Corporation Law Reviewer2-2

CORPORATION LAW
Corporaton s one of the types of busness

organzatons. It s aso the most mportant n economc
deveopment.
INTRODUCTION
Soe propretorshp
- One man form of busness entty, personay
answers a abtes, but en|oys a the profts wth the
excuson of others
- Lmted sharehoders responsbty
- Pad subscrpton n fu, you are no onger abe
Partnershp
- Based on mutua trust and confdence
|ont venture
- one tme groupng of persons whether they be
natura or |urdca
- does not enta contnuty because after the
undertakng s competed t s aready the end
- partcuar partnershp and |ont venture woud
be smar, but there s aready a decson of the
Supreme Court decarng them as dfferent
- when they do not regster, t does not exst
- Foregn corporatons enters nto an agreement
wth a domestc corporaton, t must be regstered.
Generay they do not need to be regstered.
Corporatons
- They may enter nto |ont venture, but generay
they cannot enter nto a partnershp, but there are
exceptons aowed by the SEC: the 3 exceptons must
go hand n hand
1. The artces of ncorporaton expressy
authorzed the corporaton to enter nto contracts of
partnershp;
2. The agreement or artces of partnershp must
provde that a the partners w manage the
partnershp; and
3. The artces of partnershp must stpuate that
a the partners are and sha be |onty and severay
abe for a obgatons of the partnershp.
DEFINITION AND ATTRIBUTES
4 attrbutes of a corporaton
1. Artfca beng
2. Created by operaton of aw
3. Rght of successon
4. Powers, attrbutes and propertes expressy
authorzed by aw or ncdent to ts exstence.
Doctrne of mted capacty
- Ony such powers as are expressy granted to t
by aw and by ts artces of ncorporaton ncudng
others whch are ncdenta to such conferred powers,
those reasonaby necessary to accompsh ts purpose
and those whch may be ncdenta to ts exstence
- Can do thngs as the aw asks or aows t to do
- If t does anythng beyond, t sha be
consdered as ULTRA VIRES
Genera rue: Mora damages cannot be granted
to corporatons
Excepton: Fpnas Broadcastng Network Inc.
vs. Ago Med
- In cases of sander, be and other forms of
defamaton (shoud not quafy because the code does
not quafy whether natura or |urdca) Art. 2219 of the
cv code:
Art. 2219. Mora damages may be recovered n
the foowng and anaogous cases:
(1) A crmna offense resutng n physca n|ures;
(2) Ouas-dects causng physca n|ures;
(3) Seducton, abducton, rape, or other ascvous acts;
(4) Adutery or concubnage;
(5) Iega or arbtrary detenton or arrest;
(6) Iega search;
(7) Lbe, sander or any other form of defamaton;
(8) Macous prosecuton;
(9) Acts mentoned n Artce 309;
(10) Acts and actons referred to n Artces 21, 26, 27,
28, 29, 30, 32, 34, and 35.
The parents of the femae seduced, abducted, raped, or
abused, referred to n No. 3 of ths artce, may aso
recover mora damages.
The spouse, descendants, ascendants, and brothers and
ssters may brng the acton mentoned n No. 9 of ths
artce, n the order named.
Advantages (SEE LADIA BOOK)
- No. 2 may aso be a dsadvantage
- No. 5 may aso be a dsadvantage
A corporaton s a person, therefore protected
by the due process cause and equa protecton cause of
the Consttuton
CLASSIFICATION OF CORPORATIONS
Secton 3 Stock and non-stock
- Importance of knowng, determnng what
provsons of the code or the aw may be appcabe
Section 3. Casses of corporatons. -
Corporatons formed or organzed under ths Code may
be stock or non-stock corporatons. Corporatons whch
have capta stock dvded nto shares and are
authorzed to dstrbute to the hoders of such shares
dvdends or aotments of the surpus profts on the
bass of the shares hed are stock corporatons. A other
corporatons are non-stock corporatons. (3a)
Non-stock- tte 10
Stock- secton 51
Stockhoders must generay cast ther votes n
the meetng; secton 4 governed prmary by the aw
creatng them
Section 4. Corporatons created by speca
aws or charters. - Corporatons created by speca aws
or charters sha be governed prmary by the provsons
of the speca aw or charter creatng them or appcabe
to them, suppemented by the provsons of ths Code,
nsofar as they are appcabe. (n)
Secton 3
- The two requstes must aways concur
1. That they have a capta stock dvded nto
shares; and,
2. That they are authorzed to dstrbute dvdends
or aotments as surpus profts to ts stockhoders on the
bass of the shares hed by each of them.
Secton 4
- Created by a speca aw, they have ther own
character
- They are not mmune from sut uness provded
by the aw of ther creaton
- Prmary governed by the aw creatng them
- Ther subsdares are entrey dfferent or
ndependent from that of the other
Cose corporaton
- There s no exempton t s absoute
Pubc corporaton
- Potca or governmenta purposes
- Those formed or organzed for the government
or a porton of the State or any of ts potca subdvson
and whch have for ther purpose the genera good and
wefare
Prvate Corporaton
- Immedate beneft, am or advantage of prvate
ndvduas
- Those formed for some prvate purpose,
beneft, am or end
- Dstncton: pubc for governmenta purpose
Corporaton Soe
- Exempton to the rue because t s composed
ony of one person
- An ncorporator may aso be a |urdca person
Cose corporaton
- There s excusvty of shares of stock
- Secton 96-105
- Restrctons to transfer shares
- Ony those ndcated can own shares
- Artce must provde that there w be no pubc
offerng
Open corporaton
- openy admt nvestors
- exampe: stock exchange
Domestc/ Foregn
Test
- Incorporaton test
- If ncorporated under the aws of the Phppnes
t s a domestc corporaton
ME Gray vs. CA
- Parent or Hodng/ subsdares and affates
- Affates- no ma|orty vote
SMC 12%
CBP
HERSHEY CBP 12%
12%
Affate s sub|ect to common contro by the 12 %
owners
De |ure
- cannot be attached by the state even n a quo
warranto proceedng
De facto
- exsts by vrtue of coorabe compance
- Attached drecty ony by the state n a quo
warranto proceedng
Corporaton by estoppe
- So defectvey formed, but st consdered
corporaton, but ony n reaton to those who cannot
deny ther exstence secton 20 and 21
FORMATION AND ORGANIATION
3 stages
1. Creaton
2. Re-organzaton or quas-reorganzaton
3.
4. Dssouton/wndng-up
Purpose cause
- Defnng the scope of authorty of the corporate
enterprse pr undertakng. Both confrmed and mted
4 mtatons of purpose cause

1. Lawfu
2. Specfc or stated concsey
3. More than one, the prmary and secondary
must be specfed
4. Lawfuy combned
- Provson that states, cannot be ssued ess
than par, excepton s treasury shares because t can be
ssued ess than par
A corporaton commences ony upon ssuance
of the certfcate, pror thereto t has no beng and
cannot transact busness. Promoters cannot act for a
pro|ected corporaton
Metro Mana - pad up capta requrement s 10
M
Non- stock- mere menton of the operatng
capta
Menton the authorzed capta
Restrctons
- Mandatory n cose
- Not mandatory n ordnary
Non-stock
- If vaue s not more than 100,000
A corporaton cannot use any other name
uness t has been amended
Secton 19
- If confusngy smar t w not be aowed to be
regstered
- Verfcaton sp from the records offcer
Section 1!. Commencement of corporate
exstence. - A prvate corporaton formed or organzed
under ths Code commences to have corporate exstence
and |urdca personaty and s deemed ncorporated
from the date the Securtes and Exchange Commsson
ssues a certfcate of ncorporaton under ts offca
sea; and thereupon the ncorporators,
stockhoders/members and ther successors sha
consttute a body potc and corporate under the name
stated n the artces of ncorporaton for the perod of
tme mentoned theren, uness sad perod s extended
or the corporaton s sooner dssoved n accordance wth
aw. (n)
- Words corporaton or nc. ether n fu or
abbrevated form must be ncuded
Section 1". Corporate name. - No corporate
name may be aowed by the Securtes and Exchange
Commsson f the proposed name s dentca or
deceptvey or confusngy smar to that of any exstng
corporaton or to any other name aready protected by
aw or s patenty deceptve, confusng or contrary to
exstng aws. When a change n the corporate name s
approved, the Commsson sha ssue an amended
certfcate of ncorporaton under the amended name.
