s fees, moral damages and litigation costs as appropriate.
Sec. 53. Suits and Strategic Legal Action Against Public Participation (SLAPP) and the Enforcement of this Act. - Where a suit is brought against a person who filed an action as provided in Section 52 of this Act, or against any person, institution or government agency that implements this Act, it shall be the duty of the investigating prosecutor or the Court, as the case may be, to immediately make a determination not exceeding thirty (30) days whether said legal action has been filed to harass, vex, exert undue pressure or stifle such legal recourses of the person complaining of or enforcing the provisions of this Act. Upon determination thereof, evidence warranting the same, the Court shall dismiss the complaint and award the attorney’s fees and double damages.
This provision shall also apply and benefit public officers who are sued for acts committed in their official capacity, there being no grave abuse of authority, and done in the course of enforcing this Act.
Sec. 54. Research on Solid Waste Management. - The Department after consultations with the cooperating agencies, shall encourage, cooperate with, and render financial and other assistance to appropriate government agencies and private agencies, institutions and individuals in the conduct and promotion researches, experiments, and other studies on solid waste management, particularly those relating to:
(a) adverse health effects of the release into the environment of materials present in solid wastes, and methods to eliminate said effects;
(b) the operation and financing of solid waste disposal programs;
(c) the planning, implementing and operation of resource recovery and resource conservation systems;
(d) the production of usable forms of recovered resources, including fuel from solid waste;
(e) the development and application of new and improved methods of collecting and disposing of solid waste and processing and recovering materials and energy from solid waste;
(f) improvements in land disposal practices for solid waste (including sludge); and
(g) development of new uses of recovered resources and identification of existing or potential markets of recovered resources.
In carrying out solid waste researches and studies, the Secretary of the Department or the authorized representative may make grants or enter into contracts with government agencies, non-government organizations and private persons.
Sec. 55. Public Education and Information. - The Commission shall, in coordination with DECS, TESDA, CHED, DILG and PIA, conduct a continuing education and information campaign on solid waste management, such education and information program shall:
(a) Aim to develop public awareness of the ill-effects of and the community based solutions to the solid waste problem;
(b) Concentrate on activities which are feasible and which will have the greatest impact on the solid waste problem of the country, like resource conservation and recovery, recycling, segregation at source, re-use, reduction, and composing of solid waste; and
(c) Encourage the general public, accredited NGOs and people’s organizations to publicity endorse and patronize environmentally acceptable products and packaging materials.
Sec. 56. Environmental Education in the Formal and Nonformal Sectors. - The national government, through the DECS and in coordination with concerned government agencies, NGOs and private institutions, shall strengthen the integration of environmental concerns in school curricula at all levels, with particular emphasis on the theory and practice of waste management principles like waste minimization, specifically resource conservation and recovery, segregation at source, reduction, recycling, re-use, and composing, in order to promote environmental awareness and action among the citizenry.
Sec. 57. Business and Industry Role. - The Commission shall encourage commercial and industrial establishments, through appropriate incentives other than tax incentives to initiate, participate and invest in integrated ecological solid waste management projects to manufacture environment-friendly products, to introduce develop and adopt innovative processes that shall recycle and re-use materials, conserve raw materials and energy, reduce waste, and prevent pollution and to undertake community activities to promote and propagate effective solid waste management practices.
Sec. 58. Appropriations. - For the initial operating expenses of the Commission and the National Ecology Center as well as the expensed of the local government units to carry out the mandate of this Act, the amount of Twenty million pesos (P20,000,000.00) is hereby appropriated from the Organizational Adjustment Fund on the year this Act is approved. Thereafter, it shall submit to the Department of Budget and Management its proposed budget for inclusion in the General Appropriations Act.
Sec. 59. Implementing Rules and Regulations (IRR). - The Department, in coordination with the Committees on Environment and Ecology of the Senate and House of Representative, respectively, the representatives of the Leagues of Provinces, Cities, Municipalities and Barangay Councils, the MMDA and other concerned agencies, shall promulgate the implementing rules and regulations of this Act, within one (1) year after its enactment: Provided, That rules and regulations issued by other government agencies and instrumentalities for the prevention and/or abatement of the solid waste management problem not inconsistent with this Act shall supplement the rules and regulations issued by the Department, pursuant to the provisions of this Act.
The draft of the IRR shall be published and be the subject of public consultation with affected sectors. It shall be submitted to the Committee on Environment Ecology of the Senate and House of Representatives, respectively, for review before approved by the Secretary.
Sec. 60. Joint Congressional Oversight Committee. - There is hereby created a Joint Congressional Oversight Committee to monitor the implementation of the Act and to oversee the functions of the Commission. The Committee shall be composed of five (5) Senators and five (5) Representatives to be appointed by the Senate President and Speaker of the House of Representatives, respectively. The Oversight Committee shall be co-chaired by a Senator and a Representative designated by the Senate President and the Speaker of the House of Representatives, respectively.
Sec. 61. Abolition of the Presidential Task Force On Waste Management and the Project Management Office on Solid Waste Management. - The Presidential Task Force on Waste Management which was created by virtue of Memorandum Circular No. 39 dated November 2, 1987, as amended by Memorandum Circular No. 39A and 88 is hereby abolished.
Further, pursuant to Administrative Order No. 90 dated October 19, 1992, the Project Management Office on Solid Waste Management is likewise hereby abolished. Consequently their powers and functions shall be absorbed by the Commission pursuant to the provisions of this Act.
Sec. 62. Transitory Provision. - Pending the establishment of the framework under Sec. 15 hereof, plans under Sec. 16 and promulgation of the IRR under Sec. 59 of this Act, existing laws, regulations, programs and projects on solid waste management shall be enforced: Provided, That for specific undertaking, the same may be revised in the interim in accordance with the intentions of this Act.
Sec. 63. Report to Congress. - The Commission shall report to Congress not later than March 30 of every year following the approval of this Act, giving a detailed account of its accomplishments and progress on solid waste management during the year and make the necessary recommendations in areas where there is need for legislative action.
Sec. 64. Separability Clause. - If any provision of this Act or the application of such provision to any person or circumstances is declared unconstitutional, the remainder of the Act or the application of such provision to other persons or circumstances shall not be affected by such declaration.
Sec. 65. Repealing Clause. - All laws, decrees, issuances, rules and regulations or parts thereof inconsistent with the provisions of this Act are hereby repealed or modified accordingly.
Sec. 66. Effectivity. - This Act shall take effect fifteen (15) days after its publication in at least two (2) newspapers of general circulation.

Approved: January 26, 2001

Republic of the Philippines
Congress of the Philippines
Metro Manila
Eleventh Congress
Second Regular Session
Begun and held in Metro Manila, on Monday, the fourteenth June, two thousand.
Republic Act No. 8792
AN ACT PROVIDING FOR THE RECOGNITION AND USE OF ELECTRONIC COMMERCIAL AND NON -COMMERCIAL TRANSACTIONS AND DOCUMENTS, PENALTIES FOR UNLAWFUL USE THEREOF AND FOR OTHER PURPOSES
Be it enacted by the Senate and House of Representatives of the Republic of the Philippines in Congress assembled:

PART I
SHORT TITLE AND DECLARATION OF POLICY
Sec. 1. Short Title. - This Act shall be known as the “Electronic Commerce Act of 2000″.
Sec. 2. Declaration of Policy. - The State recognizes the vital role of information and communications technology (ICT) in nation-building; the need to create an information-friendly environment which supports and ensures the availability, diversity and affordability of ICT products and services; the primary responsibility of the private sector in contributing investments and services in telecommunications and information technology; the need to develop, with appropriate training programs and institutional policy changes, human resources for the information technology age, a labor force skilled in the use of ICT and a population capable of operating and utilizing electronic appliances and computers; its obligation to facilitate the transfer and promotion of adaptation technology, to ensure network security, connectivity and neutrality of technology for the national benefit; and the need to marshal, organize and deploy national information infrastructures, comprising in both telecommunications network and strategic information services, including their interconnection to the global information networks, with the necessary and appropriate legal, financial, diplomatic and technical framework, systems and facilities.

PART II
ELECTRONIC COMMERCE IN GENERAL
Sec. 3. Objective. - This Act aims to facilitate domestic and international dealings, transactions, arrangements, agreements, contracts and exchanges and storage of information through the utilization of electronic, optical and similar medium, mode, instrumentality and technology to recognize the authenticity and reliability of electronic documents related to such activities and to promote the universal use of electronic transaction in the government and general public.
Sec. 4. Sphere of Application. This Act shall apply to any kind of data message and electronic document used in the context of commercial and non-commercial activities to include domestic and international dealings, transactions, arrangements, agreements, contracts and exchanges and storage of information.
Sec. 5. Definition of Terms. For the purposes of this Act, the following terms are defined, as follows:
a. “Addressee” refers to a person who is intended by the originator to receive the electronic data message or electronic document. The term does not include a person acting as an intermediary with respect to that electronic data message or electronic document.
b. “Computer” refers to any device or apparatus which, by electronic, electro-mechanical or magnetic impulse, or by other means, is capable of receiving, recording, transmitting, storing, processing, retrieving, or producing information, data, figures, symbols or other modes of written expression according to mathematical and logical rules or of performing any one or more of those functions.
c. “Electronic Data message” refers to information generated, sent, received or stored by electronic, optical or similar means.
d. “Information and communication system” refers to a system intended for and capable of generating, sending, receiving, storing or otherwise processing electronic data messages or electronic documents and includes the computer system or other similar device by or in which data is recorded or stored and any procedures related to the recording or storage of electronic data message or electronic document.
e. “Electronic signature” refers to any distinctive mark, characteristic and/or sound in electronic form, representing the identity of a person and attached to or logically associated with the electronic data message or electronic document or any methodology or procedures employed or adopted by a person and executed or adopted by such person with the intention of authenticating or approving an electronic data message or electronic document.
f. “Electronic document” refers to information or the representation of information, data, figures, symbols or other modes of written expression, described or however represented, by which a right is established or an obligation extinguished, or by which a fact may be proved and affirmed, which is received, recorded, transmitted, stored, processed, retrieved or produced electronically.
g. “Electronic key” refers to a secret code which secures and defends sensitive information that crosses over public channels into a form decipherable only with a matching electronic key.
h. “Intermediary” refers to a person who in behalf of another person and with respect to a particular electronic document sends, receives and/or stores or provides other services in respect of that electronic document.
i. “Originator” refers to a person by whom, or on whose behalf, the electronic document purports to have been created, generated and/or sent . The term does not include a person acting as an intermediary with respect to that electronic document.
j. “Service provider” refers to a provider of -
(i) On-line services or network access, or the operator of facilities therefor, including entities offering the transmission, routing, or providing of connections for online communications, digital or otherwise, between or among points specified by a user, of electronic documents of the user’s choosing; or
(ii) The necessary technical means by which electronic documents of an originator may be stored and made accessible to a designated or undesignated third party;
Such service providers shall have no authority to modify or alter the content of the electronic data message or electronic document received or to make any entry therein on behalf of the originator, addressee or any third party unless specifically authorized to do so, and who shall retain the electronic document in accordance with the specific request or as necessary for the purpose of performing the services it was engaged to perform.

CHAPTER II
LEGAL RECOGNITION OF ELECTRONIC WRITING OR DOCUMENT AND DATA MESSAGES
Sec. 6. Legal Recognition of Data Messages. - Information shall not be denied legal effect, validity or enforceability solely on the grounds that it is in the data message purporting to give rise to such legal effect, or that it is merely referred to in that electronic data message.
Sec. 7. Legal Recognition of Electronic Documents. – Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing, and -
(a) Where the law requires a document to be in writing, that requirement is met by an electronic document if the said electronic document maintains its integrity and reliability and can be authenticated so as to be usable for subsequent reference, in that -
(i) The electronic document has remained complete and unaltered, apart from the addition of any endorsement and any authorized change, or any change which arises in the normal course of communication, storage and display; and
(ii) The electronic document is reliable in the light of the purpose for which it was generated and in the light of all the relevant circumstances.
(b) Paragraph (a) applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for the document not being presented or retained in its original form.
(c) Where the law requires that a document be presented or retained in its original form, that requirement is met by an electronic document if -
(i) There exists a reliable assurance as to the integrity of the document from the time when it was first generated in its final form; and
(ii) That document is capable of being displayed to the person to whom it is to be presented: Provided, That no provision of this Act shall apply to vary any and all requirements of existing laws on formalities required in the execution of documents for their validity.
For evidentiary purposes, an electronic document shall be the functional equivalent of a written document under existing laws.
This Act does not modify any statutory rule relating to the admissibility of electronic data messages or electronic documents, except the rules relating to authentication and best evidence.
Sec. 8. Legal Recognition of Electronic Signatures. An electronic signature on the electronic document shall be equivalent to the signature of a person on a written document if that signature is proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic document, existed under which -
a.) A method is used to identify the party sought to be bound and to indicate said party’s access to the electronic document necessary for his consent or approval through the electronic signature;
b.) Said method is reliable and appropriate for the purpose for which the electronic document was generated or communicated, in the light of all the circumstances, including any relevant agreement;
c.) It is necessary for the party sought to be bound, in order to proceed further with the transaction, to have executed or provided the electronic signature; and
d.) The other party is authorized and enabled to verify the electronic signature and to make the decision to proceed with the transaction authenticated by the same.
Sec. 9. Presumption Relating to Electronic Signatures. - In any proceedings involving an electronic signature, it shall be presumed that -
a.) The electronic signature is the signature of the person to whom it correlates; and
b.) The electronic signature was affixed by that person with the intention of signing or approving the electronic document unless the person relying on the electronically signed electronic document knows or has notice of defects in or unreliability of the signature or reliance on the electronic signature is not reasonable under the circumstances.
Sec. 10. Original Documents. - (1) Where the law requires information to be presented or retained in its original form, that requirement is met by an electronic data message or electronic document if:
(a) the integrity of the information from the time when it was first generated in its final form, as an electronic data message or electronic document is shown by evidence aliunde or otherwise; and
(b) where it is required that information be presented, that the information is capable of being displayed to the person to whom it is to be presented.
(2) Paragraph (1) applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for the information not being presented or retained in its original form.
(3) For the purposes of subparagraph (a) of paragraph (1):
(a) the criteria for assessing integrity shall be whether the information has remained complete and unaltered, apart from the addition of any endorsement and any change which arises in the normal course of communication, storage and display; and
(b) the standard of reliability required shall be assessed in the light of the purpose for which the information was generated and in the light of all relevant circumstances.
Sec. 11. Authentication of Electronic Data Messages and Electronic Documents. - Until the Supreme Court by appropriate rules shall have so provided, electronic documents, electronic data messages and electronic signatures, shall be authenticated by demonstrating, substantiating and validating a claimed identity of a user, device, or another entity in an information or communication system, among other ways, as follows:
(a) The electronic signature shall be authenticated by proof that a letter, character, number or other symbol in electronic form representing the persons named in and attached to or logically associated with an electronic data message, electronic document, or that the appropriate methodology or security procedures, when applicable, were employed or adopted by a person and executed or adopted by such person, with the intention of authenticating or approving an electronic data message or electronic document;
(b) The electronic data message and electronic document shall be authenticated by proof that an appropriate security procedure, when applicable was adopted and employed for the purpose of verifying the originator of an electronic data message and/or electronic document, or detecting error or alteration in the communication, content or storage of an electronic document or electronic data message from a specific point, which, using algorithm or codes, identifying words or numbers, encryptions, answers back or acknowledgement procedures, or similar security devices.
The Supreme Court may adopt such other authentication procedures, including the use of electronic notarization systems as necessary and advisable, as well as the certificate of authentication on printed or hard copies of the electronic document or electronic data messages by electronic notaries, service providers and other duly recognized or appointed certification authorities.
The person seeking to introduce an electronic data message and electronic document in any legal proceeding has the burden of proving its authenticity by evidence capable of supporting a finding that the electronic data message and electronic document is what the person claims it to be.
In the absence of evidence to the contrary, the integrity of the information and communication system in which an electronic data message or electronic document is recorded or stored may be established in any legal proceeding -
(a) By evidence that at all material times the information and communication system or other similar device was operating in a manner that did not affect the integrity of the electronic data message and/or electronic document, and there are no other reasonable grounds to doubt the integrity of the information and communication system;
(b) By showing that the electronic data message and/or electronic document was recorded or stored by a party to the proceedings who is adverse in interest to the party using it; or
(c) By showing that the electronic data message and/or electronic document was recorded or stored in the usual and ordinary course of business by a person who is not a party to the proceedings and who did not act under the control of the party using the record.
Sec. 12. Admissibility and Evidential Weight of Electronic Data Message and Electronic Documents. - In any legal proceedings, nothing in the application of the rules on evidence shall deny the admissibility of an electronic data message or electronic document in evidence -
a. On the sole ground that it is in electronic form; or
b. On the ground that it is not in the standard written form and electronic data message or electronic document meeting, and complying with the requirements under Sections 6 or 7 hereof shall be the best evidence of the agreement and transaction contained therein.
In assessing the evidential weight of an electronic data message or electronic document, the reliability of the manner in which it was generated, stored or communicated, the reliability of the manner in which its originator was identified, and other relevant factors shall be given due regard.
Sec. 13. Retention of Electronic Data Message and Electronic Document. - Notwithstanding any provision of law, rule or regulation to the contrary - (a) The requirement in any provision of law that certain documents be retained in their original form is satisfied by retaining them in the form of an electronic data message or electronic document which -
i. Remains accessible so as to be usable for subsequent reference;
ii. Is retained in the format in which it was generated, sent or received, or in a format which can be demonstrated to accurately represent the electronic data message or electronic document generated, sent or received;
iii. Enables the identification of its originator and addressee, as well as the determination of the date and the time it was sent or received.
(b) The requirement referred to in paragraph (a) is satisfied by using the services of a third party, provided that the conditions set forth in subparagraphs (i), (ii) and (iii) of paragraph (a) are met.
Sec. 14. Proof By Affidavit. - The matters referred to in Section 12, on admissibility and Section 9, on the presumption of integrity, may be presumed to have been established by an affidavit given to the best of the deponent’s knowledge subject to the rights of parties in interest as defined in the following section.
Sec. 15. Cross-Examination. - (1) A deponent of an affidavit referred to in Section 14 that has been introduced in evidence may be cross-examined as of right by a party to the proceedings who is adverse in interest to the party who has introduced the affidavit or has caused the affidavit to be introduced.
(2) Any party to the proceedings has the right to cross-examine a person referred to in Section 11, paragraph 4, sub-paragraph c.
CHAPTER III
COMMUNICATION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC DOCUMENTS
Sec. 16. Formation and Validity of Electronic Contracts. - (1) Except as otherwise agreed by the parties, an offer, the acceptance of an offer and such other elements required under existing laws for the formation of contracts may be expressed in, demonstrated and proved by means of electronic data message or electronic documents and no contract shall be denied validity or enforceability on the sole ground that it is in the form of an electronic data message or electronic document, or that any or all of the elements required under existing laws for the formation of the contracts is expressed, demonstrated and proved by means of electronic documents.
(2) Electronic transactions made through networking among banks, or linkages thereof with other entities or networks, and vice versa, shall be deemed consummated upon the actual dispensing of cash or the debit of one account and the corresponding credit to another, whether such transaction is initiated by the depositor or by an authorized collecting party: Provided, that the obligation of one bank, entity, or person similarly situated to another arising therefrom shall be considered absolute and shall not be subjected to the process of preference of credits.
Sec. 17. Recognition by Parties of Electronic Data Message or Electronic Document. - As between the originator and the addressee of a electronic data message or electronic document, a declaration of will or other statement shall not be denied legal effect, validity or enforceability solely on the ground that it is in the form of a electronic data message.
Sec. 18. Attribution of Electronic Data Message. - (1) An electronic data message or electronic document is that of the originator if it was sent by the originator himself.
(2) As between the originator and the addressee, an electronic data message or electronic document is deemed to be that of the originator if it was sent:
(a) by a person who had the authority to act on behalf of the originator with respect to that electronic data message or electronic document; or
(b) by an information system programmed by, or on behalf of the originator to operate automatically.
(3) As between the originator and the addressee, an addressee is entitled to regard an electronic data message or electronic document as being that of the originator, and to act on that assumption, if:
(a) in order to ascertain whether the electronic data message or electronic document was that of the originator, the addressee properly applied a procedure previously agreed to by the originator for that purpose; or
(b) the electronic data message or electronic document as received by the addressee resulted from the actions of a person whose relationship with the originator or with any agent of the originator enabled that person to gain access to a method used by the originator to identify electronic data messages as his own.
(4) Paragraph (3) does not apply:
(a) as of the time when the addressee has both received notice from the originator that the electronic data message or electronic document is not that of the originator, and has reasonable time to act accordingly; or
(b) in a case within paragraph (3) sub-paragraph (b), at any time when the addressee knew or should have known, had it exercised reasonable care or used any agreed procedure, that the electronic data message or electronic document was not that of the originator.
(5) Where an electronic data message or electronic document is that of the originator or is deemed to be that of the originator, or the addressee is entitled to act on that assumption, then, as between the originator and the addressee, the addressee is entitled to regard the electronic data message or electronic document as received as being what the originator intended to send, and to act on that assumption. The addressee is not so entitled when it knew or should have known, had it exercised reasonable care or used any agreed procedure, that the transmission resulted in any error in the electronic data message or electronic document as received.
(6) The addressee is entitled to regard each electronic data message or electronic document received as a separate electronic data message or electronic document and to act on that assumption, except to the extent that it duplicates another electronic data message or electronic document and the addressee knew or should have known, had it exercised reasonable care or used any agreed procedure, that the electronic data message or electronic document was a duplicate.
Sec. 19. Error on Electronic Data Message or Electronic Document. - The addressee is entitled to regard the electronic data message or electronic document received as that which the originator intended to send, and to act on that assumption, unless the addressee knew or should have known, had the addressee exercised reasonable care or used the appropriate procedure -
(a) That the transmission resulted in any error therein or in the electronic document when the electronic data message or electronic document enters the designated information system, or
(b) That electronic data message or electronic document is sent to an information system which is not so designated by the addressee for the purpose.
Sec. 20. Agreement on Acknowledgment of Receipt of Electronic Data Messages or Electronic Documents. - The following rules shall apply where, on or before sending an electronic data message or electronic document, the originator and the addressee have agreed, or in that electronic document or electronic data message, the originator has requested, that receipt of the electronic document or electronic data message be acknowledged:
(a) Where the originator has not agreed with the addressee that the acknowledgment be given in a particular form or by a particular method, an acknowledgment may be given by or through any communication by the addressee, automated or otherwise, or any conduct of the addressee, sufficient to indicate to the originator that the electronic data message or electronic document has been received.
(b) Where the originator has stated that the effect or significance of the electronic data message or electronic document is conditional on receipt of the acknowledgment thereof, the electronic data message or electronic document is treated as though it has never been sent, until the acknowledgment is received.
(c) Where the originator has not stated that the effect or significance of the electronic data message or electronic document is conditional on receipt of the acknowledgment, and the acknowledgment has not been received by the originator within the time specified or agreed or, if no time has been specified or agreed, within a reasonable time, the originator may give notice to the addressee stating that no acknowledgment has been received and specifying a reasonable time by which the acknowledgment must be received; and if the acknowledgment is not received within the time specified in subparagraph (c), the originator may, upon notice to the addressee, treat the electronic document or electronic data message as though it had never been sent, or exercise any other rights it may have.
Sec. 21. Time of Dispatch of Electronic Data Messages or Electronic Documents. - Unless otherwise agreed between the originator and the addressee, the dispatch of an electronic data message or electronic document occurs when it enters an information system outside the control of the originator or of the person who sent the electronic data message or electronic document on behalf of the originator.
Sec. 22. Time of Receipt of Electronic Data Messages or Electronic Documents. - Unless otherwise agreed between the originator and the addressee, the time of receipt of an electronic data message or electronic document is as follows:
(a.) If the addressee has designated an information system for the purpose of receiving electronic data message or electronic document, receipt occurs at the time when the electronic data message or electronic document enters the designated information system: Provided, however, that if the originator and the addressee are both participants in the designated information system, receipt occurs at the time when the electronic data message or electronic document is retrieved by the addressee.
(b.) If the electronic data message or electronic document is sent to an information system of the addressee that is not the designated information system, receipt occurs at the time when the electronic data message or electronic document is retrieved by the addressee;
(c.) If the addressee has not designated an information system, receipt occurs when the electronic data message or electronic document enters an information system of the addressee.
These rules apply notwithstanding that the place where the information system is located may be different from the place where the electronic data message or electronic document is deemed to be received.
Sec. 23. Place of Dispatch and Receipt of Electronic Data Messages or Electronic Documents. - Unless otherwise agreed between the originator and the addressee, an electronic data message or electronic document is deemed to be dispatched at the place where the originator has its place of business and received at the place where the addressee has its place of business. This rule shall apply even if the originator or addressee had used a laptop or other portable device to transmit or receive his electronic data message or electronic document. This rule shall also apply to determine the tax situs of such transaction.
For the purpose hereof -
a. If the originator or the addressee has more than one place of business, the place of business is that which has the closest relationship to the underlying transaction or, where there is no underlying transaction, the principal place of business.
b. If the originator of the addressee does not have a place of business, reference is to be made to its habitual residence; or
c. The “usual place of residence” in relation to a body corporate, means the place where it is incorporated or otherwise legally constituted.
Sec. 24. Choice of Security Methods. - Subject to applicable laws and/or rules and guidelines promulgated by the Department of Trade and Industry with other appropriate government agencies, parties to any electronic transaction shall be free to determine the type and level of electronic data message and electronic document security needed, and to select and use or implement appropriate technological methods that suit their needs.

PART III
ELECTRONIC COMMERCE IN SPECIFIC AREAS
CHAPTER I. CARRIAGE OF GOODS
Sec. 25. Actions Related to Contracts of Carriage of Goods. - Without derogating from the provisions of part two of this law, this chapter applies to any action in connection with, or in pursuance of, a contract of carriage of goods, including but not limited to:
(a) (i) furnishing the marks, number, quantity or weight of goods;
(ii) stating or declaring the nature or value of goods;
(iii) issuing a receipt for goods;
(iv) confirming that goods have been loaded;
(b) (i) notifying a person of terms and conditions of the contract;
(ii) giving instructions to a carrier;
(c) (i) claiming delivery of goods;
(ii) authorizing release of goods;
(iii) giving notice of loss of, or damage to, goods;
(d) giving any other notice or statement in connection with the performance of the contract;
(e) undertaking to deliver goods to a named person or a person authorized to claim delivery;
(f) granting, acquiring, renouncing, surrendering, transferring or negotiating rights in goods;
(g) acquiring or transferring rights and obligations under the contract.
Sec. 26. Transport Documents. - (1) Where the law requires that any action referred to contract of carriage of goods be carried out in writing or by using a paper document, that requirement is met if the action is carried out by using one or more data messages or electronic documents.
(2) Paragraph (1) applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for failing either to carry out the action in writing or to use a paper document.
(3) If a right is to be granted to, or an obligation is to be acquired by, one person and no other person, and if the law requires that, in order to effect this, the right or obligation must be conveyed to that person by the transfer, or use of, a paper document, that requirement is met if the right or obligation is conveyed by using one or more electronic data messages or electronic documents unique;
(4) For the purposes of paragraph (3), the standard of reliability required shall be assessed in the light of the purpose for which the right or obligation was conveyed and in the light of all the circumstances, including any relevant agreement.
(5) Where one or more data messages are used to effect any action in subparagraphs (f) and (g) of Section 25, no paper document used to effect any such action is valid unless the use of electronic data message or electronic document has been terminated and replaced by the use of paper documents. A paper document issued in these circumstances shall contain a statement of such termination. The replacement of electronic data messages or electronic documents by paper documents shall not affect the rights or obligations of the parties involved.
(6) If a rule of law is compulsorily applicable to a contract of carriage of goods which is in, or is evidenced by, a paper document, that rule shall not be inapplicable to such a contract of carriage of goods which is evidenced by one or more electronic data messages or electronic documents by reason of the fact that the contract is evidenced by such electronic data messages or electronic documents instead of by a paper document.
PART IV
ELECTRONIC TRANSACTIONS IN GOVERNMENT
Sec. 27. Government Use of Electronic Data Messages, Electronic Documents and Electronic Signatures. - Notwithstanding any law to the contrary, within two (2) years from the date of the effectivity of this Act, all departments, bureaus, offices and agencies of the government, as well as all government-owned and-controlled corporations, that pursuant to law require or accept the filing of documents, require that documents be created, or retained and/or submitted, issue permits, licenses or certificates of registration or approval, or provide for the method and manner of payment or settlement of fees and other obligations to the government, shall -
(a) accept the creation, filing or retention of such documents in the form of electronic data messages or electronic documents;
(b) issue permits, licenses, or approval in the form of electronic data messages or electronic documents;
(c) require and/or accept payments, and issue receipts acknowledging such payments, through systems using electronic data messages or electronic documents; or
(d) transact the government business and/or perform governmental functions using electronic data messages or electronic documents, and for the purpose, are authorized to adopt and promulgate, after appropriate public hearing and with due publication in newspapers of general circulation, the appropriate rules, regulations, or guidelines, to, among others, specify -
(1) the manner and format in which such electronic data messages or electronic documents shall be filed, created, retained or issued;
(2) where and when such electronic data messages or electronic documents have to be signed, the use of a electronic signature, the type of electronic signature required;
(3) the format of an electronic data message or electronic document and the manner the electronic signature shall be affixed to the electronic data message or electronic document;
(4) the control processes and procedures as appropriate to ensure adequate integrity, security and confidentiality of electronic data messages or electronic documents or records or payments;
(5) other attributes required of electronic data messages or electronic documents or payments; and
(6) the full or limited use of the documents and papers for compliance with the government requirements: Provided, That this Act shall by itself mandate any department of the government, organ of state or statutory corporation to accept or issue any document in the form of electronic data messages or electronic documents upon the adoption, promulgation and publication of the appropriate rules, regulations, or guidelines.
Sec. 28. RPWEB To Promote the Use Of Electronic Documents and Electronic Data Messages In Government and to the General Public. - Within two (2) years from the effectivity of this Act, there shall be installed an electronic online network in accordance with Administrative Order 332 and House of Representatives Resolution 890, otherwise known as RPWEB, to implement Part IV of this Act to facilitate the open, speedy and efficient electronic online transmission, conveyance and use of electronic data messages or electronic documents amongst all government departments, agencies, bureaus, offices down to the division level and to the regional and provincial offices as practicable as possible, government owned and controlled corporations, local government units, other public instrumentalities, universities, colleges and other schools, and universal access to the general public.
The RPWEB network shall serve as initial platform of the government information infrastructure (GII) to facilitate the electronic online transmission and conveyance of government services to evolve and improve by better technologies or kinds of electronic online wide area networks utilizing, but not limited to, fiber optic, satellite, wireless and other broadband telecommunication mediums or modes. To facilitate the rapid development of the GII, the Department of Transportation and Communications, National Telecommunications Commission and the National Computer Center are hereby directed to aggressively promote and implement a policy environment and regulatory or non-regulatory framework that shall lead to the substantial reduction of costs of including, but not limited to, lease lines, land, satellite and dial-up telephone access, cheap broadband and wireless accessibility by government departments, agencies, bureaus, offices, government owned and controlled corporations, local government units, other public instrumentalities and the general public, to include the establishment of a government website portal and a domestic internet exchange system to facilitate strategic access to government and amongst agencies thereof and the general public and for the speedier flow of locally generated internet traffic within the Philippines.
The physical infrastructure of cable and wireless systems for cable TV and broadcast excluding programming and content and the management thereof shall be considered as within the activity of telecommunications for the purpose of electronic commerce and to maximize the convergence of ICT in the installation of the GII.
Sec. 29. Authority of the Department of Trade and Industry and Participating Entities. - The Department of Trade and Industry (DTI) shall direct and supervise the promotion and development of electronic commerce in the country with relevant government agencies, without prejudice to the provisions of Republic Act. 7653 (Charter of Bangko Sentral ng Pilipinas) and Republic Act No. 337 (General Banking Act), as amended.
Among others, the DTI is empowered to promulgate rules and regulations, as well as provide quality standards or issue certifications, as the case may be, and perform such other functions as may be necessary for the implementation of this Act in the area of electronic commerce to include, but shall not be limited to, the installation of an online public information and quality and price monitoring system for goods and services aimed in protecting the interests of the consuming public availing of the advantages of this Act.

PART V
FINAL PROVISIONS
Sec. 30. Extent of Liability of a Service Provider. – Except as otherwise provided in this Section, no person or party shall be subject to any civil or criminal liability in respect of the electronic data message or electronic document for which the person or party acting as a service provider as defined in Section 5 merely provides access if such liability is founded on -
a.) The obligations and liabilities of the parties under the electronic data message or electronic document;
b.) The making, publication, dissemination or distribution of such material or any statement made in such material, including possible infringement of any right subsisting in or in relation to such material: Provided, That
i. The service provider does not have actual knowledge, or is not aware of the facts or circumstances from which it is apparent, that the making, publication, dissemination or distribution of such material is unlawful or infringes any rights subsisting in or in relation to such material;
ii. The service provider does not knowingly receive a financial benefit directly attributable to the unlawful or infringing activity; and
iii. The service provider does not directly commit any infringement or other unlawful act and does not induce or cause another person or party to commit any infringement or other unlawful act and/or does not benefit financially from the infringing activity or unlawful act of another person or party: Provided, further, That nothing in this Section shall affect -
a) Any obligation founded on contract;
b) The obligation of a service provider as such under a licensing or other regulatory regime established under written law; or
c) Any obligation imposed under any written law;
d) The civil liability of any party to the extent that such liability forms the basis for injunctive relief issued by a court under any law requiring that the service provider take or refrain from actions necessary to remove, block or deny access to any material, or to preserve evidence of a violation of law.
Sec. 31. Lawful Access. - Access to an electronic file, or an electronic signature of an electronic data message or electronic document shall only be authorized and enforced in favor of the individual or entity having a legal right to the possession or the use of the plaintext, electronic signature or file and solely for the authorized purposes. The electronic key for identity or integrity shall not be made available to any person or party without the consent of the individual or entity in lawful possession of that electronic key.
Sec. 32. Obligation of Confidentiality. - Except for the purposes authorized under this Act, any person who obtained access to any electronic key, electronic data message, or electronic document, book, register, correspondence, information, or other material pursuant to any powers conferred under this Act, shall not convey to or share the same with any other person.
Sec. 33. Penalties. - The following Acts shall be penalized by fine and/or imprisonment, as follows:
a) Hacking or cracking which refers to unauthorized access into or interference in a computer system/server or information and communication system; or any access in order to corrupt, alter, steal, or destroy using a computer or other similar information and communication devices, without the knowledge and consent of the owner of the computer or information and communications system, including the introduction of computer viruses and the like, resulting in the corruption, destruction, alteration, theft or loss of electronic data messages or electronic document shall be punished by a minimum fine of one hundred thousand pesos (P100,000.00) and a maximum commensurate to the damage incurred and a mandatory imprisonment of six (6) months to three (3) years;
b) Piracy or the unauthorized copying, reproduction, dissemination, distribution, importation, use, removal, alteration, substitution, modification, storage, uploading, downloading, communication, making available to the public, or broadcasting of protected material, electronic signature or copyrighted works including legally protected sound recordings or phonograms or information material on protected works, through the use of telecommunication networks, such as, but not limited to, the internet, in a manner that infringes intellectual property rights shall be punished by a minimum fine of one hundred thousand pesos (P100,000.00) and a maximum commensurate to the damage incurred and a mandatory imprisonment of six (6) months to three (3) years; c) Violations of the Consumer Act or Republic Act No. 7394 and other relevant or pertinent laws through transactions covered by or using electronic data messages or electronic documents, shall be penalized with the same penalties as provided in those laws; d) Other violations of the provisions of this Act, shall be penalized with a maximum penalty of one million pesos (P1,000,000.00) or six (6) years imprisonment.
Sec. 34. Implementing Rules and Regulations. - The DTI, Department of Budget and Management and the Bangko Sentral ng Pilipinas are hereby empowered to enforce the provisions of this Act and issue implementing rules and regulations necessary, in coordination with the Department of Transportation and Communications, National Telecommunications Commission, National Computer Center, National Information Technology Council, Commission on Audit, other concerned agencies and the private sector, to implement this Act within sixty (60) days after its approval.
Failure to issue rules and regulations shall not in any manner affect the executory nature of the provisions of this Act.
Sec. 35. Oversight Committee. – There shall be a Congressional Oversight Committee composed of the Committees on Trade and Industry/Commerce, Science and Technology, Finance and Appropriations of both the Senate and House of Representatives, which shall meet at least every quarter of the first two years and every semester for the third year after the approval of this Act to oversee its implementation. The DTI, DBM, Bangko Sentral ng Pilipinas, and other government agencies as may be determined by the Congressional Committee shall provide a quarterly performance report of their actions taken in the implementation of this Act for the first three (3) years.
Sec. 36. Appropriations. - The amount necessary to carry out the provisions of Secs. 27 and 28 of this Act shall be charged against any available funds and/or savings under the General Appropriations Act of 2000 in the first year of effectivity of this Act. Thereafter, the funds needed for the continued implementation shall be included in the annual General Appropriations Act.
Sec. 37. Statutory Interpretation. - Unless otherwise expressly provided for, the interpretation of this Act shall give due regard to its international origin and the need to promote uniformity in its application and the observance of good faith in international trade relations. The generally accepted principles of international law and convention on electronic commerce shall likewise be considered.
Sec. 38. Variation by Agreement. - As between parties involved in generating, sending, receiving, storing or otherwise processing electronic data message or electronic document, any provision of this Act may be varied by agreement between and among them.
Sec. 39. Reciprocity. - All benefits, privileges, advantages or statutory rules established under this Act, including those involving practice of profession, shall be enjoyed only by parties whose country of origin grants the same benefits and privileges or advantages to Filipino citizens.
Sec. 40. Separability Clause. - The provisions of this Act are hereby declared separable and in the event of any such provision is declared unconstitutional, the other provisions, which are not affected, shall remain in force and effect.
Sec. 41. Repealing Clause. - All other laws, decrees, rules and regulations or parts thereof which are inconsistent with the provisions of this Act are hereby repealed, amended or modified accordingly.
Sec. 42. Effectivity. - This Act shall take effect immediately after its publication in the Official Gazette or in at least two (2) national newspapers of general circulation.