(n)
Doctrne of secondary meanng
- A word or phrase orgnay ncapabe of
excusve appropraton |usuay generc| wth reference
to an artce n the market, because of geographcay or
otherwse descrptve, mght nevertheess have been
used so ong and so excusvey by one producer wth
reference to hs artce that, n that trade and to that
branch of the purchasng pubc, the word or phrase has
become to mean that the artce was hs product.
Secton 18
- Lyceum of the Phppnes case, the addtona
geographca name does not make t confusngy smar
- actua confuson s not necessary - Phps case
"t s enough that there s probabe confuson"
2 requstes must be proven
- that the companant corporaton acqured a
pror rght over the use of such corporate name
- dentca, deceptvey or confusngy, patenty
deceptve
prncpa offce
- statement of prncpa offce s requred
- cty and muncpaty not ony provnce must be
specfed
- prncpa offce NOT operatons offce
- necessary because t w estabsh the
resdence of corporatons
- venue of actons for or aganst the corporatons
- venue of meetngs
- secton 51 meetngs may ony be wthn the
boundares of the cty where the prncpa offce
- non-stock may be hed anywhere n the
Phppnes, f provded n ts by-aws
- where summons may be served
- regstraton of chatte mortgage must be
regstered n the regster of deeds where the prncpa
offce s ocated
Caveca Rado System vs. Anton
- acton not upon a wrtten contract
- cty where the defendant resdes
term of exstence
- corporate term requred
- determnng what pont n tme the |urdca
personaty w cease to exst
- enter nto contract ony when t has |urdca
personaty
- once t ceases to exst, t no onger has
personaty
- exst for another 3 years ony for purposes of
qudaton
- Dssouton- t s automatc
When shoud extenson be made?
- Genera rue: Not earer than 5 years
- Excepton: uness there are |ustfabe reasons
May t be extended after expraton?
- Ahambra cgar vs. SEC once t ceases to exst t
has no vested potc, exst ony for a perod of 3 years
ony for qudaton and for that purpose ony
Artce 5 How many ncorporators shoud there
be?
- 5-15
May a corporaton be an ncorporator?
- Genera rue: ony natura persons
- Excepton: cooperatves and corporaton
prmary organzed to hod equtes n rura banks
How about mnors?
- NO, because they must be of ega age
May a corporaton organzed by ncorporators
consstng soey of foregners
- Yes, there s no natonaty requrement ony
resdence, as ong as ma|orty are resdents of the Ph
Defne ncorporators <sec.5>
- Those person mentoned n the artces as
orgnay formng the corporaton and who are
sgnatores of the artces of ncorporaton.
- Must be sgnatores to be ncorporators
Section #. Corporators and ncorporators,
stockhoders and members. - Corporators are those who
compose a corporaton, whether as stockhoders or as
members. Incorporators are those stockhoders or
members mentoned n the artces of ncorporaton as
orgnay formng and composng the corporaton and
who are sgnatores thereof.
Corporators n a stock corporaton are caed
stockhoders or sharehoders. Corporators n a non-stock
corporaton are caed members. (4a)
Defne corporators <sec.5>
- A persons who compose the corporaton at
any gven tme and need not be among those who
execute the artces of ncorporaton at the start of ts
formaton and organzaton.
- Orgnay or subsequenty
- Secton 5 provdes:
Corporators n a stock corporaton are caed
stockhoders or sharehoders. Corporators n a non-stock
corporaton are caed members. (4a)
May a corporaton be a corporator?
- YES. There s nothng to prevent a corporaton
from beng a stockhoder
Incorporator must subscrbe to 1 share
There are those that are excusvey reserved to
Fpnos
An ncorporator maybe a corporator as ong as
he s a stockhoder
secton 6
Section $. Cassfcaton of shares. - The
shares of stock of stock corporatons may be dvded nto
casses or seres of shares, or both, any of whch casses
or seres of shares may have such rghts, prveges or
restrctons as may be stated n the artces of
ncorporaton: Provded, That no share may be deprved
of votng rghts except those cassfed and ssued as
"preferred" or "redeemabe" shares, uness otherwse
provded n ths Code: Provded, further, That there sha
aways be a cass or seres of shares whch have
compete votng rghts. Any or a of the shares or seres
of shares may have a par vaue or have no par vaue as
may be provded for n the artces of ncorporaton:
Provded, however, That banks, trust companes,
nsurance companes, pubc uttes, and budng and
oan assocatons sha not be permtted to ssue no-par
vaue shares of stock.
Preferred shares of stock ssued by any
corporaton may be gven preference n the dstrbuton
of the assets of the corporaton n case of qudaton and
n the dstrbuton of dvdends, or such other
preferences as may be stated n the artces of
ncorporaton whch are not voatve of the provsons of
ths Code: Provded, That preferred shares of stock may
be ssued ony wth a stated par vaue. The board of
drectors, where authorzed n the artces of
ncorporaton, may fx the terms and condtons of
preferred shares of stock or any seres thereof: Provded,
That such terms and condtons sha be effectve upon
the fng of a certfcate thereof wth the Securtes and
Exchange Commsson.
Shares of capta stock ssued wthout par vaue
sha be deemed fuy pad and non-assessabe and the
hoder of such shares sha not be abe to the
corporaton or to ts credtors n respect thereto:
Provded; That shares wthout par vaue may not be
ssued for a consderaton ess than the vaue of fve
(P5.00) pesos per share: Provded, further, That the
entre consderaton receved by the corporaton for ts
no-par vaue shares sha be treated as capta and sha
not be avaabe for dstrbuton as dvdends.
A corporaton may, furthermore, cassfy ts
shares for the purpose of nsurng compance wth
consttutona or ega requrements.
Except as otherwse provded n the artces of
ncorporaton and stated n the certfcate of stock, each
share sha be equa n a respects to every other share.
Where the artces of ncorporaton provde for
non-votng shares n the cases aowed by ths Code, the
hoders of such shares sha nevertheess be entted to
vote on the foowng matters:
1. Amendment of the artces of ncorporaton;
2. Adopton and amendment of by-aws;
3. Sae, ease, exchange, mortgage, pedge or other
dsposton of a or substantay a of the corporate
property;
4. Incurrng, creatng or ncreasng bonded
ndebtedness;
5. Increase or decrease of capta stock;
6. Merger or consodaton of the corporaton wth
another corporaton or other corporatons;
7. Investment of corporate funds n another corporaton
or busness n accordance wth ths Code; and
8. Dssouton of the corporaton.
Except as provded n the mmedatey
precedng paragraph, the vote necessary to approve a
partcuar corporate act as provded n ths Code sha be
deemed to refer ony to stocks wth votng rghts. (5a)
How many drectors shoud there be?