REPUBLIC ACT NO. 6938

AN ACT TO ORDAIN A COOPERATIVE CODE OF THE PHILIPPINES

CHAPTER I.
GENERAL CONCEPTS AND PRINCIPLES

Section 1. Title. - This Act shall be known as the “Cooperative Code of the Philippines.”
Section 2. Declaration of Policy. - It is the declared policy of the State to foster the creation and growth of cooperatives as a practical vehicle for promoting self-reliance and harnessing people power towards the attainment of economic development and social justice. The State shall encourage the private sector to undertake the actual formation and organization of cooperatives and shall create an atmosphere that is conducive to the growth and development of these cooperatives.
Toward this end, the Government and all its branches, subdivisions, instrumentalities and agencies shall ensure the provision of technical guidance, financial assistance and other services to enable said cooperatives to develop into viable and responsive economic enterprises and thereby bring about a strong cooperative movement that is free from any conditions that might infringe upon the autonomy or organizational integrity of cooperatives.
Further, the State recognizes the principle of subsidiarity under which the cooperative sector will initiate and regulate within its own ranks the promotion and organization, training and research, audit and support services relating to cooperatives with government assistance where necessary.
Section 3. General Concepts. - A cooperative is a duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve a lawful common social or economic end, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.
Section 4. Cooperative Principles. - Every cooperative shall conduct its affairs in accordance with Filipino culture and experience and the universally accepted principles of cooperation which include the following:
(1) “Open and Voluntary Membership”: Membership in a cooperative shall be voluntary and available to all individuals regardless of their social, political, racial or religious background or beliefs.
(2) “Democratic Control”: Cooperatives are democratic organizations. Their affairs shall be administered by persons elected or appointed in a manner agreed upon by the members. Members of primary cooperatives shall have equal voting rights on a one-member-one-vote principle: Provided however, That in the case of secondary and tertiary cooperatives, the provisions of section 37 of this Code shall apply.
(3) “Limited Interest in Capital”: Share capital shall receive a strictly limited rate of interest.
(4) “Division of Net Surplus”: Net surplus arising out of the operations of a cooperative belongs to its members and shall be equitably distributed for cooperative development common services, indivisible reserve fund, and for limited interest on capital and/or patronage refund in the manner provided in this Code and in the articles of cooperation and by-laws.
(5) “Cooperative Education”: All cooperatives shall make provision for the education of their members, officers and employees and of the general public based on the principles of cooperation.
(6) “Cooperation Among Cooperatives”: All cooperatives, in order to best serve the interest of their members and communities, shall actively cooperate with other cooperatives at local, national, and international levels.
Section 5. Definition of Terms. - The following terms shall mean:
(1) “Member” includes a person either natural or juridical who, adhering to the principles set forth in this Code and in the articles of cooperation, has been admitted by the cooperative as member;
(2) “General Assembly” shall mean the full membership of the cooperative duly assembled for the purpose of exercising all the rights and performing all the obligations pertaining to cooperatives, as provided by this Code, its articles of cooperation and by-laws;
(3) “Board of Directors” shall mean that body entrusted with the management of the affairs of the cooperative under its articles of cooperation and by-laws;
(4) “Committee” shall refer to any body entrusted with specific functions and responsibilities under the by-laws or resolution of the general assembly or the board of directors;
(5) “Articles of Cooperation” means the articles of cooperation registered under this Code and includes a registered amendment thereof;
(6) “By-laws” means the by-laws registered under this Code and includes any registered amendment thereof;
(7) “Registration” means the operative act granting juridical personality to a proposed cooperative and is evidenced by a certificate of registration;
(8) “Cooperative Development Authority” means the government agency in charge of registration and regulation of cooperatives as such, hereinafter referred to as the Authority; and
(9) “Universally Accepted Principles” means that body of cooperative principles adhered to worldwide by cooperatives in other jurisdictions.
CHAPTER II.
ORGANIZATION AND REGISTRATION

Section 6. Organization of Cooperatives. A Cooperative may be organized and registered by at least fifteen (15) persons for any or all of the following purposes:
(1) To encourage thrift and savings mobilization among the members;
(2) To generate funds and extend credit to the members for productive and provident purposes;
(3) To encourage among members systematic production and marketing;
(4) To provide goods and services and other requirements to the members;
(5) To develop expertise and skills among its members;
(6) To acquire lands and provide housing benefits for the members;
(7) To insure against losses of the members;
(8) To promote and advance the economic, social and educational status of the members;
(9) To establish, own, lease or operate cooperative banks, cooperative wholesale and retail complexes, insurance and agricultural/industrial processing enterprises, and public markets;
(10) To coordinate and facilitate the activities of cooperatives; and
(11) To undertake any and all other activities for the effective and efficient implementation of the provisions of this Code.
Section 7. Objectives of Cooperative. - The primary objective of every cooperative is to provide goods and services to its members and thus enable them to attain increased income and savings, investments, productivity, and purchasing power and promote among them equitable distribution of net surplus through maximum utilization of economies of scale, cost-sharing and risk-sharing without, however, conducting the affairs of the cooperative for eleemosynary or charitable purposes.
A cooperative shall provide maximum economic benefits to its members, teach them efficient ways of doing things in a cooperative manner, and propagate cooperative practices and new ideas in business and management and allow the lower income groups to increase their ownership in the wealth of this nation.
Section 8. Cooperative Not in Restraint of Trade. - No cooperative or method or act hereof which complies with this Code shall be deemed a conspiracy or combination in restraint of trade or an illegal monopoly, or an attempt to lessen competition or fix prices arbitrarily in violation of any of the laws of the Philippines.
Section 9. Cooperative Powers and Capacities. - A cooperative registered under this Code shall have the following powers and capacities:
(1) To sue and be sued in its cooperative name;
(2) Of succession;
(3) To amend its articles of cooperation in accordance with the provisions of this code;
(4) To adopt by-laws not contrary to law, morals or public policy, and to amend and repeal the same in accordance with this Code;
(5) To purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage, and otherwise deal with such real and personal property as the transaction of the lawful affairs of the cooperative may reasonably and necessarily require, subject to the limitations prescribed by law and the Constitution;
(6) To enter into division, merger or consolidation, as provided in this Code;
(7) To join federations or unions, as provided in this Code;
(8) To accept and receive grants, donations and assistance from foreign and domestic sources; and
(9) To exercise such other powers granted in this Code or necessary to carry out its purpose or purposes as stated in its articles of cooperation.
Section 10. Organizing a Primary Cooperative. - Fifteen (15) or more natural persons, who are citizens of the Philippines, having a common bond of interest and are residing or working in the intended area of operation may organize a cooperative under this Code.
Section 11. Economic Survey. - Every group of individuals or cooperatives intending to form a cooperative under this Code shall submit to the Cooperative Development Authority a general statement describing the structure, purposes and economic feasibility of the proposed cooperative, indicating therein the area of operation, the size of membership and other pertinent data.
Section 12. Liability. - A cooperative shall be registered under this Code, with limited liability.
Section 13. Term. - A cooperative shall exist for a period not exceeding fifty (50) years from the date of registration unless sooner dissolved or unless said period is extended. The cooperative term, as originally stated in the articles of cooperation, may be extended for periods not exceeding fifty (50) years in any single instance by an amendment of the articles of cooperation, 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/dates unless there are justifiable reasons for an earlier extension as may be determined by the Cooperative Development Authority.
Section 14. Articles of Cooperation. - (1) All cooperatives applying for registration shall file with the Cooperative Development Authority the articles of cooperation which shall be signed by each of the organizers and acknowledged by them if natural persons, and by the presidents or secretaries, if juridical persons, before a notary public.
(2) The articles of cooperation shall set forth:
(a) The name of the cooperative which shall include the word “cooperative”;
(b) The purpose or purposes and scope of business for which the cooperative is to be registered;
(c) The term of existence of the cooperative;
(d) The area of operation and the postal address of its principal office;
(e) The names, nationality, and the postal addresses of the registrants;
(f) The common bond of membership;
(g) The list of names of the directors who shall manage the cooperative; and
(h) The amount of its share capital, the names and residences of its contributors and a statement of whether the cooperative is primary, secondary or tertiary in accordance with Section 23 hereof.
(3) The articles of cooperation may also contain any other provisions not inconsistent with this Code or any related law.
(4) Four (4) copies each of the proposed articles of cooperation, by-laws, and the general statement required under Section 11 of this Code shall be submitted to the Cooperative Development Authority.
(5) No cooperative shall be registered unless the articles of cooperation are accompanied with the bonds of the accountable officers and a sworn statement of the treasurer elected by the subscribers showing that at least twenty-five per cent (25%) of the authorized share capital has been subscribed and at least twenty-five per cent (25%) of the total subscription has been paid: Provided, That in no case shall the paid-up share capital shall be less than two thousand pesos (P2,000.00).
Section 15. By-laws. - (1) Each cooperative to be registered under this Code shall adopt by-laws not inconsistent with the provisions of this Code. The by-laws shall be filed at the same time as the articles of cooperation.
(2) The by-laws of each cooperative shall provide:
(a) The qualifications for admission to membership and the payment to be made or interest to be acquired as a condition for the exercise of the right of membership;
(b) The rights and liabilities of membership;
(c) The circumstances under which membership is acquired, maintained and lost;
(d) The procedure to be followed in case of termination of membership;
(e) The conditions under which the transfer of a share or interest of the members shall be permitted;
(f) The rules and procedures on the agenda, time, place and manner of calling, convening, conducting meetings, quorum requirements, voting systems, and other matters related to the business affairs of the general assembly, board of directors, and committees;
(g) The general conduct of the affairs of the cooperative, including the powers and duties of the general assembly, the board of directors, committees and the officers, and their qualifications and disqualifications;
(h) The manner in which the capital may be raised and the purposes for which it can be utilized;
(i) The mode of custody and of investment of net surplus;
(j) The accounting and auditing systems;
(k) The manner of loaning and borrowing, including limitations thereof;
(l) The method of distribution of net surplus;
(m) The manner of adopting, amending, repealing and abrogating by-laws;
(n) A conciliation or mediation mechanism for the amicable settlement of disputes among members, directors, officers and committee members of the cooperative; and
(o) Other matters incident to the purposes and activities of the cooperative.
Section 16. Registration. - A cooperative formed or organized under this Code acquires juridical personality from the date the Cooperative Development Authority issues a certificate of registration under its official seal. All applications for registration shall be finally disposed of by the Cooperative Development Authority within a period of thirty (30) days from the filing thereof, otherwise the application is deemed approved, unless the cause of the delay is attributable to the applicant: Provided, That, in case of a denial of the application for registration, an appeal shall lie with the Office of the President within ninety (90) days from receipt of notice of such denial: Provided further, That failure of the Office of the President to act on the appeal within ninety (90) days from the filing thereof shall mean approval of said application.
Section 17. Certificate of Registration. - A certificate of registration issued by the Cooperative Development Authority under its official seal shall be conclusive evidence that the cooperative therein mentioned is duly registered unless it is proved that the registration thereof has been cancelled.
Section 18. Amendment of Articles of Cooperation and By-laws. - Unless otherwise prescribed by this Code and for legitimate purposes, any provision or matter stated in the articles of cooperation may be amended by two-thirds (2/3) vote of all the member with voting rights, without prejudice to the right of the dissenting members to exercise their right to withdraw their membership under Sections 31 and 32.
The original and amended sections together shall contain all provisions required by law to be set out in the articles of cooperation. Amendments shall be indicated by underscoring or otherwise appropriately indicating the change or changes made and a copy thereof duly certified under oath by the cooperative secretary and a majority of the directors stating the fact that said amendment or amendments have been duly approved by the required vote of the members. All amendments to the articles of cooperation shall be submitted to the Cooperative Development Authority. The amendments shall take effect upon its approval by the Cooperative Development Authority or within thirty (30) days from the date of filing thereof if not acted upon by the Authority for a cause not attributable to the cooperative.
Section 19. Contracts Executed Prior to Registration and Effect Thereof. - Contracts executed between private persons and cooperatives prior to the registration of the cooperative shall remain valid and binding between the parties and upon registration of the cooperative. A formal written contract shall be adopted and made in the cooperative’s name or on its behalf prior to its registration.
Section 20. Division of Cooperatives. - Any registered cooperative may, by a resolution approved by a vote of two-thirds (2/3) of the members eligible to vote at a general assembly meeting, resolve to divide itself into two (2) or more cooperatives. The procedure for such division shall be prescribed in the regulations of the Cooperative Development Authority. The new cooperatives shall be come legally established upon registration with the Authority: Provided, That all the requirements set forth in this Code have been complied by the new cooperatives: Provided further, That no division of a cooperative in fraud of creditors shall be valid.
Section 21. Merger and Consolidation of Cooperatives. - (1) Two (2) or more cooperatives may merge into a single cooperative which shall be the consolidated cooperative.
(2) No merger or consolidation shall be valid unless approved by two-thirds (2/3) of all the members eligible to vote of each of the constituent cooperatives at separate general assembly meetings. The dissenting members shall have the right to exercise their right to withdraw their membership pursuant to Sections 31 and 32.
(3) The Cooperative Development Authority shall issue the guidelines governing the procedure of merger or consolidation of cooperatives. In any case, the merger or consolidation shall be effective upon the issuance of the certificate of merger or consolidation by the Cooperative Development Authority.
Section 22. Effects of Merger and Consolidation. - The merger or consolidation of cooperatives shall have the following effects:
(1) The constituent cooperatives shall become a single cooperative which, in case of merger, shall be the surviving cooperative, and, in case of consolidation, shall be the consolidated cooperative;
(2) The separate existence of the constituent cooperatives shall cease, except that of the surviving or the consolidated cooperative;
(3) The surviving or the consolidated cooperative shall possess all the rights, privileges, immunities and powers and shall be subject to all the duties and liabilities of a cooperative organized under this Code;
(4) The surviving or the consolidated cooperative shall possess all the assets, rights, privileges, immunities and franchises of each of the constituent cooperatives; and
(5) The surviving or the consolidated cooperative shall be responsible for all the liabilities and obligations of each of the constituent cooperatives in the same manner as if such surviving or consolidated cooperative had itself incurred such liabilities or obligations. Any claim, action or proceeding pending by or against any such constituent cooperatives may be prosecuted by or against the surviving or consolidated cooperative, as the case may be. Neither the rights of creditors nor any lien upon the property of any of such constituent cooperative shall be impaired by such merger or consolidation.
Section 23. Types and Categories of Cooperatives. - (1) “Types of Cooperatives”: Cooperatives may fall under any of the following types:
(a) “Credit Cooperative” is one which promotes thrift among its members and creates funds in order to grant loan for productive and provident purposes;
(b) “Consumers Cooperative” is one the primary purpose of which is to procure and distribute commodities to members and non-members;
(c) “Producers Cooperative” is one that undertakes joint product whether agricultural or industrial;
(d) “Marketing Cooperative” is one which engages in the supply of production inputs to members and markets their products;
(e) “Service Cooperative” is one which engages in medical and dental care, hospitalization, transportation, insurance, housing, labor, electric light and power, communication and other services; and
(f) “Multipurpose Cooperative” is one which combines (2) or more of the business activities of these different types of cooperatives.
(2) “Categories of Cooperatives”: Cooperatives shall be categorized according to membership and territorial considerations as follows:
(a) In terms of membership, cooperative shall be categorized into:

(i) Primary: The members of which are natural persons;
(ii) Secondary: The members of which are primaries; and
(iii) Tertiary: The members of which are secondaries upward to one (1) or more apex organizations.
Those cooperative the members of which are cooperatives shall be known as federations or unions, as the case may be; and
(b) In terms of territory, cooperatives shall be categorized according to areas of operations which may or may not coincide with the political subdivisions of the country.
Section 24. Federation of Cooperatives. - (1) A federation of cooperatives whose members are primary and/or secondary cooperatives with single line or multipurpose business activities may be registered under this Code for any or all of the following purposes:
(a) Primary Purpose: To carry on any cooperative enterprise authorized under Section 6;
(b) Secondary Purpose:

(i) To carry on, encourage, and assist educational and advisory work relating to its member cooperatives;
(ii) To render services designed to encourage simplicity, efficiency, and economy in the conduct of the business of its member cooperatives and to facilitate the implementation of their book-keeping, accounting, and other system and procedures;
(iii) To print, publish, and circulate any newspaper or other publication in the interest of its member cooperatives and enterprises;
(iv) To coordinate and facilitate the activities of its member cooperatives;
(v) To enter into joint ventures with national or International cooperatives of other countries in the manufacture and sale of products and/or services in the Philippines and abroad; and
(vi) To perform such other functions as may be necessary to attain its objectives.
A federation of cooperatives may be registered by carrying out the formalities for registration of a cooperative.
(2) Registered cooperatives may organize a federation at the provincial city, regional, and national levels according to the type of business carried on.
Section 25. Cooperative Unions. - Registered cooperatives and federations at the appropriate levels may organize or join cooperative unions to represent the interest and welfare of all types of cooperatives at the provincial, city, regional, and national levels. Cooperative unions may have the following purposes:
(a) To represent its member organizations;
(b) To acquire, analyze, and disseminate economic, statistical, and other information relating to its members and to all types of cooperatives within its area of operation;
(c) To sponsor studies in the economic, legal, financial, social and other phases of cooperation, and publish the results thereof;
(d) To promote the knowledge of cooperative principles and practices;
(e) To develop the cooperative movement in their respective jurisdictions;
(f) To advise the appropriate authorities on all questions relating to cooperatives;
(g) To raise funds through membership fees, dues and contributions, donations, and subsidies from local and foreign sources whether private or government; and
(h) To do and perform such other activities as may be necessary to attain the foregoing objectives.
Cooperative unions may assist the national and local governments in the latter’s development activities in their respective jurisdictions.

CHAPTER III.
MEMBERSHIP

Section 26. Who May Be Members of Cooperatives. - Any natural person, who is a citizen of the Philippines, a cooperative, or non-profit organization with juridical personality shall be eligible for membership in a cooperative if the applicant meets the qualifications prescribed in the by-laws: Provided, That only natural persons may be admitted as members of a primary cooperative.
Section 27. Kinds of Membership. - A cooperative may have two (2) kinds of members, to wit: (1) regular members and (2) associate members. A regular member is one who is entitled to all the rights and privileges of membership. An associate member is one who has no rights to vote nor be voted upon and shall be entitled only to such rights and privileges as the by-laws may provide.
A cooperative organized by minors shall be considered a laboratory cooperative and must be affiliated with a registered cooperative. A laboratory cooperative shall be governed by special guidelines to be promulgated by the Cooperative Development Authority.
Section 28. Government Officers and Employees. - (1) Any officer or employee of the Cooperative Development Authority shall be disqualified to be elected or appointed to any position in a cooperative;
(2) Elective officials of the Government, except barangay officials, shall be ineligible to become officers and directors of cooperatives; and
(3) Any government employee may, in the discharge of his duties as member in the cooperative, be allowed by the head of office concerned to use official time for attendance at the general assembly, board and committee meetings of cooperatives as well as cooperative seminars, conferences, workshops, technical meetings, and training courses locally or abroad: Provided, That the operations of the office concerned are not adversely affected.
Section 29. Application. - An applicant for membership shall be deemed a member after approval of his membership by the board of directors and shall exercise the rights of member after having made such payments to the cooperative in respect to membership or acquired interest in the cooperatives as may be prescribed in the by-laws. In case membership is refused or denied by the board of directors, an appeal may be made to the general assembly and the latter’s decision shall be final.
Section 30. Liability of Members. - A member shall be liable for the debts of the cooperative to the extent of his contribution to the share capital of the cooperative.
Section 31. Termination of Membership.- (1) A member of a cooperative may, for any reason, withdraw his membership from the cooperative by giving a sixty (60) day notice to the board of directors. The withdrawing member shall be entitled to a refund of his share capital contribution and all other interests in the cooperative: Provided, That such refund shall not be made if upon such payment the value of the assets of the cooperative would be less than the aggregate amount of its debts and liabilities exclusive of his share capital contribution.
(2) The death, insanity, insolvency or dissolution of a member shall be considered an automatic termination of membership.
(3) A member may be terminated by a vote of the majority of all the members of the board of directors for any of the following causes:
(a) When a member has not patronized the services of the cooperative for an unreasonable period of time as may be fixed by the board of directors;
(b) When a member has continuously failed to comply with his obligations;
(c) When a member has acted in violation of the by-laws and the rules of the cooperative; and
(d) For any act or omission injurious or prejudicial to the interest or the welfare of the cooperative.
A member whose membership the board of directors may wish to terminate shall be informed of such intended action in writing and shall be given an opportunity to be heard before the said board makes its decision. The decision of the board shall be in writing and shall be communicated in person or by registered mail to the member and shall be appealable, within thirty (30) days after the decision is promulgated to the general assembly whose decision therein, whether in a general or special session, shall be final. Pending a decision by the general assembly, the membership remains in force.
Section 32. Refund of Interests. - All sums computed in accordance with the by-laws to be due from a cooperative to a former member shall be paid to him either by the cooperative or by the approved transferee as the case may be, in accordance with Code.