- Genera rue: Not ess than 5 not more than 15
- Exceptons:
1. Educatona corporatons regstered as non
stock corporaton whose number of trustees, though not
ess than fve and not more than |15| shoud be dvsbe
by fve |5|, meanng they must have ether fve, ten, or
ffteen trustees and no other;
2. In cose corporatons where a the stockhoders
are consdered as members of the board of drectors
thereby effectvey aowng twenty members n the
board.
3. The by-aws of a corporaton may provde for
addtona quafcatons and dsquafcatons of ts
members of the board of drectors or trustees. However
t may not do away wth the mnmum dsquafcatons
ay down by the Code.
Ouafcatons of the governng board
- Requres mere resdency <sec. 23>
Section 23. The board of drectors or trustees.
- Uness otherwse provded n ths Code, the corporate
powers of a corporatons formed under ths Code sha
be exercsed, a busness conducted and a property of
such corporatons controed and hed by the board of
drectors or trustees to be eected from among the
hoders of stocks, or where there s no stock, from
among the members of the corporaton, who sha hod
offce for one (1) year unt ther successors are eected
and quafed. (28a)
Every drector must own at east one (1) share
of the capta stock of the corporaton of whch he s a
drector, whch share sha stand n hs name on the
books of the corporaton. Any drector who ceases to be
the owner of at east one (1) share of the capta stock of
the corporaton of whch he s a drector sha thereby
cease to be a drector. Trustees of non-stock
corporatons must be members thereof. A ma|orty of the
drectors or trustees of a corporatons organzed under
ths Code must be resdents of the Phppnes.
May a domestc corporaton have a governng
board consstng soey of foregners?
- YES, secton 23 ma|orty of them must be
resdents of the Phppnes, no natonaty requrement
Ant-dummy act <sec.2-A>
- If the busness undertakng or actvty s ony
partay natonazed, aens can be eected as such
drectors, |uness the aw provdes otherwse| but ther
number sha ony be n proporton to ther equty or
partcpaton n the capta stock of the corporaton.
Dsquafcatons <sec.27>
- The dsquafcatons provded for s absoute
and may not be done away wth. Corporate by-aws may,
however, provde for addtona quafcatons and
dsquafcatons.
Section 2%. Dsquafcaton of drectors,
trustees or offcers. - No person convcted by fna
|udgment of an offense punshabe by mprsonment for
a perod exceedng sx (6) years, or a voaton of ths
Code commtted wthn fve (5) years pror to the date of
hs eecton or appontment, sha quafy as a drector,
trustee or offcer of any corporaton. (n)
Secton 27 and 23 mnmum dsquafcatons
and quafcatons
Lee vs. CA
- By aws may provde for addtona
Govt vs. E hogar Fpno, Gokongwe vs. SMC
Capta structure
Foundaton- mnmum pad-up capta 3M
Authorzed capta 1 M No. of shares 1M
shares par vaue 1.00
Amount of shares subscrbed
50 K A
50 K B
C 250K
D
E
PAID UP =62,500
Corporaton cannot exceed more than 1 M t s the
maxmum amount t cannot ssue more uness amended
Maxmum shares t can ssue s 1M shares uness
amended
How much shares shoud be subscrbed?
- Must be at east 25% of the authorzed capta
stock
Pad- up must be at east 25%-mnmum
Secton 30
- Tota subscrpton compance wth mnmum
25% tota
- Any combnaton woud compy wth the
mnmum requred by secton 30
Section 3&. Compensaton of drectors. - In the
absence of any provson n the by-aws fxng ther
compensaton, the drectors sha not receve any
compensaton, as such drectors, except for reasonabe
per dems: Provded, however, That any such
compensaton other than per dems may be granted to
drectors by the vote of the stockhoders representng at
east a ma|orty of the outstandng capta stock at a
reguar or speca stockhoders' meetng. In no case sha
the tota yeary compensaton of drectors, as such
drectors, exceed ten (10%) percent of the net ncome
before ncome tax of the corporaton durng the
precedng year. (n)
Mnmum for a domestc corporaton?
- In no case sha the pad- up capta be ess
than 5k
Is there a mnmum authorzed capta mposed
by the code?
- If there s mnmum pad-up ogcay there
shoud aso be a mnmum capta =5000
Mnmum pad-up capta for a fnancng
company metro mana 10 M f ocated n MM
Shares of stock
Purpose of cassfcaton
- To specfy and defne the rghts and prveges
of the stockhoders;
- For reguaton and contro of the ssuance of
sae of corporate securtes for the protecton of
purchasers and stockhoders.
- As a management contro devce.
- To compy wth statutory requrements
partcuary those whch provde for certan mtatons
on foregn ownershp and shares ke overseas
empoyment agences requrng to own at east 75% of
the shares of stock thereof.
- To better nsure return on nvestment whch can
be affected through the ssuance of redeemabe shares
or preferred shares, .e., grantng the hoders thereof,
preference as to dvdends and/or dstrbuton of assets
n case of qudaton; and,
- For fexbty n prce, partcuary, no par
shares may be ssued or sod from tme to tme at
dfferent prce dependng on the net worth of the
company snce they do not purport to represent an
actua of fxed vaue.
Secton 6
- Each sha be equa n a respects to every
other share
Preferred shares
- Specfc preference
- Dvdends or durng qudaton
No par
- Can se t wth the network of the corporaton
Dstncton between the subscrbed and
outstandng stocks?
- Secton 137
Section 13%. Outstandng capta stock
defned. - The term "outstandng capta stock", as used
n ths Code, means the tota shares of stock ssued
under bndng subscrpton agreements to subscrbers or
stockhoders, whether or not fuy or partay pad,
except treasury shares. (n)
- Votng and dvdend rghts, t refers to the
outstandng capta stocks
- Ony outstandng stocks are aowed to vote
and receve dvdends
- Actuay the same
Treasury shares
- are aso subscrbed shares
- whe they reman n the treasury, no votng
and dvdend rghts
- may be ressued by the corporaton
- once ressued they become outstandng stocks
agan
common shares
- carry the rght to vote
preferred shares
- grants the hoder preference
- preference as to dvdends
- preference as to dstrbuton of the remanng
assets upon dssouton or
both
- YOU MUST STATE THE PREFERENCE BECAUSE IF
NOT THEY ARE PRESUMED TO BE EOUAL
- It may ncude such other preferences not
nconsstent wth the Code. Ths s so because Secton 6
of the sad aw aows a stock corporaton to ssue
preferred shares sub|ect ony to the mtatons mposed
theren whch are:
a. They can be ssued ony wth sated par vaue;
and,
b. The preferences must be stated n the artces
of ncorporaton and n the certfcate of stock,
otherwse, each share sha be, n a respect, equa to
every other share.