CHAPTER IV.
ADMINISTRATION

Section 33. Composition of the General Assembly. - The general assembly shall be composed of such members who are entitled to vote under the articles of cooperation and by-laws of the cooperative.
Section 34. Powers of the General Assembly. - The general assembly shall be the highest policy-making body of the cooperative and shall exercise such powers as are stated in this Code, in the articles of cooperation and in the by-laws of the cooperative. The general assembly shall have the following exclusive powers which cannot be delegated:
(1) To determine and approve amendments to the articles of cooperation and by-laws;
(2) To elect or appoint the members of the board of directors, and to remove them for cause;
(3) To approve developmental plans of the cooperative; and
(4) Such other matters requiring a two-thirds (2/3) vote of all members of the general assembly, as provided in this Code.
Section 35. Meetings. - (1) A regular meeting shall be held annually by the general assembly on a date fixed in the by-laws, or if not so fixed, on any date within ninety (90) days after the close of each fiscal year: Provided, That written notice of regular meetings shall be sent to all members of record at their official addresses at least two (2) weeks prior to the meeting, unless a different period is required in the by-laws.
(2) Whenever necessary, a special meeting of the general assembly may be called at any time by a majority of the board of directors or in the cases specified in the by-laws: Provided, That at least one (1) week written notice shall be sent to all members. However, a special meeting shall be called by the board of directors after compliance with the required notice within one (1) month after receipt of a request in writing from at least ten per cent (10%) of the total members to transact specific business covered by the call.
If the board fails to call a regular meeting or a special meeting within the given period, the Cooperative Development Authority, upon petition of ten per cent (10%) of all the members of the cooperative, and for good cause shown, may issue an order to the petitioners directing them to call a meeting of the general assembly by giving proper notice required by this Code or by the by-laws.
(3) In the case of a newly approved cooperative, a special general assembly shall be called within ninety (90) days from such approval;
(4) The Authority may call a special meeting of the cooperative:
(a) For the purpose of reporting to the members the result of any audit, examination, or other investigation of the cooperative affairs ordered or made by him; or
(b) When the cooperative fails to hold an annual general assembly during the period required for the purpose of enabling the members to secure any information regarding the affairs of the cooperative and benefits that they are entitled to receive pursuant to this Code.
(5) Notice of any meeting may be waived, expressly or impliedly, by any member.
Section 36. Quorum. - Unless otherwise provided in the by-laws, a quorum shall consist of twenty-five per cent (25%) of all the members entitled to vote.
Section 37. Voting System. - (1) Each member of a primary cooperative shall have only one (1) vote. A secondary or tertiary cooperative shall have voting rights as delegate of members-cooperatives, but such cooperatives shall have only five (5) votes. The votes cast by the delegates shall be deemed as votes cast by the members thereof.
(2) No voting agreement or other device to evade the one-member-one-vote provision except as provided under subsection (1) hereof shall be valid.
(3) No member of a primary cooperative shall be permitted to vote by proxy unless provided for specifically in the by-laws of the cooperative. However, the by-laws of a cooperative other than a primary may provide for voting by proxy. Voting by proxy means allowing a delegate of a cooperative to represent or vote in the behalf of another delegate of the same cooperative.
Section 38. Composition of the Board of Directors. - The conduct and management of the affairs of the cooperative shall be vested in a board of directors which shall be composed of not less than five (5) nor more than fifteen (15) members elected by the general assembly for a term fixed in the by-laws but not exceeding a term of two (2) years and shall hold office until their successors are duly elected and qualified, or until duly removed. However, no director shall serve for more than three (3) consecutive terms.
Section 39. Powers of the Board of Directors. - The board of directors shall direct and supervise the business, manage the property of the cooperative and may, by resolution, exercise all such powers of the cooperative as are not reserved for the general assembly under this Code and the by-laws.
Section 40. Directors. - (1) Any member of a cooperative who, under the by-laws of the cooperative, has the right to vote and who possesses all the qualifications and none of the disqualifications provided in the laws or the by-laws shall be eligible for election as director.
(2) The cooperative may, by resolution of its board of directors, admit as director, or committee member one appointed by any financing institution from which the cooperative received financial assistance solely to provide technical knowledge not available within its membership. Such director or committee member need not be a member of the cooperative and shall have no powers, rights nor responsibilities except to provide technical assistance as required by the cooperative.
Section 41. Meeting of the Board, Quorum. - (1) Regular meetings of the board of directors of every cooperative shall be held monthly, unless the by-laws provide otherwise.
(2) Special meetings of the board of directors may be held at any time upon the call of the President or as provided in the by-laws.
(3) A majority of the members of the board shall constitute a quorum for the conduct of business, unless the by-laws provide otherwise.
(4) Directors cannot attend or vote by proxy at board meetings.
Section 42. Vacancy in the Board of Directors. - Any vacancy in the board of directors, other than by expiration of term, may be filled by the vote of at least a majority of the remaining directors, if still constituting a quorum, otherwise, the vacancy must be filled by general assembly in a regular or special meeting called for the purpose. A director so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office.
Section 43. Officers of the Cooperative. - The board of directors shall elect from among themselves only the chairman and vice-chairman, and elect or appoint other officer of the cooperative from outside of the board in accordance with their by-laws. All officers shall serve during good behavior and shall not be removed except for cause after due hearing. Loss of confidence shall not be a valid ground for removal unless evidenced by acts or omission causing loss of confidence in the honesty and integrity of such officer. No two (2) or more persons with relationships up to the third civil degree of consanguinity or affinity shall serve as elective or appointive officers in the same board.
Section 44. Committee of Cooperatives. - (1) The by-laws may create an executive committee to be appointed by the board of directors with such powers and duties as may be delegated to it in the by-laws or by a majority vote of all the members of the board of directors.
(2) The by-laws shall provide for the creation of an audit committee and such other committees as may be necessary for the proper conduct of the affairs of the cooperative.
Unless otherwise provided in the by-laws, the board, in case of vacancy in said committees, may cause an election to fill the vacancy or appoint a person to fill the same subject to the provision that the person elected or appointed shall serve only for the unexpired portion of the term.
Section 45. Functions and Responsibilities of Directors, Officers and Committee Members. - The functions and responsibilities of the directors, officers and committee members shall be as prescribed in detail in the by-laws of a cooperative.
Section 46. Liability of Directors, Officers and Committee Members. - Directors, officers and committee members, who willfully and knowingly vote for or assent to patently unlawful acts or who are guilty of gross negligence or bad faith in directing the affairs of the cooperative or acquire any personal or pecuniary interest in conflict with their duty as such directors, officers or committee member shall be liable jointly and severally for all damages or profits resulting therefrom to the cooperative, members and other persons.
When a director, officer or committee member attempts to acquire or acquires, in violation of his duty, any interest or equity adverse to the cooperative in respect to any matter which has been reposed in him in confidence, he shall, as a trustee for the cooperative, be liable for damages and for double the profits which otherwise would have accrued to the cooperative.
Section 47. Compensation. - (1) In the absence of any provision in the by-laws fixing their compensation, the directors shall not receive any compensation except for reasonable per diem: Provided, That any compensation other than per diems may be granted to directors by a majority vote of the members with voting rights at a regular or special general assembly meeting specifically called for the purpose: Provided further, that no additional compensation other than per diems shall be paid during the first year of existence of any cooperative.
(2) The compensation of officers of the cooperative as well as the members of the committees created pursuant to this Code or its by-laws may be fixed in the by-laws.
(3) Unless already fixed in the by-laws, the compensation of all other employees shall be determined by the board of directors.
Section 48. Dealings of Directors, Officers and Committee Members. - A contract of the cooperative with one (1) or more of its directors, officers, committee members is voidable, at the option of such cooperative, unless all the following conditions are present:
(1) That the presence of such director 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 was not necessary for the approval of the contract;
(3) That the contract is fair and reasonable under the circumstances; and
(4) That in the case of an officer or committee member, the contract with the officer or committee member has been previously authorized by the general assembly or 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, such contract may be ratified by a two-thirds (2/3) vote of all the members with voting rights in a meeting called for the purpose: Provided, That full disclosure of the adverse interest of the directors involved is made at such meeting, and all that the contract is fair and reasonable under the circumstances.
Section 49. Disloyalty of a Director. - A director who, by virtue of his office, acquires for himself an opportunity which should belong to the cooperative shall be liable for damages and must account for double the profits that otherwise would have accrued to the cooperative by refunding the same, unless his act has been ratified by a two-thirds (2/3) vote of all the members with voting rights. This provision shall be applicable, notwithstanding the fact that the director used his own funds in the venture.
Section 50. Illegal Use of Confidential Information. - (1) A director or officer, or an associate of a director or officer, who, in connection with a transaction relating to shares of a cooperative or a debt obligation of a cooperative and for his benefit or advantage or that of an associate, makes use of confidential information that, if generally known, might reasonably be expected to affect materially the value of the share or the debt obligation shall be held:
(a) Liable to compensate any person for a direct loss suffered by that person as a result of the transaction, unless the information was known or reasonably should have been known to the person at the time of the transaction; and
(b) Accountable to the cooperative for any direct benefit or advantage received or yet to be received by him or his associate, as a result of the transaction.
(2) The cooperative shall take the necessary steps to enforce the liabilities described in subsection (a).
Section 51. Removal. - An elective officer, director or committee member may be removed by a vote of two-thirds (2/3) of the voting members present and constituting a quorum, in a regular or special general meeting called for the purpose. The person involved shall be given an opportunity to be heard at said assembly.

CHAPTER V.
RESPONSIBILITIES, RIGHTS AND PRIVILEGES OF COOPERATIVES

Section 52. Address. - Every cooperative shall have an official postal address to which all notices and communications shall be sent. Such address and every change thereof shall be registered with the Cooperative Development Authority.
Section 53. Books to be Kept Open. - (1) Every cooperative shall have the following open to its members and representatives of the Authority for inspection during reasonable office hours at its official address:
(a) A copy of this Code and all other laws pertaining to cooperative;
(b) A copy of the regulations of the Cooperative Development Authority;
(c) A copy of the articles of cooperation and by-laws of the cooperative;
(d) A register of members;
(e) The books of the minutes of the meetings of the general assembly , board of directors and committees;
(f) Share books, where applicable;
(g) Financial statements; and
(h) Such other documents as may be prescribed by laws or the by-laws.
(2) The chairman of the audit committee of a cooperative shall be responsible for books and records of account of the cooperative in accordance with generally accepted accounting practices. He shall also be responsible for the production of the same at the time of audit or inspection.
(3) Each cooperative shall maintain records of accounts such that the true and correct condition and the results of the operation of the cooperative may be ascertained therefrom at anytime. The financial statements, audited according to generally accepted auditing standards, principles and practices, shall be published annually.
(4) Subject to the pertinent provisions of the National Internal Revenue Code and other laws, a cooperative may dispose by way of burning or other method of complete destruction any document, record or book pertaining to its financial and non-financial operations which are already more than five (5) years old except those relating to transactions which are subject of civil, criminal, and administrative proceedings. An inventory of the audited documents, records, and books to be disposed of shall be drawn up and certified to by the cooperative secretary and the chairman of the audit committee of the cooperative and presented to the board of directors which may be thereupon approve the disposition of said records.
Section 54. Annual Reports. - (1) Every cooperative shall draw up an annual report of its affairs as of the end of every fiscal year, and publish the same furnishing copies to all its members of record. A copy thereof shall be filed with the Cooperative Development Authority within sixty (60) days from the end of every fiscal year. The form and contents shall be a ground for revocation of authority of the cooperative to operate as such. The fiscal year of every cooperative shall be the calendar year except as may be otherwise provided in by the by-laws.
(2) If any cooperative fails to make, publish and file the report required herein, or fails to include therein any matter required by this Code, the Cooperative Development Authority shall, within fifteen (15) days from the date of expiration of the prescribed period, send such cooperative a registered notice, directed to its official and postal address stating the delinquency and its consequences. If the cooperative fails to make, publish or file a copy of the report within thirty (30) days from receipt of such notice, any member of the cooperative or the Government may petition the court for mandamus to compel the cooperative and its officers to make, publish and file such report, as the case may be, and require the cooperative or the officers at fault to pay all the expenses of the proceeding, including counsel fees when the filing is made by a member.
Section 55. Register of Members as Prima Facie Evidence. - Any register or list of members or shares kept by any registered cooperative shall be prima facie evidence of the following particulars entered therein:
(1) The date on which the name of any person was entered in such register or list as member; and
(2) The date on which any such person ceased to be a member.
Section 56. Probative Value of Certified Copies of Entries. - (1) A copy of any entry in any book, register or list regularly kept in the course of business in the possession of a cooperative shall, if duly certified in accordance with the rules of evidence, be admissible as evidence of the existence of the entry and prima facie evidence of the matters and transactions therein recorded.
(2) No person or cooperative in possession of the books of such cooperative shall, in any legal proceedings to which the cooperative is not a party, be compelled to produce any of the books of the cooperative, the contents of which can be proved and the matters, transactions and accounts therein recorded, unless by order of a competent court.
Section 57. Bonding of Accountable Officers. - Every director, officer and employee handling funds, securities or property on behalf of any cooperative shall execute and deliver adequate bonds for the faithful performance of his duties and obligations. The board of directors shall determine the adequacy of such bonds.
Section 58. Preference of Claims. - (1) Notwithstanding the provisions of existing laws, rules and regulations to the contrary, but subject to the prior claim of the Cooperative Development Authority, any debt due a cooperative from a member shall be first lien upon any raw materials, production inputs, and products produced; or any land, building, facilities, equipment, goods or services acquired and held, by such member through the proceeds of the loan or credit granted by the cooperative to him for as long as the same is not fully paid.
(2) No property or interest on property which is subject to a lien under paragraph (1) shall be sold nor conveyed to third parties without prior permission of the cooperative. The lien upon the property or interest shall continue to exist even after the sale or conveyance thereof until such lien has been duly extinguished.
(3) Notwithstanding the provisions of any law to the contrary, any sale or conveyance made in contravention of paragraph (2) hereof shall be void.
Section 59. Instrument for Salary or Wage Deduction. - (1) A member of a cooperative may, notwithstanding the provisions of existing laws to the contrary, execute an instrument in favor of the cooperative authorizing his employer to deduct from the salary or wages payable to him by the employer and pay to the cooperative such amount as may be specified in satisfaction of any debt or other demand due from the member to the cooperative.
(2) Upon the execution of such instrument and as may be required by the cooperative contained in a written request, the employer shall make the deduction in accordance with the agreement and remit forthwith the amount so deducted to the cooperative. The employer shall make the deduction for as long as such debt or other demand or any part of it remains unpaid by the employee.
(3) The term “employer” as used in this article shall include all private firms and the national and local governments and government-owned or controlled corporations who have under their employ a member of a cooperative and have agreed to carry out the terms of the instrument mentioned in paragraphs (1) and (2) of this article.
(4) The provision of this section shall also apply to all such agreements of the nature referred to in paragraph (1) as were in force on the date of the approval of this Code.
Section 60. Primary Lien. - Notwithstanding the provisions of any law to the contrary, a cooperative shall have a primary lien upon the capital, deposits or interest of a member for any debt due to the cooperative from such a member.
Section 61. Tax Treatment of Cooperatives. - Duly registered cooperatives under this Code which do not transact any business with non-members or the general public shall not be subject to any government taxes and fees imposed under the Internal Revenue Laws and other tax laws. Cooperatives not falling under this article shall be governed by the succeeding section.
Section 62. Tax and Other Exemptions. - Cooperatives transacting business with both members and non-members shall not be subject to tax on their transactions to members. Notwithstanding the provisions of the law or regulation to the contrary, such cooperatives dealing with non-members shall enjoy the following tax exemptions:
(1) Cooperatives with accumulated reserves and undivided net savings of not more than Ten million pesos (P10,000,000.00) shall be exempt from all national, city, provincial, municipal or barangay taxes of whatever name and nature. Such cooperatives shall be exempt from customs duties, advance sales or compensating taxes on their importation of machineries, equipment and spare parts used by them and which are not available locally as certified by the Department of Trade and Industry. All tax-free importations shall not be transferred to any person until after five (5) years, otherwise, the cooperative and the transferee or assignee shall be solidarily liable to pay twice the amount of the tax and/or duties thereon.
(2) Cooperatives with accumulated reserves and undivided net savings of more than Ten million pesos (P10,000,000.00) shall pay the following taxes at the full rate:

(a) Income Tax: On the amount allocated for interest on capitals: Provided, That the same tax is not consequently imposed on interest individually receive by members;
(b) Sales Tax: On sales to non members: Provided, however, That all cooperatives, regardless of classification, are exempt from the payment of income and sales taxes for a period of ten (10) years.
For cooperatives whose exemptions were removed by Executive Order No. 93, the ten-year period shall be reckoned from the effectivity date of said Executive Order. Cooperatives created after the approval of this Code shall be granted the same exemptions, the period of which shall be reckoned from the date of registration with the Authority: Provided, That at least twenty-five per cent (25%) of the net income of the cooperatives is returned to the members in the form of interest and/or patronage refunds;
(c) All other taxes unless otherwise provided herein; and
(d) Donations to charitable, research and educational institutions and reinvestment to socio-economic projects within the are of operation of the cooperative may be tax deductible.
(3) All cooperative, regardless of the amount of accumulated reserves and undivided net savings shall be exempt from payment of local taxes and taxes on transactions with banks and insurance companies: Provided, That all sales or services rendered for non-members shall be subject to the applicable percentage taxes except sales made by producers, marketing or service cooperatives: Provided further, That nothing in this article shall preclude examination of the books of accounts or other accounting records of the cooperative by duly authorized internal revenue officers for internal revenue tax purposes only, after previous authorization by the Authority.
(4) Any judge in his capacity as notary public, ex officio, shall render service, free of charge, to any person or group of persons requiring either the administration of oath or acknowledgment of articles of cooperation of a cooperative applicant for registration and instruments of loan from cooperative not exceeding Fifty thousand pesos (50,000.00).
(5) Any register of deeds shall accept for registration, free of charge, any instrument relative to a loan made under this Code which does not exceed Fifty thousand pesos (50,000.00) or the deeds of title of any property acquired by the cooperative or any paper or document drawn in connection with any action brought by the cooperative or with any court judgment rendered in its favor or any instrument relative to a bond of any accountable officer of a cooperative for the faithful performance of his duties and obligations.
(6) Cooperatives shall be exempt from the payment of all court and sheriff’s fees payable to the Philippine Government for and in connection with all actions brought under this Code, or where such actions is brought by the Cooperative Development Authority before the court, to enforce the payment of obligations contracted in favor of the cooperative.
(7) All cooperatives shall be exempt from putting up a bond for bringing an appeal against the decision of an inferior court or seeking to set aside any third party claim: Provided, That a certification of the authority showing that the net assets of the cooperative are in excess of the amount of the bond required by the court in similar cases shall be accepted by the court as sufficient bond.
(8) Any security issued by a cooperative, shall be exempt from provisions of the Securities Act provided such security shall not be speculative.
Section 63. Privileges of Cooperatives. - Cooperatives registered under this Code shall, notwithstanding the provisions of any law to the contrary, be also accorded the following privileges:
(1) Cooperatives shall enjoy the privilege of depositing their sealed cash boxes or containers, documents or any valuables papers in the sale of the municipal or city treasurers and other government offices free of charge, and the custodian of such articles shall issue a receipt acknowledging the articles received duly witnessed by another person;
(2) Cooperatives organized among government employees, notwithstanding any law or regulation to the contrary, shall enjoy the free use of any available space in their agency, whether owned or rented by the Government.
(3) Cooperatives rendering special types of services and facilities such as cold storage, ice plant, electricity, transportation, and similar services and facilities shall secure a franchise therefore, and such cooperatives shall open their membership to all persons qualified in their areas of operation;
(4) In areas where appropriate cooperatives exist, the preferential right to supply government institutions and agencies rice, corn and other grains, fish and other marine products, meat, eggs, milk, vegetables, tobacco and other agricultural commodities produced by their own members shall be granted to the cooperatives concerned;
(5) Preferential treatment in the allocation of fertilizers and in rice distribution shall be granted to cooperatives by the appropriate government agencies;
(6) Preferential and equitable treatment in the allocation or control of bottomries of commercial shipping vessels in connections with the shipment of goods and products of cooperatives;
(7) Cooperatives and their federations, such as market vendor cooperatives, shall have preferential rights in management of public markets and/or lease of public market facilities, stall or spaces;
(8) Credit cooperatives and/or federations shall be entitled to loans, credit liens, rediscounting of their loan notes, and other eligible papers with the Development Bank of the Philippines, the Philippine National Bank, the Land Bank of the Philippines, and other financial institutions except the Central Bank of the Philippines;
(9) Cooperatives transacting business with the Government of the Philippines or any of its political subdivisions or any of its agencies or instrumentalities, including government-owned and controlled corporations shall be exempt from pre-qualification bidding requirements; and
(10) Cooperatives shall enjoy the privilege of being represented by the provincial or city fiscal or the Office of the Solicitor General, free of charge, except when the adverse party is the Republic of the Philippines.
CHAPTER VI.
INSOLVENCY OF COOPERATIVES

Section 64. Proceedings Upon Insolvency. - In case a cooperative is unable to fulfill its obligations to creditors due to insolvency, such cooperative may apply for such remedies as it may deem fit under the provisions of the Insolvency Law (Act No. 1956, as amended).
Nothing in this section, however, precludes creditors from seeking protection from said insolvency law.