Partcpatng
- Must be stated because the presumpton s that
t s partcpatng
Cumuatve
- Irrespectve of whether or not they where
earned
Preferred
- May be dened
- Uness dened they are st entted
What f hnd -decare kaht na may dvdends
rghts for the prevous years? May they be dened
dvdend rghts because they are non hoders of non-
cumuatve? NOTE: YOU CANNOT COMPEL THE
CORPORATION TO DECLARE DIVIDENDS UNLESS IT
EXCEEDS 100 % PAID UP CAPITAL SEC. 43
Section 43. Power to decare dvdends. - The
board of drectors of a stock corporaton may decare
dvdends out of the unrestrcted retaned earnngs
whch sha be payabe n cash, n property, or n stock to
a stockhoders on the bass of outstandng stock hed
by them: Provded, That any cash dvdends due on
denquent stock sha frst be apped to the unpad
baance on the subscrpton pus costs and expenses,
whe stock dvdends sha be wthhed from the
denquent stockhoder unt hs unpad subscrpton s
fuy pad: Provded, further, That no stock dvdend sha
be ssued wthout the approva of stockhoders
representng not ess than two-thrds (2/3) of the
outstandng capta stock at a reguar or speca meetng
duy caed for the purpose. (16a)
Stock corporatons are prohbted from retanng
surpus profts n excess of one hundred (100%) percent
of ther pad-n capta stock, except: (1) when |ustfed
by defnte corporate expanson pro|ects or programs
approved by the board of drectors; or (2) when the
corporaton s prohbted under any oan agreement wth
any fnanca nsttuton or credtor, whether oca or
foregn, from decarng dvdends wthout ts/hs consent,
and such consent has not yet been secured; or (3) when
t can be ceary shown that such retenton s necessary
under speca crcumstances obtanng n the
corporaton, such as when there s need for speca
reserve for probabe contngences. (n)
- It depends because there are three types of
non-cumuatve preferred shares
- Dscretonary dvdend type
- Mandatory f earned
- Earned cumuatve or dvdend credt type
Compare cumuatve share from non-
cumuatve, earned cumuatve or dvdend credt type
- Cumuatve share -whether or not earned
- Non-cumuatve earned cumuatve or dvdend
credt type- ony f earned
Par
- stated par vaue; sha not be ssued ess than
par
No par
- wthout stated par vaue
- once fuy pad no onger abe
Corporatons cannot use ts captas n decarng
dvdends; not a can ssue no par vaue secton 6
Votng
- entted to vote at any moton brought up n
wrtng
Non-votng
- not entted to vote
What types of shares may be dened of the
rght to vote?
- Preferred and redeemabe shares
Is t correct to state that common shares can
never be dened the rght to vote?
- Ony preferred and redeemabe shares are
dened uness provded n ths code
- PWEDENG MA-DENY YUNG COMMON SHARES,
KASI YUNG FOUNDERS SHARES MERON SILANG
EXCLUSIVE RIGHTS NA SILA LANG ANG MERON, SO
PWEDE SILANG BUMOTO WITH REGARDS TO
SOMETHING NA HINDI NA SAKOP NG COMMON SHARE
RIGHTS
- Exampe: founders shares- may be gven
certan rghts and prveges
- Even common shares may be dened the rght
to vote of founders shares ssued <sec.7>
Section %. Founders' shares. - Founders'
shares cassfed as such n the artces of ncorporaton
may be gven certan rghts and prveges not en|oyed
by the owners of other stocks, provded that where the
excusve rght to vote and be voted for n the eecton of
drectors s granted, t must be for a mted perod not to
exceed fve (5) years sub|ect to the approva of the
Securtes and Exchange Commsson. The fve-year
perod sha commence from the date of the aforesad
approva by the Securtes and Exchange Commsson.
(n)
Do you ncude non-votng shares n passng a
vad corporate act?
- Even non-votng shares are entted to vote
under secton 6
Redeemabe shares
- Dscretonary/optona
- Obgatory or mandatory
Generay a corporaton can reacqure ts own
shares f t has unrestrcted retaned earnngs
Excepton: redeemabe shares may be
reacqured rrespectve of retaned earnngs
Treasury shares
- They are treasury whe n the treasury account
of the corporaton
May they be ressued by the corporaton?
- YES
If they are ressued w they be dened the rght
to vote?
- Once ressued they sha become outstandng
stocks agan and purchasers sha be entted to a the
rghts and prveges as the other hoders have
Secton 57 treasury shares have no votng and
dvdend rghts. Why not?
Section #%. Votng rght for treasury shares. -
Treasury shares sha have no votng rght as ong as
such shares reman n the Treasury. (n)
- Answer: commssoner vs. mannng page 62
frst par.
"Athough authortes may dffer on the exact
ega and accountng status of so-caed treasury shares,
they are more or ess n agreement that treasury shares
are stocks ssued and fuy pad for and reacqured by
the corporaton ether by purchase, donaton, forfeture
or other means. Treasury shares are therefore ssued
shares but beng n the treasury they do not have the
status of outstandng shares. Consequenty, athough a
treasury share, not havng been retred by the
corporaton re-acqurng t, may be re-ssued or sod
agan, such shares, as ong as t s hed by the
corporaton as a treasury share, partcpates nether n
dvdends, because dvdends cannot be decared by the
corporaton to tsef, nor n meetngs of the corporaton
as votng stock, for otherwse equa dstrbuton of votng
powers among stockhoders w be effectvey ost and
the drectors w be abe to perpetrate ther contro of
the corporaton, though t st represents a pad for
nterest n the property of the corporaton. The foregong
essenta features of a treasury stocks are ackng n the
questoned shares.
In ths case, and under the terms of the trust
agreement, the shares of stock of Reese partcpated
n dvdends whch the trustee receved and the sad
shares were voted upon by the trustee n a corporaton
meetngs. They were not, therefore, treasury shares."
When the aw speaks of outstandng rghts t
does not ncude treasury shares
Treasury shares may be ressued
- They are actuay assets of the corporaton
- Once re-ssued they become outstandng stocks
agan
- The corporaton may cance them; n effect
there w be a reducton n the outstandng capta
stocks
- The code does not requre ordnary
corporatons to provde for restrctons, but t does not
kewse prohbt restrctons
- Exampe: rght of frst refusa
- The restrcton must be contaned n the artces
of ncorporaton
- If provded n by-aws but not n the artces of
ncorporaton then t w not be bndng
- Restrctons and preferences are mandatory
requred n cose corporatons
- If t does not provde restrctons t s not a cose
corporaton
- Specfed persons- cose corporatons
- If not one of those specfed you are not
ncuded because there s excusvty n cose
corporatons
- Shoud aso be n the by-aws not ony n the
artces of ncorporaton
No transfer cause
Executon cause
Acknowedgment
Treasurer affdavt part of the artces of
ncorporaton
Secton 23-27 mnmum quafcatons, but
there may be addtona
Grounds for dsapprova
- Ony substanta and not strct s requred
May the SEC refuse or re|ect regstraton?
- <Secton 17>
Section 1%. Grounds when artces of
ncorporaton or amendment may be re|ected or
dsapproved. - The Securtes and Exchange Commsson
may re|ect the artces of ncorporaton or dsapprove
any amendment thereto f the same s not n compance
wth the requrements of ths Code: Provded, That the
Commsson sha gve the ncorporators a reasonabe
tme wthn whch to correct or modfy the ob|ectonabe
portons of the artces or amendment. The foowng are
grounds for such re|ecton or dsapprova:
1. That the artces of ncorporaton or any amendment
thereto s not substantay n accordance wth the form
prescrbed heren;
2. That the purpose or purposes of the corporaton are
patenty unconsttutona, ega, mmora, or contrary to
government rues and reguatons;
3. That the Treasurer's Affdavt concernng the amount
of capta stock subscrbed and/or pad s fase;
4. That the percentage of ownershp of the capta stock
to be owned by ctzens of the Phppnes has not been
comped wth as requred by exstng aws or the
Consttuton.