CHAPTER VII.
DISSOLUTION OF COOPERATIVES

Section 65. Voluntary Dissolution Where No Creditors Are Affected. - If the dissolution of a cooperative does not prejudice the rights of any creditor having a claim against it, the dissolution may be affected by a majority vote of the board of directors, and by a resolution duly adopted by the affirmative vote of at least two-thirds (2/3) of all the members with voting rights at a meeting to be held upon call of the directors: Provided, That notice of time, place and object of the meeting shall be published for three (3) consecutive weeks in a newspaper published in the place where the principal office of the said cooperative is located, or if no newspaper is published in such place, in a newspaper of general circulation in the Philippines: Provided further, That notice of such meeting is sent 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 and countersigned by the secretary of the cooperative. The Cooperative Development Authority shall thereupon issue the certificate of dissolution.
Section 66. Voluntary Dissolution Where Creditors Are Affected. - Where the dissolution of a cooperative may prejudice the rights of any creditor, the petition for dissolution shall be filed with the Cooperative Development Authority. The petition shall be signed by a majority of its board of directors or other officers managing its affairs, shall be verified by its president or secretary or one of its directors and shall set forth all claims and demands against it and that its dissolution was resolved upon by the affirmative vote of at least two-thirds (2/3) of all the members with voting rights, at a meeting called for that purpose.
If the petition is sufficient in form and substance, the Cooperative Development Authority shall, by an order reciting the purpose of the petition, fix a date on or before which objections thereto may be filled by any person, which date shall not be less than thirty (30) 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 cooperative is situated, or in the absence of 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 the municipality or city.
Upon five (5) days notice, given after the date on which the right to file objections as fixed in the order has expired, the Cooperative Development Authority 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 issue an order dissolving the cooperative and directing such disposition of its assets as justice requires. The order of dissolution shall set forth therein:
(1) The assets and liabilities of the cooperative;
(2) The claim of any creditor;
(3) The number of members; and
(4) The nature and extent of the interests of the members of the cooperative.
Section 67. Involuntary Dissolution. - A cooperative may be dissolved by order of a competent court after due hearing on the grounds of:
(1) violation of any law, regulation or provisions of its by-laws; or
(2) insolvency.
Section 68. Dissolution by Order of Authority. - The Authority may suspend or revoke, after due notice and hearing, the certificate of registration of a cooperative on any of the following grounds:
(1) Having obtained its registration by fraud;
(2) Existing for an illegal purpose;
(3) Willful violation, despite notice by the Authority, of the provisions of this Code or its by-laws;
(4) Willful failure to operate on a cooperative basis; and
(5) Failure to meet the required minimum number of members in the cooperative.
Section 69. Dissolution by Failure to Organize and Operate. - If a cooperative has not commenced business and operation within two (2) years after the date shown on its certificate of registration or has not carried on business for two (2) consecutive years, the Authority shall send formal inquiry to the said cooperative as to the status of its operation. Failure of the cooperative to promptly provide justifiable cause for its failure to operate shall warrant the Authority to strike off its name from the register and, for all intents and purposes, the cooperative shall be deemed dissolved.
Section 70. Cooperative Liquidation. - Every cooperative whose charter expires by its own limitation or whose cooperative existence is terminated by voluntary dissolution or is terminated by appropriate judicial proceedings shall nevertheless be continued as a body cooperative 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 anytime during said three (3) years, said cooperative is authorized and empowered to convey all of its property to trustees for the benefit of members, creditors and other persons in interest. From and after any such conveyance by the cooperative of its property in trust for the benefit of its members, creditors and others in interest, all interest which the cooperative had in the property terminates the legal interest vests in the trustees and the beneficial interest vests in the members, creditors or other persons in interest.
Upon the winding up of the cooperative affairs, any asset distributable to any creditor or shareholder or member who is unknown or cannot be found shall be given to the federation, union or association to which the cooperative is affiliated or to the movement.
Except by decrease of share capital and as otherwise allowed in this Code, no cooperative shall distribute any of its assets or property except upon lawful dissolution and after payment of all its debts and liabilities.
Section 71. Rules and Regulations on Liquidation. The Authority shall issue the appropriated implementing guidelines for the liquidation of cooperatives.

CHAPTER VIII.
CAPITAL, PROPERTY AND FUNDS

Section 72. Capital. - The capitalization of cooperatives and the accounting therefore shall be governed by the provisions of this Code and the regulations issued hereunder.
Section 73. Capital Sources. - Cooperatives registered under this Code may derive their capital from any or all of the following sources:
(1) Member’s share capital;
(2) Loans and borrowings including deposits;
(3) Revolving capital which consists of the deferred payment of patronage refunds, or interest on share capital; and
(4) Subsidies, donations, legacies, grants, aids and such other assistance from any local or foreign institution whether public or private.
Section 74. Limitation on Share Capital Holdings. - No member of a cooperative other than a cooperative shall own or hold more than twenty per cent (20%) of the share capital of the cooperative. Where a member of a cooperative dies, his heir shall be entitled to the shares of the decedent: Provided, That the total share holding of the heir does not exceed twenty per cent (20%) of the share capital of the cooperative: Provided further, That the heir qualify and is admitted as member of the cooperative: Provided finally, That where the heir fails to qualify as such member or where his total share holding exceeds twenty per cent (20%) of the share capital, the share or shares in excess will revert to the cooperative upon payment to the heir of the value of such shares.
Section 75. Assignment of Share Capital Contribution or Interest. - Subject to the provisions of this Code, no member shall transfer his shares or interest in the cooperative or any part thereof unless:
(1) He has held such share contribution or interest for not less than one (1) year;
(2) The assignment is made to the cooperative or to a member of the cooperative or to a person who falls within the field of membership of the cooperative; and
(3) The board of directors has approved such assignment.
Section 76. Interest on Share Capital. - Interest on share capital shall not exceed the normal rate on investments as determined by the Cooperative Development Authority and such interest shall be non-cumulative.
Section 77. Shares. - The term “share” refers to a unit of capital the par value of which may be fixed at any figure but not less than One peso (Pl.00). The share capital of a cooperative is the money paid or required to be paid for to conduct its operations. The method of issuing the share certificates may be prescribed in the by-laws of a cooperative.
Section 78. Fines. - The by-laws of a cooperative may prescribe a fine on unpaid subscribed share capital subject to the guidelines which the Cooperative Development Authority may issue.
Section 79. Investment of Capital. - (1) A cooperative may invest its capital in any of the following:
(a) In shares or debentures or securities of any other cooperative;
(b) In any reputable bank in the locality, or any cooperative;
(c) In securities issued or guaranteed by the Government;
(d) In real estate primarily for the use of the cooperative or its member; or
(e) In any other manner authorized in the by-laws.
Section 80. Revolving Capital. - The general assembly of any cooperative may authorize the board of directors to raise a revolving capital to strengthen its capital structure by deferring the payment of patronage refunds and interest on share capital or by the authorized deduction of a percentage from the proceeds of products sold or per unit of product handled. The board of directors shall issue revolving capital certificates with serial number, name, amount, and rate of interest to be paid and shall distinctly set forth that the time of retirement by such certificates and the amounts to be returned are at the discretion of the board of directors.

CHAPTER IX.
AUDIT, INQUIRY AND MEMBERS’ RIGHT TO EXAMINE

Section 81. Annual Audit. - Cooperatives under this Code shall be subject to an annual audit by an auditor who satisfies all the following qualifications:
(1) He is independent of the cooperative being audited and of any subsidiary of the cooperative; and
(2) He is a member of any recognized professional accounting or cooperative auditor’s association with similar qualifications.
Section 82. Audit Report. - The auditor shall submit to the audit committee a report of the audit which shall contain a statement of the assets and liabilities of the cooperative, including earnings and expenses, amount of net surplus as well as losses and bad debts, if any.
The audit committee shall forthwith furnish the board of directors a copy of the audit report. Thereafter, the board of directors shall present the complete audit report to the general assembly in its next meeting.
Section 83. Non-liability for Defamation. - An auditor is not liable to any person in an action for defamation based on any act done, or any statement made by him in good faith in connection with any matter he is authorized or required to do pursuant to this Code.
Section 84. Right to Examine. - A member shall have the right to examine the records required to be kept by the cooperative under Section 51 of this Code during reasonable hours on business days and he may demand, in writing, for a copy of excerpts from said records without charges except the cost of reproduction.
Any officer of the cooperative who shall refuse to allow any member of the cooperative to examine and copy excerpts from its records shall be liable to such member for damages and shall be guilty of an offense which shall be punishable under Section 106 of this Code: Provided, That if such refusal is pursuant to a resolution or order of the board of directors, the liability under this article shall be imposed upon the directors who voted for such refusal: Provided further, That it shall be a defense to any action under this section that the member demanding to examine and copy excerpts from the cooperative records has improperly used any information secured through any prior examination of the records of such cooperative or was not acting in good faith or for a legitimate purpose in making his demand.
Section 85. Safety of Records. - Every cooperative shall, at its principal office, keep and carefully preserve the records required by this Code to be prepared and maintained. It shall take all necessary precaution to prevent its loss, destruction or falsification.

CHAPTER X.
ALLOCATION AND DISTRIBUTION OF NET SURPLUS

Section 86. Net Surplus. - Notwithstanding the provisions of existing laws, the net surplus of cooperatives shall be determined in accordance with its by-laws. Every cooperative shall determine its net surplus at the close of every fiscal year and at such other time as may be prescribed by the by-laws.
The net surplus shall not be construed as profit but as excess of payments made by the members for the loans borrowed, or the goods and services bought by them from the cooperative and which shall be deemed to have been returned to them if the same is distributed as prescribed herein.
Section 87. Order of Distribution. - The net surplus of every cooperative shall be distributed as follows:
(1) An amount for the reserve fund, which shall be at least ten per cent (10%) of net surplus:
(a) The reserve fund shall be used for the stability of the cooperative and to meet net losses in its operations. The general assembly may decrease the amount allocated to the reserve fund when reserve fund already exceeds the share capital.
Any sum recovered on items previously charged to the reserve fund shall be credited to such fund.
(b) The reserve fund shall not be utilized for investment, other than those allowed in this Code. Such sum of the reserve fund in excess of the share capital may be used at anytime for any project that would expand the operations of the cooperative upon the resolution of the general assembly.
(c) Upon the dissolution of the cooperative, the reserve fund shall not be distributed among the members. The general assembly may resolve:

(i) To establish a usufructuary trust fund for the benefit of any federation or union to which the cooperative is affiliated; and
(ii) To donate, contribute, or otherwise dispose of the amount for the benefit of the community where the cooperative operates. If the members cannot decide upon the disposal of the reserve fund, the same shall go to the federation or union to which the cooperative is affiliated.
(2) An amount for the education and training fund, which shall be not more than ten per cent (10%) of net surplus. The by-laws may provide that certain fees or fines or a portion thereof be credited to such fund:

(a) Half of the amounts transferred to the education and training fund annually under this subsection may be spent by the cooperative for education and training and other purposes; while the other half shall be credited to the cooperative education and training fund of the respective apex organization of which the cooperative is a member. An apex organization may be a federation or union.
(b) Upon the dissolution of the cooperative, the unexpended balance of the education and training fund appertaining to the cooperative shall be credited to the cooperative education and training fund of the above mentioned apex organization.
(3) An optional fund, a land and building, community development, and any other necessary fund the total of which may not exceed ten per cent (10%).
(4) The remaining net surplus shall be made available to the members in the form of interest not to exceed the normal rate of return on investments and patronage refunds.
The sum allocated for patronage refunds shall be made available at the same rate to all patrons of the cooperative in proportion to their individual patronage: Provided, That:

(a) In the case of a member patron with paid-up share capital contribution, his proportionate amount of patronage refund shall be paid to him unless he agrees to credit the amount to his account as additional share capital contribution;
(b) In the case of a member patron with unpaid share capital contribution, his proportionate amount of patronage refund shall be credited to his account until his share capital contribution has been fully paid;
(c) In the case of a non-member patron, his proportionate amount of patronage refund shall be set aside in a general fund for such patrons and shall be allocated to individual non-member patrons only upon request and presentation of evidence of the amount of his patronage. The amount so allocated shall be credited to such patron toward payment of the minimum capital contribution for membership. When a sum equal to this amount has accumulated at any time within a period specified in the by laws, such patron shall be deemed and become a member of the cooperative if he so agrees or requests and complies with the provisions of the by-laws for admission to membership;
(d) If within any period of time specified in the by-laws, any subscriber who has not fully paid his subscribed share capital or any non-member patron who has accumulated the sum necessary for membership but who does not request nor agree to become a member or fails to comply with the provisions of the by-laws for admission to membership, the amount so accumulated credited to their account together with any part of the general fund for non-member patrons shall be credited to the reserve fund or to the education and training fund of the cooperative, at the option of the cooperative.
CHAPTER XI.
SPECIAL PROVISIONS RELATING TO AGRARIAN REFORM COOPERATIVES

Section 88. Coverage. - The provision of this Chapter shall primarily govern agrarian reform cooperatives: Provided, That the provisions of other chapter of this Code shall apply suppletorily except insofar as this Chapter otherwise provides.
Section 89. Definition and Purpose. - An agrarian reform cooperatives within the meaning of this Code is one where the majority of the members are agrarian reform beneficiaries and marginal farmers and organized for any or all the following purposes:
(1) To develop an appropriate system of land tenure, land development, land consolidation or land management in areas covered by agrarian reform;
(2) To coordinate and facilitate the dissemination of scientific methods of production, and provide assistance in the storage, transport, and marketing of farm products for agrarian reform beneficiaries and their immediate family, hereinafter referred to as “beneficiaries”;
(3) To provide financial facilities to beneficiaries for provident or productive purposes at reasonable costs;
(4) To arrange and facilitate the expeditious transfer of appropriate and suitable technology to beneficiaries and marginal farmers at the lowest possible cost;
(5) To provide social security benefits, health, medical and social insurance benefits and other social and economic benefits that promote the general welfare of the agrarian reform beneficiaries and marginal farmers;
(6) To provide non-formal education, vocational/technical training, and livelihood programs to beneficiaries and marginal farmers;
(7) To act as channels for external assistance and services to the beneficiaries and marginal farmers;
(8) To undertake a comprehensive and integrated development program in agrarian reform and resettlement areas with special concern for the development of agro-based, marine-based, and cottage-based industries;
(9) To represent the beneficiaries on any or all matters that affect their interest; and
(10) To undertake such other economic or social activities as may be necessary or incidental in the pursuit of the foregoing purposes.
Section 90. Cooperative Estates. - Landholdings like plantations, estates or haciendas acquired by the State for the benefit of the workers in accordance with the Comprehensive Agrarian Reform Program shall be owned collectively by the workers-beneficiaries who shall form a cooperative at their option.
Section 91. Infrastructure. - In agrarian reform and resettlement areas, the Government shall grant to agrarian reform cooperatives preferential treatment, if necessary, the authority to construct, maintain, and manage with government funding roads, bridges, canals, wharves, ports, reservoirs, irrigation systems, waterworks systems, and other infrastructures. For this purpose, government technical assistance, facilities and equipment shall be made available to such agrarian reform cooperatives for their use.
Section 92. Lease of Public Lands. - The Government may lease public lands to any agrarian reform cooperatives for a period not exceeding twenty-five (25) years, subject to renewal for another twenty-five (25) years only: Provided, That the application for renewal shall be made one (1) year before the expiration of the lease: Provided further, That such lease shall be for the exclusive use and benefit of the beneficiaries and marginal farmers subject to the provisions of the Comprehensive Agrarian Reform Program.
Section 93. Preferential Right. - In agrarian reform areas, an agrarian reform cooperative shall have the preferential right in the grant of franchise and certificate of public convenience and necessity for the operation of public utilities and services: Provided, That it meets the requirements and conditions imposed by the appropriate government agency granting the franchise or certificate of public convenience and necessity.
Electric service agencies shall, upon request of agrarian reform cooperative, immediately provide electric services to agrarian reform areas. If the electric service agencies concerned fails for any reason to provide the services requested within a period of one (1) year from receipt thereof, the agrarian reform cooperative concerned may provide the electric services in the agrarian reform area directly through its own resources and shall continue to do so until such time that the electric service agency concerned purchases all the investments made by the agrarian reform cooperative in the electrification of the agrarian reform and resettlement areas.
Section 94. Privileges. - Subject to such reasonable terms and conditions as the Department of Agrarian Reform and the Authority may impose, agrarian reform cooperatives may be given the exclusive right to do any or all of the following economic activities in agrarian reform and resettlement areas:
(1) Supply and distribution of consumer, agricultural, aquacultural, and industrial goods, production inputs, and raw materials and supplies, machinery, equipment facilities and other services and requirements of the beneficiaries and marginal farmers in the agrarian reform areas at reasonable prices;
(2) Marketing of the products and services of the beneficiaries on the local and foreign markets;
(3) Processing of the members products into finished consumer or industrial goods for domestic consumption or for export;
(4) Provision of essential public services at cost such as power, irrigation, potable water, passenger and/or cargo transportation by land, sea, or air, communication services, and public health and medical care services;
(5) Management, conservation, and commercial development of marine, forestry, mineral, water, and other natural resources subject to compliance with the laws and regulations on environmental and ecological controls;
(6) Provision of financial, technological, and other services and facilities required by the beneficiaries in their daily lives and livelihood.
The Government shall provide the necessary financial and technical assistance to agrarian reform cooperatives to enable them to discharge effectively their purposes under this section. The Department of Agrarian Reform, the Cooperative Development Authority and the Central Bank of the Philippines shall draw up a joint program for the organization and financing of the agrarian reform cooperative subject to this Chapter. The joint program shall be geared towards the beneficiaries gradual assumption of full ownership and management control of the agrarian reform cooperatives within ten (10) years from the date of registration of said cooperatives.
Section 95. Organization and Registration. - Agrarian reform cooperatives may be organized and registered under this Code only upon prior written verification by the Department of Agrarian Reform to the effect that the same is needed and desired by the beneficiaries; results of a study that has been conducted fairly indicate the economic feasibility of organizing the same and that it will be economically viable in its operations; and that the same may now be organized and registered in accordance with the requirements of this Code.

CHAPTER XII.
SPECIAL PROVISIONS ON PUBLIC COOPERATIVES

Section 96. Definition and Coverage. - A public service cooperative, within the meaning of this Code, is one organized to render public service as authorized under a franchise or certificate of public convenience and necessity duly issued by the appropriate government agency. Such services may include the following:
(1) Power generation, transmission, and/or distribution;
(2) Ice plants and cold storage services. Electric cooperatives created under Presidential Decree No. 269 shall be governed by this Chapter if they qualify as cooperative under the provisions of this Code;
(3) Communications services including telephone, telegraph, and telecommunications;
(4) Land, sea, and air transportation cooperative for passenger and/or cargo. Transport cooperatives organized under the provisions of Executive Order No. 898, Series of 1983, shall be governed by this Chapter;
(5) Public markets, slaughterhouses and other similar services; and
(6) Such other types of public services as may be engaged in by any cooperative. Such cooperative shall be primarily governed by this Chapter and the general provisions of this Code insofar as they may be applicable unless they are inconsistent herewith.
Section 97. Registration Requirements. - No public service cooperative shall be registered unless it satisfies the following requirements:
(1) It has the favorable endorsement of the proper government agency authorized to issue the franchise or certificates of public convenience and necessity;
(2) Its articles of cooperation and by-laws provide for the membership of the users and/or producers of the service of such cooperatives; and
(3) It satisfies such other requirements as may be imposed by the other pertinent government agencies concerned. In case there are two (2) or more applicants for the same public service franchise or certificate of public convenience and necessity, all things being equal, preference shall be given to a public service cooperative.
Section 98. Regulation Requirements. - (1) The internal affairs of public service cooperatives such as the rights and privileges of members, the rules and procedures for meetings of the general assembly, board of directors and committees; for the election and qualifications of officers, directors, and committee members, allocation and distribution of surpluses; and all other matters relating to their internal affairs shall be governed by this Code.
(2) All matters relating to the franchise or certificate of public convenience and necessity of public service cooperatives such as capitalization and investment requirements, equipment and facilities, frequencies, rate-fixing, and such other matters affecting their public service operations shall be governed by the proper government agency concerned.
(3) The Cooperative Development Authority and the proper government agency concerned shall jointly issue the necessary rules and regulations to implement this Chapter.

CHAPTER XIII.
SPECIAL PROVISIONS RELATING TO COOPERATIVE BANKS

Section 99. Governing Law. - (1) The provisions of this Chapter shall primarily govern cooperative banks registered under this Code and the other provisions of this Code shall apply to them only insofar as they are not inconsistent with the provisions contained in this Chapter.
(2) Cooperatives duly established and registered under the provisions of this Code may organize among themselves a cooperative bank which shall likewise be considered a cooperative registerable under the provision of this Code subject to the requirements of and requisite authorization from the Central Bank.
Section 100. Definition, Classification and Functions. - A cooperative bank is one organized by the majority shares of which is owned and controlled by cooperatives primarily to provide financial and credit services to cooperatives. The term “cooperative bank” shall include cooperative rural banks.
A cooperative bank may perform the following functions:
(1) To carry on banking and credit services for the cooperatives;
(2) To receive financial aid or loans from the Government and the Central Bank of the Philippines for and in behalf of the cooperative banks and primary cooperatives and their federations engaged in business and to supervise the lending and collection of loans;
(3) To mobilize savings of its members for the benefit of the cooperative movement;
(4) To act as a balancing medium for the surplus funds of cooperatives and their federations;
(5) To discount bills and promissory notes issued and drawn by cooperatives;
(6) To issue negotiable instruments to facilitate the activities of cooperatives;
(7) To issue debentures subject to the approval of and under conditions and guarantees to be prescribed by the Government;
(8) To borrow money from banks and other financial institutions within the limit to be prescribed by the Central Bank; and
(9) To carry out all other functions as may be prescribed by the Authority: Provided, That the performance of any banking function shall be subject to prior approval by the Central Bank of the Philippines.
Section 101. Registration Requirements. - No entity shall be registered by the Cooperative Development Authority as a cooperative bank unless the articles of cooperation and by-laws thereof as well as its establishment and operation as a cooperative bank have been approved by the Central Bank of the Philippines and it satisfies all requirements for registration as a cooperative.
Section 102. Membership. - Membership of a cooperative bank shall include only cooperatives and federations of cooperatives.
Section 103. Board of Directors. - The number, composition, and voting rights of the board of directors shall be defined in the articles of cooperation and by-laws of the cooperative bank, notwithstanding provisions of this Code to the contrary.
Section 104. Loans. - Cooperatives may obtain loans from a cooperative bank. Loans granted by a cooperative bank shall be reported to the Central Bank of the Philippines.
Section 105. Supervision. - The cooperative banks registered under this Code shall be under the supervision of the Central Bank. The Central Bank upon consultation with the agency and the cooperative movement shall formulate guidelines regarding the operations and banking transactions of cooperative bank. These guidelines shall give due recognition to the unique cooperative nature and character of cooperative banks. To this end, cooperative banks may be exempted from Central Bank rules and regulations, applicable to other types of banks, which would impede the cooperative rural bank from performing legitimate financial and banking services to its members.
Section 106. Capitalization. - (1) A national cooperative bank shall have a minimum authorized share capital of Two hundred million pesos (P200,000,000.00) in relation to Section 14(5). The authorized share capital shall be divided into such number of shares with a minimum par value of One thousand pesos (P1,000.00) per share. For the purpose primarily of determining the permanency of equity, the types of share a cooperative bank may issue, including the terms thereof and the rights appurtenant thereto, shall be subject to such rules and regulations as the Central Bank may prescribe.
(2) A local cooperative bank shall have a minimum authorized share capital of Twenty million pesos (P20,000,000.00) divided into such number of shares with a minimum par value of One hundred pesos (P100.00) per share.
Section 107. Distribution of Net Surplus. - The provisions of this Code on the allocation and distribution of net surplus shall apply.
Section 108. Privileges. - Cooperative banks shall have the following privileges subject to the approval of the Central Bank and compliance with applicable banking laws, rules and regulations:
(1) The cooperative banks registered under this Code shall be given the same privilege granted to the rural banks, private development banks, commercial banks, and all other banks to re-discount notes with the Central Bank, the Land Bank of the Philippines, and other government banks without affecting in any way the provisions of this Code; and
(2) To act as a depository of government funds. For this purpose, all government departments, agencies and units of the national and local governments, including government-owned and controlled corporations are hereby authorized to deposit their funds in any cooperative bank.
Section 109. Assistance to Cooperative Bank. - Whenever a cooperative bank organized under this Code is distressed or may need assistance in the rehabilitation of its financial condition or to avoid bankruptcy, the Monetary Board of the Central Bank of the Philippines shall designate an official of the Central Bank or a person of recognized competence in banking or finance as receiver or conservator of the said bank pursuant to the provisions of Section 29 of Republic Act. No. 265, as amended.

CHAPTER XIV.
SPECIAL PROVISIONS RELATING TO CREDIT COOPERATIVE

Section 110. Coverage. - This Chapter shall apply only to credit cooperatives and the rest of the provisions of this Code shall apply to them insofar as the same are not inconsistent with the provisions of this Chapter.
Section 111. Definition and Objectives. - A credit cooperative is a financial organization owned and operated by its members with the following objective:
(1) To encourage savings among its members;
(2) To create a pool of such savings for which loans for productive or provident purposes may be granted to its members; and
(3) To provide related services to enable its members to maximize the benefit from such loans.
Section 112. Organization and Registration. - Credit cooperative shall be organized and registered in accordance with the general provisions of this Code.
Section 113. Organizational Linkage. - Credit cooperatives may organize chapter or subsidiaries, or join leagues and federations for the purpose of providing commonly needed essential services Including but not limited to the following:
(1) Inter-lending of surplus fund;
(2) Mutual benefits;
(3) Deposit guarantee;
(4) Bonding;
(5) Education and training;
(6) Professional and technical assistance;
(7) Research and development;
(8) Representation; and
(9) Other services needed to improve their performance.
Existing support organizations such as federations of credit cooperatives, credit cooperatives at the provincial, regional and national levels may continue as such under this Code.
Section 114. Prohibition. - The term “credit cooperative” shall be used exclusively by those who are duly registered under this Chapter, and no person or group of persons, or organizations shall use the said term unless duly registered herein.

CHAPTER XV.
SPECIAL PROVISIONS RELATING TO COOPERATIVE INSURANCE SOCIETIES

Section 115. Cooperative Insurance Societies. - Existing cooperatives may organize themselves into a cooperative insurance entity for the purpose of covering the insurance requirements of the cooperative members including their properties and assets.
Section 116. Types of Insurance Provided. - Under the cooperative insurance program established and formed by virtue of the provisions of this Code, the cooperative insurance societies shall provide its constituting members different types of insurance coverage consisting of, but not limited to, life insurance with special group coverage, loan protection, retirement plans, endowment with health and accident coverage, fire insurance, motor vehicle coverage, bonding, crop and livestock protection and equipment insurance.
Section 117. Applicability of Insurance Laws. - The provisions of the Insurance Code and all other laws and regulations relative to the organization and operation of an insurance company shall apply to cooperative insurance entities organized under this Code. The requirements on capitalization, investments and reserves of insurance firms may be liberally modified upon consultation with the Cooperative Development Authority and the cooperative sector. But in no case may the requirements be reduced to less than half of those provided for under the Insurance Code and other related laws.
Section 118. Implementing Rules. - The Insurance Commission, upon consultation with the Cooperative Development Authority and the cooperative sector, shall formulate the rules and regulations implementing these provisions.

CHAPTER XVI.
MISCELLANEOUS PROVISIONS

Section 119. Compliance with Other Laws. - (1) The Labor Code and all other labor laws shall apply to all cooperatives.
(2) The Social Security Act, the Medical Care Act, and all other social legislations shall apply to all cooperatives.
(3) All other laws and executive orders applicable to cooperatives duly registered under this Code.
Section 120. Register of Cooperatives. - The Cooperative Development Authority shall establish a register which shall contain chronological entry of the name of every cooperative registered or dissolved under this Code together with the basic information required for registration and any information considered useful. The Cooperative Development Authority shall publish every year a list of cooperatives in existence, under dissolution and whose registration is cancelled during the year together with such information on each of them as may be prescribed in the regulations.
Section 121. Settlement of Disputes. Disputes among members, officers, directors and committee members, and intra-cooperative disputes shall, as far as practicable, be settled amicably in accordance with the conciliation or mediation mechanisms embodied in the by-laws of the cooperative, and in applicable laws.
Should such a conciliation/mediation proceeding fail, the matter shall be settled in a court of competent jurisdiction.

CHAPTER XVII.
FINAL PROVISIONS

Section 122. Electric Cooperatives. - Electric cooperatives shall be covered by this Code. However, there shall be a transition period of three (3) years within which the Cooperative Development Authority and the National Electrification Administration shall help and assist electric cooperatives to qualify under this Code. The Cooperative Development Authority and the National Electrification Administration shall jointly promulgate rules and regulations to the end that the provisions of this law are harmonized with the provisions of Presidential Decree No. 269.
Section 123. Regulations. - (1) The Cooperative Development Authority may issue regulations to implement those provisions of this Code which expressly call for the issuance thereof. This paragraph shall not apply to those cases wherein a specific provision of this Code expressly designates particular government agencies which shall issue the regulations called for by any provision of this Code.
(2) Where a provision of this Code does not expressly call for nor authorize the issuance of a regulation, no regulation shall be issued thereon. Any regulation issued in violation of this paragraph shall be null and void ab initio.
(3) No regulation shall be issued nor become effective under this Code unless the following requirements are satisfied:
(a) Public announcement on the intention to issue regulations describing the subject to be dealt on with a copy of the proposed regulations attached, inviting the public to make known their views thereon and submit their positions with respect thereof. The announcement shall be published in a daily newspaper of national general circulation at least once a week for four (4) consecutive weeks prior to the intended date of commencement of the public hearing thereon, specifying the date, time and place of the public hearing;
(b) Public hearings may be conducted separately in Luzon, Visayas and Mindanao by the Authority and the proceedings thereof shall be duly recorded. Minutes of a public hearing shall be made available to the public at cost. The public hearing may be held in several sessions: Provided, That no session shall be conducted unless the minutes of all other previous sessions have been published beforehand;
(c) The proceed regulations shall be supported by a memorandum of justification for every provision thereof which shall include citation of the legal bases therefore, the reasons for such provision, and the expected results therefrom; and
(d) The regulations shall be recommended by the Authority and approved by the Office of the President, and the same shall take effect thirty (30) days after publication in the Official Gazette.
Section 124. Penal Provisions. - The following acts or omissions affecting cooperatives are hereby prohibited:
(1) The use of the word “cooperative” by any person or of persons or organizations, domestic or foreign, unless duly registered as a cooperative under this Code. In case of violation hereof, the individual or individuals concerned, or in the case of an organization, its officers and directors shall, upon conviction, each suffer the penalty of imprisonment for one (1) year and a fine not exceeding One thousand pesos (P1,000.00) or both at the discretion of the court;
(2) Direct or indirect interference or intervention by any public official or employee into the internal affairs of a cooperative of which he is not a member, such as, but not limited to the following:

(a) Influencing the election or appointment of officers, directors, committee members and employees through public or private endorsement or campaign for or against any person or group of persons;
(b) Requiring prior clearance for any policy or decision within the cooperative;
(c) Requesting or demanding for the creation of positions or organizational units, or recommending any person for appointment, transfer, or removal from his position; or
(d) Any other acts inimical or adverse to the autonomy and independence of cooperatives.
In case of violation of any provision of this subsection, the individual or individuals, and in the case of organizations, its officers and directors shall, upon conviction by a court, each suffer a penalty of not less than one (1) year but not more than five (5) years imprisonment or a fine in the amount of not less than Five thousand pesos (P5,000.00), or both at the discretion of the court;
(3) A director, officer or committee member who violated the provisions of Section 47 (liability of directors, officers and committee members), Section 50 (disloyalty of a director) and Section 51 (illegal use of confidential information) shall upon conviction suffer a fine of not less than Five thousand pesos (P5,000.00), or imprisonment of not less than five (5) years but not more than ten (10) years or both at the court’s discretion;
(4) Any violation of any provision of this Code for which no penalty is imposed shall be punished by imprisonment of not less than six (6) months nor more than one (1) year and a fine of not less than One thousand pesos (P1,000.00), or both at the discretion of the court.
Section 125. Printing and Distribution. - (1) The National Printing Office shall publish this Code in the Official Gazette in full within sixty (60) days from the date of approval thereof. Copies of this Code shall be given to every department, agency and instrumentality of the National Government, including regional, provincial offices and local governments including government-owned and controlled corporations.
(2) All duly registered cooperative and their federations, unions and associations, and cooperative corporations shall be given one (1) copy each at cost. Thereafter, every newly registered cooperative or cooperative corporations shall be issued at cost a copy of this Code and the regulations promulgated thereon together with its certificates of registration.
Section 126. Interpretation and Construction. - In case of doubt as to the meaning of any provision of this Code or the regulations issued in pursuance thereof, the same shall be resolved liberally in favor of the cooperatives and their members.
Section 127. Repeals. Except as expressly provided by this Code, Presidential Decree No. 175 and all other laws, or parts thereof, inconsistent with any provision of this Code shall be deemed repealed: Provided, however, That nothing in this Code shall be interpreted to mean the amendment or repeal of any provision of Presidential Decree No. 269: Provided further, That the electric cooperatives which qualify as such under this Code shall fall under the coverage thereof.
Section 128. Transitory Provisions. - All cooperatives registered under Presidential Decrees Nos. 175 and 775 and Executive Order No. 898, and all other laws shall be deemed registered with the Cooperative Development Authority: Provided, however, That they shall submit to the nearest Cooperative Development Authority office the certificate of registration, copies of the articles of cooperation and by-laws and their latest duly audited financial statements within one (1) year from the effectivity of this Act, otherwise their registration shall be cancelled: Provided further, That cooperative created under Presidential Decree No. 1645, shall be given three (3) years within which to qualify and register with the Authority: Provided finally, That after these cooperatives shall have qualified and registered, the provisions of Sections 3 and 5 of Presidential Decree No. 1645 shall no longer be applicable to said cooperatives.
Section 129. Separability. - Should any part of this Code be declared unconstitutional, the rest of the provisions shall not be affected thereby.
Section 130. Effectivity. - This Code shall take effect fifteen (15) days from the publication in a newspaper of general circulation.
Approved:
(Sgd.) JOVITO R. SALONGA
President of Senate

(Sgd.) RAMON MITRA
Speaker of the House of Representatives

(Sgd.) EDWIN P. ACOBA
Secretary of Senate

(Sgd.) QUIRINO D. ABAD SANTOS, JR.
Secretary of the House of Representatives

(Sgd.) CORAZON C. AQUINO
President of the Philippines

PARTNERSHIP

CHAPTER 1
GENERAL PROVISIONS

Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. (1665a)
Art. 1768. The partnership has a judicial personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of Article 1772, first paragraph. (n)
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such-co-owners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment:

(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. (n)
Art. 1770. A partnership must have a lawful object or purpose, and must be established for the common benefit or interest of the partners.
When an unlawful partnership is dissolved by a judicial decree, the profits shall be confiscated in favor of the State, without prejudice to the provisions of the Penal Code governing the confiscation of the instruments and effects of a crime. (1666a)
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a public instrument shall be necessary. (1667a)
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money or property, shall appear in a public instrument, which must be recorded in the Office of the Securities and Exchange Commission.
Failure to comply with the requirements of the preceding paragraph shall not affect the liability of the partnership and the members thereof to third persons. (n)
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if an inventory of said property is not made, signed by the parties, and attached to the public instrument. (1668a)
Art. 1774. Any immovable property or an interest therein may be acquired in the partnership name. Title so acquired can be conveyed only in the partnership name. (n)
Art. 1775. Associations and societies, whose articles are kept secret among the members, and wherein any one of the members may contract in his own name with third persons, shall have no juridical personality, and shall be governed by the provisions relating to co-ownership. (1669)
Art. 1776. As to its object, a partnership is either universal or particular. As regards the liability of the partners, a partnership may be general or limited. (1671a)
Art. 1777. A universal partnership may refer to all the present property or to all the profits. (1672)
Art. 1778. A partnership of all present property is that in which the partners contribute all the property which actually belongs to them to a common fund, with the intention of dividing the same among themselves, as well as all the profits which they may acquire therewith. (1673)
Art. 1779. In a universal partnership of all present property, the property which belongs to each of the partners at the time of the constitution of the partnership, becomes the common property of all the partners, as well as all the profits which they may acquire therewith.
A stipulation for the common enjoyment of any other profits may also be made; but the property which the partners may acquire subsequently by inheritance, legacy, or donation cannot be included in such stipulation, except the fruits thereof. (1674a)
Art. 1780. A universal partnership of profits comprises all that the partners may acquire by their industry or work during the existence of the partnership.
Movable or immovable property which each of the partners may possess at the time of the celebration of the contract shall continue to pertain exclusively to each, only the usufruct passing to the partnership. (1675)
Art. 1781. Articles of universal partnership, entered into without specification of its nature, only constitute a universal partnership of profits. (1676)
Art. 1782. Persons who are prohibited from giving each other any donation or advantage cannot enter into universal partnership. (1677)
Art. 1783. A particular partnership has for its object determinate things, their use or fruits, or specific undertaking, or the exercise of a profession or vocation. (1678)

CHAPTER 2
OBLIGATIONS OF THE PARTNERS

SECTION 1. - Obligations of the Partners Among Themselves

Art. 1784. A partnership begins from the moment of the execution of the contract, unless it is otherwise stipulated. (1679)
Art. 1785. When a partnership for a fixed term or particular undertaking is continued after the termination of such term or particular undertaking without any express agreement, the rights and duties of the partners remain the same as they were at such termination, so far as is consistent with a partnership at will.
A continuation of the business by the partners or such of them as habitually acted therein during the term, without any settlement or liquidation of the partnership affairs, is prima facie evidence of a continuation of the partnership. (n)
Art. 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits thereof from the time they should have been delivered, without the need of any demand. (1681a)
Art. 1787. When the capital or a part thereof which a partner is bound to contribute consists of goods, their appraisal must be made in the manner prescribed in the contract of partnership, and in the absence of stipulation, it shall be made by experts chosen by the partners, and according to current prices, the subsequent changes thereof being for account of the partnership. (n)
Art. 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted the amount to his own use. (1682)
Art. 1789. An industrial partner cannot engage in business for himself, unless the partnership expressly permits him to do so; and if he should do so, the capitalist partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case. (n)
Art. 1790. Unless there is a stipulation to the contrary, the partners shall contribute equal shares to the capital of the partnership. (n)
Art. 1791. If there is no agreement to the contrary, in case of an imminent loss of the business of the partnership, any partner who refuses to contribute an additional share to the capital, except an industrial partner, to save the venture, shall he obliged to sell his interest to the other partners. (n)
Art. 1792. If a partner authorized to manage collects a demandable sum which was owed to him in his own name, from a person who owed the partnership another sum also demandable, the sum thus collected shall be applied to the two credits in proportion to their amounts, even though he may have given a receipt for his own credit only; but should he have given it for the account of the partnership credit, the amount shall be fully applied to the latter.
The provisions of this article are understood to be without prejudice to the right granted to the other debtor by Article 1252, but only if the personal credit of the partner should be more onerous to him. (1684)
Art. 1793. A partner who has received, in whole or in part, his share of a partnership credit, when the other partners have not collected theirs, shall be obliged, if the debtor should thereafter become insolvent, to bring to the partnership capital what he received even though he may have given receipt for his share only. (1685a)
Art. 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the courts may equitably lessen this responsibility if through the partner’s extraordinary efforts in other activities of the partnership, unusual profits have been realized. (1686a)
Art. 1795. The risk of specific and determinate things, which are not fungible, contributed to the partnership so that only their use and fruits may be for the common benefit, shall be borne by the partner who owns them.
If the things contribute are fungible, or cannot be kept without deteriorating, or if they were contributed to be sold, the risk shall be borne by the partnership. In the absence of stipulation, the risk of the things brought and appraised in the inventory, shall also be borne by the partnership, and in such case the claim shall be limited to the value at which they were appraised. (1687)
Art. 1796. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership and for the corresponding interest, from the time the expense are made; it shall also answer to each partner for the obligations he may have contracted in good faith in the interest of the partnership business, and for risks in consequence of its management. (1688a)
Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to what he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits, the industrial partner shall receive such share as may be just and equitable under the circumstances. If besides his services he has contributed capital, he shall also receive a share in the profits in proportion to his capital. (1689a)
Art. 1798. If the partners have agreed to intrust to a third person the designation of the share of each one in the profits and losses, such designation may be impugned only when it is manifestly inequitable. In no case may a partner who has begun to execute the decision of the third person, or who has not impugned the same within a period of three months from the time he had knowledge thereof, complain of such decision.
The designation of losses and profits cannot be intrusted to one of the partners. (1690)
Art. 1799. A stipulation which excludes one or more partners from any share in the profits or losses is void. (1691)
Art. 1800. The partner who has been appointed manager in the articles of partnership may execute all acts of administration despite the opposition of his partners, unless he should act in bad faith; and his power is irrevocable without just or lawful cause. The vote of the partners representing the controlling interest shall be necessary for such revocation of power.
A power granted after the partnership has been constituted may be revoked at any time. (1692a)
Art. 1801. If two or more partners have been intrusted with the management of the partnership without specification of their respective duties, or without a stipulation that one of them shall not act without the consent of all the others, each one may separately execute all acts of administration, but if any of them should oppose the acts of the others, the decision of the majority shall prevail. In case of a tie, the matter shall be decided by the partners owning the controlling interest. (1693a)
Art. 1802. In case it should have been stipulated that none of the managing partners shall act without the consent of the others, the concurrence of all shall be necessary for the validity of the acts, and the absence or disability of any one of them cannot be alleged, unless there is imminent danger of grave or irreparable injury to the partnership. (1694)
Art. 1803. When the manner of management has not been agreed upon, the following rules shall be observed:
(1) All the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, without prejudice to the provisions of Article 1801.
(2) None of the partners may, without the consent of the others, make any important alteration in the immovable property of the partnership, even if it may be useful to the partnership. But if the refusal of consent by the other partners is manifestly prejudicial to the interest of the partnership, the court’s intervention may be sought. (1695a)
Art. 1804. Every partner may associate another person with him in his share, but the associate shall not be admitted into the partnership without the consent of all the other partners, even if the partner having an associate should be a manager. (1696)
Art. 1805. The partnership books shall be kept, subject to any agreement between the partners, at the principal place of business of the partnership, and every partner shall at any reasonable hour have access to and may inspect and copy any of them. (n)
Art. 1806. Partners shall render on demand true and full information of all things affecting the partnership to any partner or the legal representative of any deceased partner or of any partner under legal disability. (n)
Art. 1807. Every partner must account to the partnership for any benefit, and hold as trustee for it any profits derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him of its property. (n)
Art. 1808. The capitalist partners cannot engage for their own account in any operation which is of the kind of business in which the partnership is engaged, unless there is a stipulation to the contrary.
Any capitalist partner violating this prohibition shall bring to the common funds any profits accruing to him from his transactions, and shall personally bear all the losses. (n)
Art. 1809. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstances render it just and reasonable. (n)
SECTION 2. - Property Rights of a Partner