No artces of ncorporaton or amendment to
artces of ncorporaton of banks, bankng and quas-
bankng nsttutons, budng and oan assocatons, trust
companes and other fnanca ntermedares, nsurance
companes, pubc uttes, educatona nsttutons, and
other corporatons governed by speca aws sha be
accepted or approved by the Commsson uness
accompaned by a favorabe recommendaton of the
approprate government agency to the effect that such
artces or amendment s n accordance wth aw. (n)
- But the grounds n secton 17 are not excusve
When w the corporaton commence to exst?
- Secton 19
Section 1!. Commencement of corporate
exstence. - A prvate corporaton formed or organzed
under ths Code commences to have corporate exstence
and |urdca personaty and s deemed ncorporated
from the date the Securtes and Exchange Commsson
ssues a certfcate of ncorporaton under ts offca
sea; and thereupon the ncorporators,
stockhoders/members and ther successors sha
consttute a body potc and corporate under the name
stated n the artces of ncorporaton for the perod of
tme mentoned theren, uness sad perod s extended
or the corporaton s sooner dssoved n accordance wth
aw. (n)
A corporaton de |ure can come nto exstence
ony upon the ssuance of the certfcate of regstraton
by the SEC? TRUE OR FALSE?
- TRUE
- EXCEPTION: CORPORATION SOLE <sec. 112>
Section 112. Submsson of the artces of
ncorporaton. - The artces of ncorporaton must be
verfed, before fng, by affdavt or affrmaton of the
chef archbshop, bshop, prest, mnster, rabb or
presdng eder, as the case may be, and accompaned
by a copy of the commsson, certfcate of eecton or
etter of appontment of such chef archbshop, bshop,
prest, mnster, rabb or presdng eder, duy certfed to
be correct by any notary pubc.
From and after the fng wth the Securtes and
Exchange Commsson of the sad artces of
ncorporaton, verfed by affdavt or affrmaton, and
accompaned by the documents mentoned n the
precedng paragraph, such chef archbshop, bshop,
prest, mnster, rabb or presdng eder sha become a
corporaton soe and a temporates, estate and
propertes of the regous denomnaton, sect or church
theretofore admnstered or managed by hm as such
presdng eder sha be hed n trust by hm as a
corporaton soe, for the use, purpose, behaf and soe
beneft of hs regous denomnaton, sect or church,
ncudng hosptas, schoos, coeges, orphan asyums,
parsonages and cemeteres thereof. (n)
- CORPORATION SOLE- upon fng of the verfed
artces of ncorporaton, once fed t s vested wth a
|udca capacty
Genera rue secton 19
- Vested wth |udca capacty upon ssuance of
the certfcate by the SEC
o However t s not accurate accordng to atty.
Lada because there are those that can ssue for
exampe cooperatves- BUREAU OF COOPERATI'ES
whch regster, home nsurance guaranty corporaton-
(OME OWNERS
Cagayan Fshng vs. Sandka
- Corporatons are created by aw
- Commence to exst upon ssuance by the
CONCERNED government corporaton or agency
- Pror there to t has no beng
- The transfer of the property was not vad, t
kewse dd not have the rght to transfer
De |ure
- Strct or substanta compance
De facto
- 4 requstes must go hand n hand take out
anyone of them there can be no de facto corporaton
1. There s a vad statute under whch the
corporaton coud have been created as a de |ure
corporaton.
2. An attempt, n good fath, to form a corporaton
accordng to the requrements of aw, whch goes far
enough to amount to a "coorabe compance" wth the
aw;
3. A user of corporate powers, the transacton of
busness n some way as f t were a corporaton; and,
4. Good fath n camng to be and dong busness
as a corporaton.
Are the rghts and obgatons between offcers
and drectors of a de |ure and de facto the same?
- YES. Governed by the same aw, rues and
reguatons
Ony mportant n determnng, s for the
purpose of appyng the rues wth regards to the drect
and coatera attack
The exstence of a de |ure cannot be
questoned even by the State, ether drecty or
ndrecty
Exstence of a de facto can be questoned ony
by the State drecty n a quo warranto proceedng ony
Muncpaty of Maabang vs. Bento
- What s the mssng nk so as to consder t a
de facto? A aw, because the executve order s
uncondtona
- An uncondtona act affords no rghts, creates
no offce
- Lega contempaton t was never passed at a
- It can therefore be questoned by any person
If the certfcate of regstraton has not been
ssued, may a corporaton de facto exst?
- NO!
- Number 4 requrement, good fath n camng
to be and dong busness as a corporaton
Ha vs. Pcco
- Mssng nk s good fath
- The certfcate was not yet ssued by the SEC,
the members knew and therefore they were not actng
n good fath, therefore anybody can queston ts
exstence
- So defectvey formed so that they are not to be
consdered a de |ure or de facto
- Genera partners- abe even beyond hs
promse even hs persona propertes are prone to
attachment
Lozano vs. Deos Santos
- Founded on prncpe of equty
- Exercse corporate powers
- Enters wth busness wth 3
rd
partes
- When there s no 3
rd
persons nvoved and the
probem arses between there members, therefore they
themseves know that there s no corporaton by
estoppe
Abert vs. Unversty
- 1965 case, no secton 21 yet
- Apped where the rues governng agency
- A person purportng n behaf of a non exstng
corporaton
- Secton 21, you arrve at the same decson
Chang Ka Sek vs. CA
- SC based ts decson from the provson of the
educaton act
- It cannot mmune tsef by vrtue of ts non
compance wth the aw
Assumng there was no aw?
- YES, t may st be sued as a schoo for the past
32 years the schoo represented tsef as possessed of
|urdca personaty
Genera rue: a 3
rd
party transactng wth a non
exstent corporaton sha be estopped to deny
Asa bankng vs. standard products
- Genera rue: absence of fraud a person who
has deat wth a non ncorporated corporaton sha be
stopped to deny from actons n whch t had benefted
- Exemptons: when there s fraud the genera
rue sha not appy
Savaterra vs. Gartos
- As a genera rue a person who has contracted
t a corporaton ackng personaty
- Doctrne s not appcabe where fraud takes
part n the transacton
Another exempton
Internatona express trave and tours vs. CA
- No fraud n ths case
- How come Kahn was made abe?
- Doctrne of ncorporaton
- Appes ony f that person s tryng to escape
from a contract where he s benefted
- In ths case pettoner s not tryng to escape
abty, but rather the one camng from the contract
Woud ths appy to foregn corporaton?
- YES, t may appy
- Georg Grot|ahn vs. Isnam
A foregn corporaton cannot gan access to our
courts uness they attan a cense to engage n busness
n the Phppnes but appyng corporaton by estoppes,
the court aowed
Muncpaty of Maabang case
- No aw, hence may be questoned by any
person
- An unconsttutona act s not a aw, t confers
no rghts, t mposes no dutes, t affords no protectons,
t crates o offce, t s n ega contempaton, as
noperatve as though t had never been passes
Ha vs. Pcco
- No good fath
- Admsson, conduct or agreement
- W not appy among members themseves
there must be a 3
rd
party
- Cannot escape when benefted
- Genera rue: you dea wth a corporaton, as to
estop t
- Exceptons: 1. frauduenty msrepresents the
thrd person may fe an acton drecty to those
members, 2. 3
rd
party w not be estopped f he s not
tryng to escape abty
2 possbe remedes
- Chang ka sek case
- Abert case
What woud be the effect f the corporaton
faed to commence transacton?