Art. 1810. The property rights of a partner are:
(1) His rights in specific partnership property;
(2) His interest in the partnership; and
(3) His right to participate in the management. (n)
Art. 1811. A partner is co-owner with his partners of specific partnership property.
The incidents of this co-ownership are such that:
(1) A partner, subject to the provisions of this Title and to any agreement between the partners, has an equal right with his partners to possess specific partnership property for partnership purposes; but he has no right to possess such property for any other purpose without the consent of his partners;
(2) A partner’s right in specific partnership property is not assignable except in connection with the assignment of rights of all the partners in the same property;
(3) A partner’s right in specific partnership property is not subject to attachment or execution, except on a claim against the partnership. When partnership property is attached for a partnership debt the partners, or any of them, or the representatives of a deceased partner, cannot claim any right under the homestead or exemption laws;
(4) A partner’s right in specific partnership property is not subject to legal support under Article 291. (n)
Art. 1812. A partner’s interest in the partnership is his share of the profits and surplus. (n)
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not of itself dissolve the partnership, or, as against the other partners in the absence of agreement, entitle the assignee, during the continuance of the partnership, to interfere in the management or administration of the partnership business or affairs, or to require any information or account of partnership transactions, or to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his contract the profits to which the assigning partner would otherwise be entitled. However, in case of fraud in the management of the partnership, the assignee may avail himself of the usual remedies.
In case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest and may require an account from the date only of the last account agreed to by all the partners. (n)
Art. 1814. Without prejudice to the preferred rights of partnership creditors under Article 1827, on due application to a competent court by any judgment creditor of a partner, the court which entered the judgment, or any other court, may charge the interest of the debtor partner with payment of the unsatisfied amount of such judgment debt with interest thereon; and may then or later appoint a receiver of his share of the profits, and of any other money due or to fall due to him in respect of the partnership, and make all other orders, directions, accounts and inquiries which the debtor partner might have made, or which the circumstances of the case may require.
The interest charged may be redeemed at any time before foreclosure, or in case of a sale being directed by the court, may be purchased without thereby causing a dissolution:
(1) With separate property, by any one or more of the partners; or
(2) With partnership property, by any one or more of the partners with the consent of all the partners whose interests are not so charged or sold.
Nothing in this Title shall be held to deprive a partner of his right, if any, under the exemption laws, as regards his interest in the partnership. (n)

SECTION 3. - Obligations of the Partners
With Regard to Third Persons

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more of the partners.
Those who, not being members of the partnership, include their names in the firm name, shall be subject to the liability of a partner. (n)
Art. 1816. All partners, including industrial ones, shall be liable pro rata with all their property and after all the partnership assets have been exhausted, for the contracts which may be entered into in the name and for the account of the partnership, under its signature and by a person authorized to act for the partnership. However, any partner may enter into a separate obligation to perform a partnership contract. (n)
Art. 1817. Any stipulation against the liability laid down in the preceding article shall be void, except as among the partners. (n)
Art. 1818. Every partner is an agent of the partnership for the purpose of its business, and the act of every partner, including the execution in the partnership name of any instrument, for apparently carrying on in the usual way the business of the partnership of which he is a member binds the partnership, unless the partner so acting has in fact no authority to act for the partnership in the particular matter, and the person with whom he is dealing has knowledge of the fact that he has no such authority.
An act of a partner which is not apparently for the carrying on of business of the partnership in the usual way does not bind the partnership unless authorized by the other partners.
Except when authorized by the other partners or unless they have abandoned the business, one or more but less than all the partners have no authority to:
(1) Assign the partnership property in trust for creditors or on the assignee’s promise to pay the debts of the partnership;
(2) Dispose of the good-will of the business;
(3) Do any other act which would make it impossible to carry on the ordinary business of a partnership;
(4) Confess a judgment;
(5) Enter into a compromise concerning a partnership claim or liability;
(6) Submit a partnership claim or liability to arbitration;
(7) Renounce a claim of the partnership.
No act of a partner in contravention of a restriction on authority shall bind the partnership to persons having knowledge of the restriction. (n)
Art. 1819. Where title to real property is in the partnership name, any partner may convey title to such property by a conveyance executed in the partnership name; but the partnership may recover such property unless the partner’s act binds the partnership under the provisions of the first paragraph of article 1818, or unless such property has been conveyed by the grantee or a person claiming through such grantee to a holder for value without knowledge that the partner, in making the conveyance, has exceeded his authority.
Where title to real property is in the name of the partnership, a conveyance executed by a partner, in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.
Where title to real property is in the name of one or more but not all the partners, and the record does not disclose the right of the partnership, the partners in whose name the title stands may convey title to such property, but the partnership may recover such property if the partners’ act does not bind the partnership under the provisions of the first paragraph of Article 1818, unless the purchaser or his assignee, is a holder for value, without knowledge.
Where the title to real property is in the name of one or more or all the partners, or in a third person in trust for the partnership, a conveyance executed by a partner in the partnership name, or in his own name, passes the equitable interest of the partnership, provided the act is one within the authority of the partner under the provisions of the first paragraph of Article 1818.
Where the title to real property is in the name of all the partners a conveyance executed by all the partners passes all their rights in such property. (n)
Art. 1820. An admission or representation made by any partner concerning partnership affairs within the scope of his authority in accordance with this Title is evidence against the partnership. (n)
Art. 1821. Notice to any partner of any matter relating to partnership affairs, and the knowledge of the partner acting in the particular matter, acquired while a partner or then present to his mind, and the knowledge of any other partner who reasonably could and should have communicated it to the acting partner, operate as notice to or knowledge of the partnership, except in the case of fraud on the partnership, committed by or with the consent of that partner. (n)
Art. 1822. Where, by any wrongful act or omission of any partner acting in the ordinary course of the business of the partnership or with the authority of co-partners, loss or injury is caused to any person, not being a partner in the partnership, or any penalty is incurred, the partnership is liable therefor to the same extent as the partner so acting or omitting to act. (n)
Art. 1823. The partnership is bound to make good the loss:
(1) Where one partner acting within the scope of his apparent authority receives money or property of a third person and misapplies it; and
(2) Where the partnership in the course of its business receives money or property of a third person and the money or property so received is misapplied by any partner while it is in the custody of the partnership. (n)
Art. 1824. All partners are liable solidarily with the partnership for everything chargeable to the partnership under Articles 1822 and 1823. (n)
Art. 1825. When a person, by words spoken or written or by conduct, represents himself, or consents to another representing him to anyone, as a partner in an existing partnership or with one or more persons not actual partners, he is liable to any such persons to whom such representation has been made, who has, on the faith of such representation, given credit to the actual or apparent partnership, and if he has made such representation or consented to its being made in a public manner he is liable to such person, whether the representation has or has not been made or communicated to such person so giving credit by or with the knowledge of the apparent partner making the representation or consenting to its being made:
(1) When a partnership liability results, he is liable as though he were an actual member of the partnership;
(2) When no partnership liability results, he is liable pro rata with the other persons, if any, so consenting to the contract or representation as to incur liability, otherwise separately.
When a person has been thus represented to be a partner in an existing partnership, or with one or more persons not actual partners, he is an agent of the persons consenting to such representation to bind them to the same extent and in the same manner as though he were a partner in fact, with respect to persons who rely upon the representation. When all the members of the existing partnership consent to the representation, a partnership act or obligation results; but in all other cases it is the joint act or obligation of the person acting and the persons consenting to the representation. (n)
Art. 1826. A person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that this liability shall be satisfied only out of partnership property, unless there is a stipulation to the contrary. (n)
Art. 1827. The creditors of the partnership shall be preferred to those of each partner as regards the partnership property. Without prejudice to this right, the private creditors of each partner may ask the attachment and public sale of the share of the latter in the partnership assets. (n)

CHAPTER 3
DISSOLUTION AND WINDING UP

Art. 1828. The dissolution of a partnership is the change in the relation of the partners caused by any partner ceasing to be associated in the carrying on as distinguished from the winding up of the business. (n)
Art. 1829. On dissolution the partnership is not terminated, but continues until the winding up of partnership affairs is completed. (n)
Art. 1830. Dissolution is caused:

(1) Without violation of the agreement between the partners:
(a) By the termination of the definite term or particular undertaking specified in the agreement;
(b) By the express will of any partner, who must act in good faith, when no definite term or particular is specified;
(c) By the express will of all the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking;
(d) By the expulsion of any partner from the business bona fide in accordance with such a power conferred by the agreement between the partners;
(2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time;
(3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership;
(4) When a specific thing which a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof;
(5) By the death of any partner;
(6) By the insolvency of any partner or of the partnership;
(7) By the civil interdiction of any partner;
(8) By decree of court under the following article. (1700a and 1701a)
Art. 1831. On application by or for a partner the court shall decree a dissolution whenever:
(1) A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind;
(2) A partner becomes in any other way incapable of performing his part of the partnership contract;
(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business;
(4) A partner wilfully or persistently commits a breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that it is not reasonably practicable to carry on the business in partnership with him;
(5) The business of the partnership can only be carried on at a loss;
(6) Other circumstances render a dissolution equitable.
On the application of the purchaser of a partner’s interest under Article 1813 or 1814:
(1) After the termination of the specified term or particular undertaking;
(2) At any time if the partnership was a partnership at will when the interest was assigned or when the charging order was issued. (n)
Art. 1832. Except so far as may be necessary to wind up partnership affairs or to complete transactions begun but not then finished, dissolution terminates all authority of any partner to act for the partnership:
(1) With respect to the partners:
(a) When the dissolution is not by the act, insolvency or death of a partner; or
(b) When the dissolution is by such act, insolvency or death of a partner, in cases where article 1833 so requires;
(2) With respect to persons not partners, as declared in article 1834. (n)
Art. 1833. Where the dissolution is caused by the act, death or insolvency of a partner, each partner is liable to his co-partners for his share of any liability created by any partner acting for the partnership as if the partnership had not been dissolved unless:
(1) The dissolution being by act of any partner, the partner acting for the partnership had knowledge of the dissolution; or
(2) The dissolution being by the death or insolvency of a partner, the partner acting for the partnership had knowledge or notice of the death or insolvency.
Art. 1834. After dissolution, a partner can bind the partnership, except as provided in the third paragraph of this article:
(1) By any act appropriate for winding up partnership affairs or completing transactions unfinished at dissolution;
(2) By any transaction which would bind the partnership if dissolution had not taken place, provided the other party to the transaction:
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of the dissolution; or
(b) Though he had not so extended credit, had nevertheless known of the partnership prior to dissolution, and, having no knowledge or notice of dissolution, the fact of dissolution had not been advertised in a newspaper of general circulation in the place (or in each place if more than one) at which the partnership business was regularly carried on.
The liability of a partner under the first paragraph, No. 2, shall be satisfied out of partnership assets alone when such partner had been prior to dissolution:
(1) Unknown as a partner to the person with whom the contract is made; and
(2) So far unknown and inactive in partnership affairs that the business reputation of the partnership could not be said to have been in any degree due to his connection with it.
The partnership is in no case bound by any act of a partner after dissolution:
(1) Where the partnership is dissolved because it is unlawful to carry on the business, unless the act is appropriate for winding up partnership affairs; or
(2) Where the partner has become insolvent; or
(3) Where the partner has no authority to wind up partnership affairs; except by a transaction with one who:
(a) Had extended credit to the partnership prior to dissolution and had no knowledge or notice of his want of authority; or
(b) Had not extended credit to the partnership prior to dissolution, and, having no knowledge or notice of his want of authority, the fact of his want of authority has not been advertised in the manner provided for advertising the fact of dissolution in the first paragraph, No. 2 (b).
Nothing in this article shall affect the liability under Article 1825 of any person who, after dissolution, represents himself or consents to another representing him as a partner in a partnership engaged in carrying business. (n)
Art. 1835. The dissolution of the partnership does not of itself discharge the existing liability of any partner.
A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing the business.
The individual property of a deceased partner shall be liable for all obligations of the partnership incurred while he was a partner, but subject to the prior payment of his separate debts. (n)
Art. 1836. Unless otherwise agreed, the partners who have not wrongfully dissolved the partnership or the legal representative of the last surviving partner, not insolvent, has the right to wind up the partnership affairs, provided, however, that any partner, his legal representative or his assignee, upon cause shown, may obtain winding up by the court. (n)
Art. 1837. When dissolution is caused in any way, except in contravention of the partnership agreement, each partner, as against his co-partners and all persons claiming through them in respect of their interests in the partnership, unless otherwise agreed, may have the partnership property applied to discharge its liabilities, and the surplus applied to pay in cash the net amount owing to the respective partners. But if dissolution is caused by expulsion of a partner, bona fide under the partnership agreement and if the expelled partner is discharged from all partnership liabilities, either by payment or agreement under the second paragraph of Article 1835, he shall receive in cash only the net amount due him from the partnership.
When dissolution is caused in contravention of the partnership agreement the rights of the partners shall be as follows:
(1) Each partner who has not caused dissolution wrongfully shall have:

(a) All the rights specified in the first paragraph of this article, and
(b) The right, as against each partner who has caused the dissolution wrongfully, to damages breach of the agreement.
(2) The partners who have not caused the dissolution wrongfully, if they all desire to continue the business in the same name either by themselves or jointly with others, may do so, during the agreed term for the partnership and for that purpose may possess the partnership property, provided they secure the payment by bond approved by the court, or pay any partner who has caused the dissolution wrongfully, the value of his interest in the partnership at the dissolution, less any damages recoverable under the second paragraph, No. 1 (b) of this article, and in like manner indemnify him against all present or future partnership liabilities.
(3) A partner who has caused the dissolution wrongfully shall have:

(a) If the business is not continued under the provisions of the second paragraph, No. 2, all the rights of a partner under the first paragraph, subject to liability for damages in the second paragraph, No. 1 (b), of this article.
(b) If the business is continued under the second paragraph, No. 2, of this article, the right as against his co-partners and all claiming through them in respect of their interests in the partnership, to have the value of his interest in the partnership, less any damage caused to his co-partners by the dissolution, ascertained and paid to him in cash, or the payment secured by a bond approved by the court, and to be released from all existing liabilities of the partnership; but in ascertaining the value of the partner’s interest the value of the good-will of the business shall not be considered. (n)
Art. 1838. Where a partnership contract is rescinded on the ground of the fraud or misrepresentation of one of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled:
(1) To a lien on, or right of retention of, the surplus of the partnership property after satisfying the partnership liabilities to third persons for any sum of money paid by him for the purchase of an interest in the partnership and for any capital or advances contributed by him;
(2) To stand, after all liabilities to third persons have been satisfied, in the place of the creditors of the partnership for any payments made by him in respect of the partnership liabilities; and
(3) To be indemnified by the person guilty of the fraud or making the representation against all debts and liabilities of the partnership. (n)
Art. 1839. In settling accounts between the partners after dissolution, the following rules shall be observed, subject to any agreement to the contrary:
(1) The assets of the partnership are:

(a) The partnership property,
(b) The contributions of the partners necessary for the payment of all the liabilities specified in No. 2.
(2) The liabilities of the partnership shall rank in order of payment, as follows:

(a) Those owing to creditors other than partners,
(b) Those owing to partners other than for capital and profits,
(c) Those owing to partners in respect of capital,
(d) Those owing to partners in respect of profits.
(3) The assets shall be applied in the order of their declaration in No. 1 of this article to the satisfaction of the liabilities.
(4) The partners shall contribute, as provided by article 1797, the amount necessary to satisfy the liabilities.
(5) An assignee for the benefit of creditors or any person appointed by the court shall have the right to enforce the contributions specified in the preceding number.
(6) Any partner or his legal representative shall have the right to enforce the contributions specified in No. 4, to the extent of the amount which he has paid in excess of his share of the liability.
(7) The individual property of a deceased partner shall be liable for the contributions specified in No. 4.
(8) When partnership property and the individual properties of the partners are in possession of a court for distribution, partnership creditors shall have priority on partnership property and separate creditors on individual property, saving the rights of lien or secured creditors.
(9) Where a partner has become insolvent or his estate is insolvent, the claims against his separate property shall rank in the following order:

(a) Those owing to separate creditors;
(b) Those owing to partnership creditors;
(c) Those owing to partners by way of contribution. (n)
Art. 1840. In the following cases creditors of the dissolved partnership are also creditors of the person or partnership continuing the business:
(1) When any new partner is admitted into an existing partnership, or when any partner retires and assigns (or the representative of the deceased partner assigns) his rights in partnership property to two or more of the partners, or to one or more of the partners and one or more third persons, if the business is continued without liquidation of the partnership affairs;
(2) When all but one partner retire and assign (or the representative of a deceased partner assigns) their rights in partnership property to the remaining partner, who continues the business without liquidation of partnership affairs, either alone or with others;
(3) When any partner retires or dies and the business of the dissolved partnership is continued as set forth in Nos. 1 and 2 of this article, with the consent of the retired partners or the representative of the deceased partner, but without any assignment of his right in partnership property;
(4) When all the partners or their representatives assign their rights in partnership property to one or more third persons who promise to pay the debts and who continue the business of the dissolved partnership;
(5) When any partner wrongfully causes a dissolution and the remaining partners continue the business under the provisions of article 1837, second paragraph, No. 2, either alone or with others, and without liquidation of the partnership affairs;
(6) When a partner is expelled and the remaining partners continue the business either alone or with others without liquidation of the partnership affairs.
The liability of a third person becoming a partner in the partnership continuing the business, under this article, to the creditors of the dissolved partnership shall be satisfied out of the partnership property only, unless there is a stipulation to the contrary.
When the business of a partnership after dissolution is continued under any conditions set forth in this article the creditors of the dissolved partnership, as against the separate creditors of the retiring or deceased partner or the representative of the deceased partner, have a prior right to any claim of the retired partner or the representative of the deceased partner against the person or partnership continuing the business, on account of the retired or deceased partner’s interest in the dissolved partnership or on account of any consideration promised for such interest or for his right in partnership property.
Nothing in this article shall be held to modify any right of creditors to set aside any assignment on the ground of fraud.
The use by the person or partnership continuing the business of the partnership name, or the name of a deceased partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts contracted by such person or partnership. (n)
Art. 1841. When any partner retires or dies, and the business is continued under any of the conditions set forth in the preceding article, or in Article 1837, second paragraph, No. 2, without any settlement of accounts as between him or his estate and the person or partnership continuing the business, unless otherwise agreed, he or his legal representative as against such person or partnership may have the value of his interest at the date of dissolution ascertained, and shall receive as an ordinary creditor an amount equal to the value of his interest in the dissolved partnership with interest, or, at his option or at the option of his legal representative, in lieu of interest, the profits attributable to the use of his right in the property of the dissolved partnership; provided that the creditors of the dissolved partnership as against the separate creditors, or the representative of the retired or deceased partner, shall have priority on any claim arising under this article, as provided Article 1840, third paragraph. (n)
Art. 1842. The right to an account of his interest shall accrue to any partner, or his legal representative as against the winding up partners or the surviving partners or the person or partnership continuing the business, at the date of dissolution, in the absence of any agreement to the contrary. (n)

CHAPTER 4
LIMITED PARTNERSHIP (n)

Art. 1843. A limited partnership is one formed by two or more persons under the provisions of the following article, having as members one or more general partners and one or more limited partners. The limited partners as such shall not be bound by the obligations of the partnership.
Art. 1844. Two or more persons desiring to form a limited partnership shall:
(1) Sign and swear to a certificate, which shall state -

(a) The name of the partnership, adding thereto the word “Limited”;
(b) The character of the business;
(c) The location of the principal place of business;
(d) The name and place of residence of each member, general and limited partners being respectively designated;
(e) The term for which the partnership is to exist;
(f) The amount of cash and a description of and the agreed value of the other property contributed by each limited partner;
(g) The additional contributions, if any, to be made by each limited partner and the times at which or events on the happening of which they shall be made;
(h) The time, if agreed upon, when the contribution of each limited partner is to be returned;
(i) The share of the profits or the other compensation by way of income which each limited partner shall receive by reason of his contribution;
(j) The right, if given, of a limited partner to substitute an assignee as contributor in his place, and the terms and conditions of the substitution;
(k) The right, if given, of the partners to admit additional limited partners;
(l) The right, if given, of one or more of the limited partners to priority over other limited partners, as to contributions or as to compensation by way of income, and the nature of such priority;
(m) The right, if given, of the remaining general partner or partners to continue the business on the death, retirement, civil interdiction, insanity or insolvency of a general partner; and
(n) The right, if given, of a limited partner to demand and receive property other than cash in return for his contribution.
(2) File for record the certificate in the Office of the Securities and Exchange Commission.
A limited partnership is formed if there has been substantial compliance in good faith with the foregoing requirements.
Art. 1845. The contributions of a limited partner may be cash or property, but not services.
Art. 1846. The surname of a limited partner shall not appear in the partnership name unless:
(1) It is also the surname of a general partner, or
(2) Prior to the time when the limited partner became such, the business has been carried on under a name in which his surname appeared.
A limited partner whose surname appears in a partnership name contrary to the provisions of the first paragraph is liable as a general partner to partnership creditors who extend credit to the partnership without actual knowledge that he is not a general partner.
Art. 1847. If the certificate contains a false statement, one who suffers loss by reliance on such statement may hold liable any party to the certificate who knew the statement to be false:
(1) At the time he signed the certificate, or
(2) Subsequently, but within a sufficient time before the statement was relied upon to enable him to cancel or amend the certificate, or to file a petition for its cancellation or amendment as provided in Article 1865.
Art. 1848. A limited partner shall not become liable as a general partner unless, in addition to the exercise of his rights and powers as a limited partner, he takes part in the control of the business.
Art. 1849. After the formation of a lifted partnership, additional limited partners may be admitted upon filing an amendment to the original certificate in accordance with the requirements of Article 1865.
Art. 1850. A general partner shall have all the rights and powers and be subject to all the restrictions and liabilities of a partner in a partnership without limited partners. However, without the written consent or ratification of the specific act by all the limited partners, a general partner or all of the general partners have no authority to:
(1) Do any act in contravention of the certificate;
(2) Do any act which would make it impossible to carry on the ordinary business of the partnership;
(3) Confess a judgment against the partnership;
(4) Possess partnership property, or assign their rights in specific partnership property, for other than a partnership purpose;
(5) Admit a person as a general partner;
(6) Admit a person as a limited partner, unless the right so to do is given in the certificate;
(7) Continue the business with partnership property on the death, retirement, insanity, civil interdiction or insolvency of a general partner, unless the right so to do is given in the certificate.
Art. 1851. A limited partner shall have the same rights as a general partner to:
(1) Have the partnership books kept at the principal place of business of the partnership, and at a reasonable hour to inspect and copy any of them;
(2) Have on demand true and full information of all things affecting the partnership, and a formal account of partnership affairs whenever circumstances render it just and reasonable; and
(3) Have dissolution and winding up by decree of court.
A limited partner shall have the right to receive a share of the profits or other compensation by way of income, and to the return of his contribution as provided in Articles 1856 and 1857.
Art. 1852. Without prejudice to the provisions of Article 1848, a person who has contributed to the capital of a business conducted by a person or partnership erroneously believing that he has become a limited partner in a limited partnership, is not, by reason of his exercise of the rights of a limited partner, a general partner with the person or in the partnership carrying on the business, or bound by the obligations of such person or partnership, provided that on ascertaining the mistake he promptly renounces his interest in the profits of the business, or other compensation by way of income.
Art. 1853. A person may be a general partner and a limited partner in the same partnership at the same time, provided that this fact shall be stated in the certificate provided for in Article 1844.
A person who is a general, and also at the same time a limited partner, shall have all the rights and powers and be subject to all the restrictions of a general partner; except that, in respect to his contribution, he shall have the rights against the other members which he would have had if he were not also a general partner.
Art. 1854. A limited partner also may loan money to and transact other business with the partnership, and, unless he is also a general partner, receive on account of resulting claims against the partnership, with general creditors, a pro rata share of the assets. No limited partner shall in respect to any such claim:
(1) Receive or hold as collateral security and partnership property, or
(2) Receive from a general partner or the partnership any payment, conveyance, or release from liability if at the time the assets of the partnership are not sufficient to discharge partnership liabilities to persons not claiming as general or limited partners.
The receiving of collateral security, or payment, conveyance, or release in violation of the foregoing provisions is a fraud on the creditors of the partnership.
Art. 1855. Where there are several limited partners the members may agree that one or more of the limited partners shall have a priority over other limited partners as to the return of their contributions, as to their compensation by way of income, or as to any other matter. If such an agreement is made it shall be stated in the certificate, and in the absence of such a statement all the limited partners shall stand upon equal footing.
Art. 1856. A limited partner may receive from the partnership the share of the profits or the compensation by way of income stipulated for in the certificate; provided that after such payment is made, whether from property of the partnership or that of a general partner, the partnership assets are in excess of all liabilities of the partnership except liabilities to limited partners on account of their contributions and to general partners.
Art. 1857. A limited partner shall not receive from a general partner or out of partnership property any part of his contributions until:
(1) All liabilities of the partnership, except liabilities to general partners and to limited partners on account of their contributions, have been paid or there remains property of the partnership sufficient to pay them;
(2) The consent of all members is had, unless the return of the contribution may be rightfully demanded under the provisions of the second paragraph; and
(3) The certificate is cancelled or so amended as to set forth the withdrawal or reduction.
Subject to the provisions of the first paragraph, a limited partner may rightfully demand the return of his contribution:
(1) On the dissolution of a partnership; or
(2) When the date specified in the certificate for its return has arrived, or
(3) After he has six months’ notice in writing to all other members, if no time is specified in the certificate, either for the return of the contribution or for the dissolution of the partnership.
In the absence of any statement in the certificate to the contrary or the consent of all members, a limited partner, irrespective of the nature of his contribution, has only the right to demand and receive cash in return for his contribution.
A limited partner may have the partnership dissolved and its affairs wound up when:
(1) He rightfully but unsuccessfully demands the return of his contribution, or
(2) The other liabilities of the partnership have not been paid, or the partnership property is insufficient for their payment as required by the first paragraph, No. 1, and the limited partner would otherwise be entitled to the return of his contribution.
Art. 1858. A limited partner is liable to the partnership:
(1) For the difference between his contribution as actually made and that stated in the certificate as having been made; and
(2) For any unpaid contribution which he agreed in the certificate to make in the future at the time and on the conditions stated in the certificate.
A limited partner holds as trustee for the partnership:
(1) Specific property stated in the certificate as contributed by him, but which was not contributed or which has been wrongfully returned, and
(2) Money or other property wrongfully paid or conveyed to him on account of his contribution.
The liabilities of a limited partner as set forth in this article can be waived or compromised only by the consent of all members; but a waiver or compromise shall not affect the right of a creditor of a partnership who extended credit or whose claim arose after the filing and before a cancellation or amendment of the certificate, to enforce such liabilities.
When a contributor has rightfully received the return in whole or in part of the capital of his contribution, he is nevertheless liable to the partnership for any sum, not in excess of such return with interest, necessary to discharge its liabilities to all creditors who extended credit or whose claims arose before such return.
Art. 1859. A limited partner’s interest is assignable.
A substituted limited partner is a person admitted to all the rights of a limited partner who has died or has assigned his interest in a partnership.
An assignee, who does not become a substituted limited partner, has no right to require any information or account of the partnership transactions or to inspect the partnership books; he is only entitled to receive the share of the profits or other compensation by way of income, or the return of his contribution, to which his assignor would otherwise be entitled.
An assignee shall have the right to become a substituted limited partner if all the members consent thereto or if the assignor, being thereunto empowered by the certificate, gives the assignee that right.
An assignee becomes a substituted limited partner when the certificate is appropriately amended in accordance with Article 1865.
The substituted limited partner has all the rights and powers, and is subject to all the restrictions and liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate.
The substitution of the assignee as a limited partner does not release the assignor from liability to the partnership under Articles 1847 and 1848.
Art. 1860. The retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership, unless the business is continued by the remaining general partners:
(1) Under a right so to do stated in the certificate, or
(2) With the consent of all members.
Art. 1861. On the death of a limited partner his executor or administrator shall have all the rights of a limited partner for the purpose of setting his estate, and such power as the deceased had to constitute his assignee a substituted limited partner.
The estate of a deceased limited partner shall be liable for all his liabilities as a limited partner.
Art. 1862. On due application to a court of competent jurisdiction by any creditor of a limited partner, the court may charge the interest of the indebted limited partner with payment of the unsatisfied amount of such claim, and may appoint a receiver, and make all other orders, directions and inquiries which the circumstances of the case may require.
The interest may be redeemed with the separate property of any general partner, but may not be redeemed with partnership property.
The remedies conferred by the first paragraph shall not be deemed exclusive of others which may exist.
Nothing in this Chapter shall be held to deprive a limited partner of his statutory exemption.
Art. 1863. In setting accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order:
(1) Those to creditors, in the order of priority as provided by law, except those to limited partners on account of their contributions, and to general partners;
(2) Those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions;
(3) Those to limited partners in respect to the capital of their contributions;
(4) Those to general partners other than for capital and profits;
(5) Those to general partners in respect to profits;
(6) Those to general partners in respect to capital.
Subject to any statement in the certificate or to subsequent agreement, limited partners share in the partnership assets in respect to their claims for capital, and in respect to their claims for profits or for compensation by way of income on their contribution respectively, in proportion to the respective amounts of such claims.
Art. 1864. The certificate shall be cancelled when the partnership is dissolved or all limited partners cease to be such.
A certificate shall be amended when:
(1) There is a change in the name of the partnership or in the amount or character of the contribution of any limited partner;
(2) A person is substituted as a limited partner;
(3) An additional limited partner is admitted;
(4) A person is admitted as a general partner;
(5) A general partner retires, dies, becomes insolvent or insane, or is sentenced to civil interdiction and the business is continued under Article 1860;
(6) There is a change in the character of the business of the partnership;
(7) There is a false or erroneous statement in the certificate;
(8) There is a change in the time as stated in the certificate for the dissolution of the partnership or for the return of a contribution;
(9) A time is fixed for the dissolution of the partnership, or the return of a contribution, no time having been specified in the certificate, or
(10) The members desire to make a change in any other statement in the certificate in order that it shall accurately represent the agreement among them.
Art. 1865. The writing to amend a certificate shall:
(1) Conform to the requirements of Article 1844 as far as necessary to set forth clearly the change in the certificate which it is desired to make; and
(2) Be signed and sworn to by all members, and an amendment substituting a limited partner or adding a limited or general partner shall be signed also by the member to be substituted or added, and when a limited partner is to be substituted, the amendment shall also be signed by the assigning limited partner.
The writing to cancel a certificate shall be signed by all members.
A person desiring the cancellation or amendment of a certificate, if any person designated in the first and second paragraphs as a person who must execute the writing refuses to do so, may petition the court to order a cancellation or amendment thereof.
If the court finds that the petitioner has a right to have the writing executed by a person who refuses to do so, it shall order the Office of the Securities and Exchange Commission where the certificate is recorded, to record the cancellation or amendment of the certificate; and when the certificate is to be amended, the court shall also cause to be filed for record in said office a certified copy of its decree setting forth the amendment.
A certificate is amended or cancelled when there is filed for record in the Office of the Securities and Exchange Commission, where the certificate is recorded:
(1) A writing in accordance with the provisions of the first or second paragraph, or
(2) A certified copy of the order of the court in accordance with the provisions of the fourth paragraph;
(3) After the certificate is duly amended in accordance with this article, the amended certified shall thereafter be for all purposes the certificate provided for in this Chapter.
Art. 1866. A contributor, unless he is a general partner, is not a proper party to proceedings by or against a partnership, except where the object is to enforce a limited partner’s right against or liability to the partnership.
Art. 1867. A limited partnership formed under the law prior to the effectivity of this Code, may become a limited partnership under this Chapter by complying with the provisions of Article 1844, provided the certificate sets forth:
(1) The amount of the original contribution of each limited partner, and the time when the contribution was made; and
(2) That the property of the partnership exceeds the amount sufficient to discharge its liabilities to persons not claiming as general or limited partners by an amount greater than the sum of the contributions of its limited partners.
A limited partnership formed under the law prior to the effectivity of this Code, until or unless it becomes a limited partnership under this Chapter, shall continue to be governed by the provisions of the old law.

THE
CORPORATION CODE
OF THE
PHILIPPINES
[Batas Pambansa Blg. 68]

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”.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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.

Sec. 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;
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.

Sec. 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.

Sec. 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.

Sec. 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.

TITLE II
INCORPORATION AND ORGANIZATION
OF PRIVATE CORPORATIONS

Sec. 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.
Sec. 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.
Sec. 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.
Sec. 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.
Sec. 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 he 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;
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.
Sec. 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
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
………………………………. ………………………………. ……………………………….
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 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:
…………………………………….. ………………………………………
(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)
Sec. 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 two-thirds (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.
Sec. 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 if 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.
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.
Sec. 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.
Sec. 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.
Sec. 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.
Sec. 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.
Sec. 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.
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/OFFICERS
Sec. 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.
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.
Sec. 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 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 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.
Sec. 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.
Sec. 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.
Sec. 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.
Sec. 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.
Sec. 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.
A 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.
Sec. 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 pre 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.
Sec. 31. Liability of directors, trustees or officers. - Directors or trustees who willfully 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.
Sec. 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 nor 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.
Sec. 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.
Sec. 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.
Sec. 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 by-laws; (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
Sec. 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;
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 non-stock 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.
Sec. 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 two-thirds (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)
Sec. 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, two-thirds (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 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)
Sec. 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.
Sec. 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 non-stock 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. (28 1/2a)
Sec. 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. (n)
Sec. 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 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)
Sec. 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)
Sec. 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)
Sec. 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
Sec. 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)
Sec. 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)

Sec. 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
Sec. 49. Kinds of meetings. - Meetings of directors, trustees, stockholders, or members may be regular or special. (n)
Sec. 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 by-laws: 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 Secretaries 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 been chosen one of their number as presiding officer. (24, 26)
Sec. 51. Place and time of meetings of stockholders or members. - Stockholders’ or members’ 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.
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)
Sec. 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)
Sec. 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 by-laws 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 57. Voting right for treasury shares. - Treasury shares shall have no voting right as long as such shares remain in the Treasury. (n)
Sec. 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)
Sec. 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 canceled 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.
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 canceled 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
Sec. 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)
Sec. 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)
Sec. 62. Considering 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)
Sec. 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 endorsed 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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.
Sec. 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)
Sec. 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)
Sec. 71. Effect of delinquency. - No delinquent stock shall be voted for 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)
Sec. 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)
Sec. 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;
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
Sec. 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, 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; B. P. No. 268.)
Sec. 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.
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
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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 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)
Sec. 80. Effects or 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
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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 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)
Sec. 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)
Sec. 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 canceled, 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
Sec. 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)
Sec. 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 I - MEMBERS
Sec. 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 non-stock corporations with the approval of, and under such conditions which may be prescribed by, the Securities and Exchange Commission.
Sec. 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)
Sec. 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 by-laws. (n)

Chapter II - TRUSTEES AND OFFICERS
Sec. 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 one-third (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.
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)
Sec. 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 III - DISTRIBUTION OF ASSETS IN
NON-STOCK CORPORATIONS
Sec. 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)
Sec. 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
Sec. 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.
Sec. 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
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.
Sec. 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.
Sec. 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 applicable if the transfer of stock, though contrary to subsections (1), (2) of (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.
Sec. 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 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.
Sec. 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.
Sec. 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.
Sec. 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.
Sec. 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) canceling or altering any provision contained in the articles of incorporation, by-laws, or any stockholder’s agreement; (2) canceling, 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.
Sec. 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
SPECIAL CORPORATIONS
Chapter I - Educational Corporations
Sec. 106. Incorporation. - Educational corporations shall be governed by special laws and by the general provisions of this Code. (n)
Sec. 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)
Sec. 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 II - RELIGIOUS CORPORATIONS
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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
6. 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 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
Sec. 117. Methods of dissolution. - A corporation formed or organized under the provisions of this Code may be dissolved voluntarily or involuntarily. (n)
Sec. 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 two-thirds (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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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.
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
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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 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)
Sec. 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)
Sec. 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 it license in accordance with this Title. (n)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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
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
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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, business 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.
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 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)
Sec. 149. Effectivity. - This Code shall take effect immediately upon its approval.
Approved: May 1, 1980

In the Philippines, a person wishing to engage in business may choose to do so through any of the following “legal personalities”:

1. Sole Proprietorship

3. Partnership

Just to give you a general idea, I will distinguish the three according to i. the number of people it would take to form one; ii. the libility to be incurred by the individuals that comprise it; and iii. how to raise capital.

1. Sole Proprietorship

Number of people in would take to form one: Only One

As a sole proprietor, the individual person owns and runs the business and plows in his own capital.

The libility to be incurred by the individuals that comprise it:

Consequently, any loss and liability arising from such business is borne by him alone and by any asset that is titled in his name.

Capital: Money is raised or borrowed by the Sole Proprietor

2. Corporation:

Number of people in would take to form one: Minimum of 5, and maximum of 15 to form one. However, once established, there is no limit to the number of shareholders.

The libility to be incurred by the individuals that comprise it:

As a corporation, a group of people (minimum of 5 in the Philippines) would pool their resources together and create a new legal entity called a corporation. The corporation is treated as a personality distinct from the incorporators and the shareholders. The assets that belong to the corporation are distinct from that of the individual shareholders. As a result, the liabilities incurred by an entity engaging in business as a corporation will not be passed on to the individual shareholders.

Capital: Capital is raised by each shareholder. Therefore, it is quite possible to raise capital by increasing the number of shareholders.

3. Partnership

Number of people in would take to form one: Minimum of 2, no limit to the number of partners

In a partnership, two or more people would form a legal entity and engage in a business. These people become partners.

The libility to be incurred by the individuals that comprise it:

The liability of the individual partner becomes the liability also of the other partners. In a partnership in case of liability, there is no veil of corporate fiction that protects the individual partners. Their personal assets may be used to pay off the liabilities of the partnership.

Capital: Capital is raised from the individual contributions of the partners.

As you can see, in terms of protecting the individual “participants” in creating the legal entity, as well as the facility in raising capital, a corporation would be the most ideal set-up. However, if you wish to limit the benefits of ownership to a small group, then, a partnership is ideal. But, if the individual can manage the business on his own, only a sole proprietorship is in order.

Given the foregoing, we will need to know the exact nature of the business that you would like to engage in. For instance, there are certain enterprises that are limited only to Filipino ownership, and some enterprises in which non-Filipino capital is restricted to a certain percentage. This notwithstanding, there are certain enterprises, in which, foreign investment is encouraged as well as there are incentives that range from real estate ownership to tax holidays.

You also wanted to know what costs would be incurred by a company that would not be incurring any income or “performing any financial activity” from the Philippines. In this case, where the services rendered from the Philippines are completely exported off shore and paid also off shore, it is possible to find a tax-free structure under any of the various modes allowed by Philippine law under the Foreign Investments Incentives Act.

For Cebu City, Mandaue City and Lapu-lapu City, the minimum wage , as of May 2005 is:

P208 per day, whether the enterprise is non-agricultural, cottage/handicraft, private hospitals, retail/service establishment, schools and agricultural enterprises.

For