- Automatc
Operated but becomes subsequenty
noperatve for 5 years ony a ground for suspenson,
proper notce and hearng
Commencement
- Exampe reaty company
CORPORATE C(ARTER AND ITS AMENDMENTS
What do you understand by the word charter?
Is t the same as artces of ncorporaton?
- Corporate charter s broader
Franchse
- Prmary power granted by the state to be and
act as a corporaton
- Secondary franchse s the rght or prvege
that the corporaton may exercse
You cannot ssue nvestment contracts wthout
a secondary franchse, kaangan prmary muna hnd
pwede mauna secondary kas sa secton 19 t does not
exst unt ssued wth a certfcate of regstraton or
ncorporaton
Corporate entty
- Corporaton exst separatey and ndependenty
from the stockhoders
- Stockhoders cannot brng an acton, to brng
back the propertes of a corporaton
- Corporaton has no nterest n the ndvdua
propertes of ts members
Suo ng Bayan vs. Araneta
- Corporaton cannot brng an acton for the
recovery of the propertes of ts members
Caram vs. CA
- Stockhoders cannot be hed abe for the
egtmate obgatons of the corporaton, they exst
separatey and ndependenty from one another
Cruz vs. Dasay
- Fna |udgment aganst a corporaton cannot be
enforced aganst stockhoders
Rustan Pup vs. CA
- Corporaton exst separatey and ndependenty
- Corporaton are |urdca enttes, they exst ony
n ega contempaton, can act ony through ts
authorzed representatves
Sorano vs. CA
- They are not personay abe
- They where sgned for and n behaf of the
corporaton
Paay nc. vs. Cave
- Labtes ncurred by the corporaton cannot be
enforced aganst stockhoders, etc., even f stockhoders,
etc. happens to own a substanta nterest n the
corporaton, mere ownershp does not dsregard the
corporate entty theory
Corporate entty for ega or egtmate
purposes ony
Two or more corporatons, one of them w be
treated as a mere ater-ego
You cannot perce the ve of corporate fcton
when there are no facts attendant n the case
Corporate Entty Theory
- The corporaton s possessed wth a personaty
separate and dstnct from the ndvdua stockhoders or
members and s not affected by the persona rghts,
obgatons or transactons of the atter
Instrumentaty rue
- Where one corporaton s so organzed and
controed and ts affars are conducted so that t s, n
fact, a mere nstrumentaty or ad|unct of the other, the
fcton of the corporate entty of the "nstrumentaty"
may be dsregarded
- Courts are concerned wth reaty and not form
- Mere ownershp of a or substantay a of the
shares of stock of a corporaton s not, n tsef,
nsuffcent ground for dsregardng the separate
corporate personaty. And for the separate personaty
of the corporaton to be dsregarded, the wrong dong
must be ceary and convncngy estabshed
- Fraud must be proven by cear and convncngy
evdence amountng to more than preponderance. It
cannot be |ustfed by specuaton and can never be
presumed. And ony f t sought to hod the stockhoders
abe drecty for corporate debt
Paaco vs. Fey
- Percng the ve of corporate fcton
- Fey trans and the other corporaton s one and
the same
Marve bdg. vs. Davd
- There must be facts before the court w be
|ustfed n percng the ve of corporate fcton
- Corporaton was a mere extenson of the
personaty of the person
Yutvo and sons vs. Court of Tax Appeas
- What where the facts or crcumstances arrved
by the court here?
- Subscrbed capta where a advanced by
Yutvo, the board where the same as Yutvo
Commssoner of Interna Revenue vs. Norton
and Harrson
- Court apped the genera rue
- Mere substanta ownershp does not mean that
t has a same corporate entty
La Campana Coffee Factory, Inc. vs. KKM
- Two corporatons managed by the same famy,
workers were made nterchangeaby
Emo Cano vs. CIR
- Sued n there offca capacty
- Reverse of Sorano vs. CA (sgned n ther
offca capacty)
Tesco vs. WCC
- The two corporatons where ocated n the
same offce
Caparos vs. CIR
- Same as NAFLU and A.C. Ransom
Concept buders vs. NLRC
- Instrumentaty rue. What s the
nstrumentaty rue? "where one corporaton s so
organzed and controed and ts affars are conducted so
that t s, n fact, a mere nstrumentaty or ad|unct of the
other, the fcton of the corporate entty of the
"nstrumentaty" may be dsregarded."
- Has no separate mnd of ts own. What s the
degree of contro?
1. Contro, not mere ma|orty or compete stock
contro, but compete domnaton, not ony of fnances
but of pocy and busness practce n respect to the
transacton attacked so that the corporate entty as to
ths transacton had at the tme no separate mnd, w or
exstence of ts own.
2. Such contro must have been used by the
defendant to commt fraud or wrong, to perpetuate the
voaton of a statutory or other postve ega duty or
dshonest and un|ust act n contraventon of pantffs
ega rghts; and,
3. The aforesad contro and breach of duty must
proxmatey cause the n|ury or un|ust oss companed
of.
- The absence of one of the eements prevents
"percng the corporate ve." In appyng the
"nstrumentaty" or "ater ego" doctrne, the courts are
concerned wth reaty and not form, wth how the
corporaton operated and the ndvdua defendants
reatonshp to that operaton.
There must facts and crcumstances before
warrant percng the ve of corporate fcton
The contro necessary does not mean stock
ownershp
MCConne vs. CA
- were ocated n the same foor
- "whe the mere ownershp of a or neary a of
the capta stock of a corporaton does not necessary
mean that t s a mere busness condut of the
stockhoder, that concuson s ampy |ustfed where t s
shown, as n the case before us, that the operatons of
the corporaton were so merged wth the stockhoders as
to be practcay ndstngushabe from them. To hod the
atter abe for the corporatons obgatons s not to
gnore the corporatons separate entty, but merey to
appe the estabshed prncpe that such entty cannot
be nvoked or used for purposes that coud not have
been ntended by the aw that created that separate
personaty."
Tan boon bee vs. |arenco
- Why woud a drug company need a prntng
machne
- The property must be n pursuance of a
company busness
Cease vs. CA
- Ater-ego or the extenson of the person of
forest ware does the court perced the ve of corporate
fcton
- As to not deprve the hoders of ther
successona rghts
- Mere ownershp of a or substantay a s not
a |ustfcaton of percng the ve of corporate fcton
Fraud must be proven by cear and convncng
evdence cannot presume or specuate, there must be
facts and crcumstances
Fraud must be cear and convncng evdence
more than preponderance
Remo |r. vs. IAC
- The resouton was not entered to defraud
anyone
De Rosaro vs. Natona Labor Commsson
- The wrongdong must be ceary estabshed
- There must be facts to support
- Payment of cams cannot thus be presumed
Indoph Texte M vs. CALICA
- How do you dstngush ths rung to La
Campana, havng the same ssues:
- La campana, one payro, empoyees were
made nterchangeabe. Acryc had ts own standards
PNB vs. Rtratto Group
- Contro test
- Not mere ma|orty but rather compete
- Twn ace was ony a subsequent nterested
party
- Assets and machneres
Amendment of the artces of ncorporaton
- Express power granted to a corporaton
Secton 16
- Apprasa rght
- Secton 81 to ob|ect on certan acts and
transactons
Section "1. Instances of apprasa rght. - Any
stockhoder of a corporaton sha have the rght to
dssent and demand payment of the far vaue of hs
shares n the foowng nstances:
1. In case any amendment to the artces of
ncorporaton has the effect of changng or restrctng
the rghts of any stockhoder or cass of shares, or of
authorzng preferences n any respect superor to those
of outstandng shares of any cass, or of extendng or
shortenng the term of corporate exstence;
2. In case of sae, ease, exchange, transfer, mortgage,
pedge or other dsposton of a or substantay a of
the corporate property and assets as provded n the
Code; and
3. In case of merger or consodaton. (n)
- Rght granted ony n specfed nstances
Are non-votng shares ncuded n amendng the artces
of ncorporaton
1 100/s XYZ-----ABC
2 100/s
To
10 100/s
=1M/S what woud be the
2/3?
Secton 6 ast paragraph
Votng shares are excuded except the foregong
nstances
1 1
2 2
3 3
4 4
5 5
6 6
1 & 2=absent
1&2=absent but gave ther wrtten assent
3 & 4= ob|ected
3&4=ob|ected
5 & 6= approved the amendment
5&6=approved
Woud there be a vad amendment
Speca amendments 37 & 38 shortenng that
woud resut to dssouton requre pror approva by the
SEC
Section 3%. Power to extend or shorten
corporate term. - A prvate corporaton may extend or
shorten ts term as stated n the artces of ncorporaton
when approved by a ma|orty vote of the board of
drectors or trustees and ratfed at a meetng by the
stockhoders representng at east two-thrds (2/3) of the
outstandng capta stock or by at east two-thrds (2/3)
of the members n case of non-stock corporatons.
Wrtten notce of the proposed acton and of the tme
and pace of the meetng sha be addressed to each
stockhoder or member at hs pace of resdence as
shown on the books of the corporaton and deposted to
the addressee n the post offce wth postage prepad, or
served personay: Provded, That n case of extenson of
corporate term, any dssentng stockhoder may exercse
hs apprasa rght under the condtons provded n ths
code. (n)
Section 3". Power to ncrease or decrease
capta stock; ncur, create or ncrease bonded
ndebtedness. - No corporaton sha ncrease or
decrease ts capta stock or ncur, create or ncrease
any bonded ndebtedness uness approved by a ma|orty
vote of the board of drectors and, at a stockhoder's
meetng duy caed for the purpose, two-thrds (2/3) of
the outstandng capta stock sha favor the ncrease or
dmnuton of the capta stock, or the ncurrng, creatng
or ncreasng of any bonded ndebtedness. Wrtten
notce of the proposed ncrease or dmnuton of the
capta stock or of the ncurrng, creatng, or ncreasng
of any bonded ndebtedness and of the tme and pace
of the stockhoder's meetng at whch the proposed
ncrease or dmnuton of the capta stock or the
ncurrng or ncreasng of any bonded ndebtedness s to
be consdered, must be addressed to each stockhoder
at hs pace of resdence as shown on the books of the
corporaton and deposted to the addressee n the post
offce wth postage prepad, or served personay.
A certfcate n dupcate must be sgned by a
ma|orty of the drectors of the corporaton and
countersgned by the charman and the secretary of the
stockhoders' meetng, settng forth:
(1) That the requrements of ths secton have been
comped wth;
(2) The amount of the ncrease or dmnuton of the
capta stock;
(3) If an ncrease of the capta stock, the amount of
capta stock or number of shares of no-par stock thereof
actuay subscrbed, the names, natonates and
resdences of the persons subscrbng, the amount of
capta stock or number of no-par stock subscrbed by
each, and the amount pad by each on hs subscrpton
n cash or property, or the amount of capta stock or
number of shares of no-par stock aotted to each stock-
hoder f such ncrease s for the purpose of makng
effectve stock dvdend therefor authorzed;
(4) Any bonded ndebtedness to be ncurred, created or
ncreased;
(5) The actua ndebtedness of the corporaton on the
day of the meetng;
(6) The amount of stock represented at the meetng; and
(7) The vote authorzng the ncrease or dmnuton of
the capta stock, or the ncurrng, creatng or ncreasng
of any bonded ndebtedness.
Any ncrease or decrease n the capta stock or
the ncurrng, creatng or ncreasng of any bonded
ndebtedness sha requre pror approva of the
Securtes and Exchange Commsson.
One of the dupcate certfcates sha be kept
on fe n the offce of the corporaton and the other sha
be fed wth the Securtes and Exchange Commsson
and attached to the orgna artces of ncorporaton.
From and after approva by the Securtes and Exchange
Commsson and the ssuance by the Commsson of ts
certfcate of fng, the capta stock sha stand
ncreased or decreased and the ncurrng, creatng or
ncreasng of any bonded ndebtedness authorzed, as
the certfcate of fng may decare: Provded, That the
Securtes and Exchange Commsson sha not accept
for fng any certfcate of ncrease of capta stock
uness accompaned by the sworn statement of the
treasurer of the corporaton awfuy hodng offce at the
tme of the fng of the certfcate, showng that at east
twenty-fve (25%) percent of such ncreased capta
stock has been subscrbed and that at east twenty-fve
(25%) percent of the amount subscrbed has been pad
ether n actua cash to the corporaton or that there has
been transferred to the corporaton property the
vauaton of whch s equa to twenty-fve (25%) percent
of the subscrpton: Provded, further, That no decrease
of the capta stock sha be approved by the
Commsson f ts effect sha pre|udce the rghts of
corporate credtors.
Non-stock corporatons may ncur or create
bonded ndebtedness, or ncrease the same, wth the
approva by a ma|orty vote of the board of trustees and
of at east two-thrds (2/3) of the members n a meetng
duy caed for the purpose.
Bonds ssued by a corporaton sha be
regstered wth the Securtes and Exchange
Commsson, whch sha have the authorty to determne
the suffcency of the terms thereof. (17a)
The vote must be cast at the meetng caed for
that purpose
Wrtten assent woud not suffce
When do amendments become vad and
effectve?
- Ony upon the approva of the SEC TRUE OR
FALSE?
- FALSE because t can be vad upon the date of
fng f not acted upon wthn 6 months wthout faut
attrbutabe to the corporaton
Why s t retroactve?
What provson may be amended, atered or
repeaed
Can you change name, address for exampe
she marred or changed address?
- NO. you cannot change that
Fat accomp, are beyond the powers or
authorty of the corporaton to change, ater or modfy.
These woud ncude the foowng:
- Names of the ncorporators and
- The ncorporatng drectors or trustees,
- The name of the treasurer orgnay or frst
eected by the subscrbers or members to act as such
unt hs successor has been duy eected and quafed,
- The number of shares and amount orgnay
subscrbed and pad out of the orgna authorzed
capta stock of the corporaton,
- The date and pace of executon of the artces
of ncorporaton,
- The sgnatores and acknowedgment thereof.
- A other provsons or matters stated or
contaned n the artces are sub|ect to amendment.
Founders or sgnatores hnd pwede patan
Names, natonates- you cannot
Capta- rght granted by aw to a corporaton
Pad up capta- NO
Restrcton and transfer of shares n ordnary
stock corporatons
- You can, but cose corporaton cannot
- Secton 96, otherwse t w not be a cose
corporaton
Section !$. Defnton and appcabty of
Tte. - A cose corporaton, wthn the meanng of ths
Code, s one whose artces of ncorporaton provde
that: (1) A the corporaton's ssued stock of a casses,
excusve of treasury shares, sha be hed of record by
not more than a specfed number of persons, not
exceedng twenty (20); (2) a the ssued stock of a
casses sha be sub|ect to one or more specfed
restrctons on transfer permtted by ths Tte; and (3)
The corporaton sha not st n any stock exchange or
make any pubc offerng of any of ts stock of any cass.
Notwthstandng the foregong, a corporaton sha not
be deemed a cose corporaton when at east two-thrds
(2/3) of ts votng stock or votng rghts s owned or
controed by another corporaton whch s not a cose
corporaton wthn the meanng of ths Code.
Any corporaton may be ncorporated as a cose
corporaton, except mnng or o companes, stock
exchanges, banks, nsurance companes, pubc uttes,
educatona nsttutons and corporatons decared to be
vested wth pubc nterest n accordance wth the
provsons of ths Code.
The provsons of ths Tte sha prmary
govern cose corporatons: Provded, That the provsons
of other Ttes of ths Code sha appy suppetory
except nsofar as ths Tte otherwse provdes.
Transfer cause, executor cause,
acknowedgment, treasury affdavt-NO
Phppne Frst Insurance case
- Mere change n the name of a corporaton or by
merey compyng wth the aw s genera amendment
- It does not change ts personaty. It s the same
person n a dfferent name. the charter s the same
Amendment of a corporate term
- Extendng the same can never be made 7 years
pror? TRUE or FALSE
- FALSE. It can be f there are |ustfabe reasons
for earer extenson as may be determned by the SEC
Can you extend the corporate term f t has
aready expred?
- Once the term expres wthout an amendment
havng happen t ceases to exst as a body potc. It s
dssoved automatcay on the day t expres.
Ahambra cgar and PNB case
Instances when the SEC aowed extenson
whose term has aready expred
- A of them nvoved are nsttutons of earnng,
t was the case n order to avod confuson that woud
arse ater on.
BOARD OF DIRECTORS)TRUSTEES
Secton 23
Section 23. The board of drectors or trustees.
- Uness otherwse provded n ths Code, the corporate
powers of a corporatons formed under ths Code sha
be exercsed, a busness conducted and a property of
such corporatons controed and hed by the board of
drectors or trustees to be eected from among the
hoders of stocks, or where there s no stock, from
among the members of the corporaton, who sha hod
offce for one (1) year unt ther successors are eected
and quafed. (28a)
Every drector must own at east one (1) share
of the capta stock of the corporaton of whch he s a
drector, whch share sha stand n hs name on the
books of the corporaton. Any drector who ceases to be
the owner of at east one (1) share of the capta stock of
the corporaton of whch he s a drector sha thereby
cease to be a drector. Trustees of non-stock
corporatons must be members thereof. A ma|orty of the
drectors or trustees of a corporatons organzed under
ths Code must be resdents of the Phppnes.
- Controed by the board of drectors
- Authorty are however restrcted to the day to
day
- Stockhoders may have a the proft but w
turn over the management to the governng board
- But uness the aw provdes the power may be
deegated
Genera rue
- Corporatons must st and act as a body
- W be bound by corporate offcers f they acted
wthn the 5 cassfcaton page 150
Ramrez vs. Orentast co.
- What was the poston of Fernandez n ths
case? TREASURER
- Why dd the court rue that actons of
Fernandez bound the corporaton when he s not even a
board of drector?
"f a man s found actng for a corporaton wth
the externa ndca of authorty, any person not havng
notce of want of authorty, may usuay rey upon those
appearances; and f t be found that the drectors had
permtted the agent to exercse that authorty and
thereby hed hm out as a person competent to bnd the
corporaton, or had acquesced n a contract and
retaned the beneft supposed to have been conferred by
t, the corporaton w be bound, notwthstandng the
actua authorty may never have been granted."
- Contracts must be made by the drector and
not the stockhoders
- Actons of the stockhoders n such matters s
ony advsory and not n any way bndng n the
corporaton
Barreto vs. La prevsora Fpna
- Everythng emanates from the board of
drectors
- Stockhoders acton s merey advsory except
ther approva or vote s necessary to prove a vad
corporate act
Ouafcatons:
- No ctzenshp requrement, at east ma|orty
must be resdents
- Can have a governng board consstng soey of
foregners
- But we have to take nto consderaton party
natonazed ndustres and other aws whch prohbts or
mts foregn ownershp
- Ant-dummy act
- Utzaton deveopment of natura resources
60% must be owned by Fpno ctzens, therefore they
ony own 40%---10 members they can ony have 4 seats,
but not entrey correct because the aw may provde
otherwse; educatona nsttutons restrcted to Fpnos,
but there are exceptons when created by regous and
chartabe nsttutons.
- By-aws may provde addtona quafcatons
and dsquafcatons
- To quafy as a drector he must own at east 1
share
Shoud the stockhoder be the equtabe or
benefca owner n order to quafy as a drector?
- NO, t s not necessary, as ong as you are sted
n the books as owner of one share
Lee vs. CA
- As ong as you are sted n the books as owner
of one share
- Under the od aw he must be the benefca
owner and ega owner thereof but n the new aw t s
not requred as ong as t stands n hs name he s
quafes
1 A-100t/S B (own n the trust of X) s B quafed
to be a drector?
2
3-10
2- transferrng there votng rghts n favor of VT
Other rghts w accrue n favor of them, but not the
votng rghts
votng rghts must be recorder n the books of the
corporaton that t s transferred
PNB-IFL- whoy owned subsdary of PNB
PNB w assgn to PNB-IFL nomna shares and PNB-IFL
now w be abe to be nomnated
Gen. Rue:
- Term of one year who w serve as such unt
there successors are eected and quafed
Excepton:
- Non-stock corporaton can serve for a term of 3
years
- Educatona non-stock- term of the governng
board can be 5 years
May ths term exceed one year?
- Yes, they may serve n a hod over capacty
unt ther successors have been duy eected and
quafed
Detectve and protectve bureau vs. Corbe
- In the by-aws, managng drector must be
eected from among themseves
- Must be duy eected and quafed
How are the drectors eected?
1-100T/S
2-100T/S
3-100T/S
to 10=1M/S
Do you ncude the vote of 1 & 2 to have a
quorum to have a vad meetng?
- NO, quorum requrements s 401,000
Ouorum requrement s 501k
Hoders of non-votng shares are ony entted to vote n
ast par. Of secton 6
1-200k
2-200k
3-200k
4-100k
5-100k
6-100k
7-50k
8-40k
9-5k
10-5k
=1MS
1&2 s absent, 3&4 ayaw tumakbo and hnd nagvote 6-
10, tumakbo and nnomnate na yung sar na and
cast a ther shares on themseves
Who wns? Or who gets eected?
- No vote requrement, the one who gets the
most number of votes gets eected, secton24.
What s cumuatve votng?
- Process of mutpyng the number of shares to
the number of drector to be eected
- Matter of rght granted to stockhoders n a
stock corporaton
1 to 5 has 200k/s and members of the same famy-
ma|orty 800k they have 4M votes they are guaranteed
4 seats
6 to 10 are not reated- 1 seat 1M votes
Cumuatve to aow the mnorty to have a
rghtfu representaton n the board
Is t aowed n a non-stock corporaton?
- Not generay avaabe
- Secton 89 uness the artces or by-aws aow
cumuatve votng
Section "!. Rght to vote. - The rght of the
members of any cass or casses to vote may be mted,
broadened or dened to the extent specfed n the
artces of ncorporaton or the by-aws. Uness so
mted, broadened or dened, each member, regardess
of cass, sha be entted to one vote.
Uness otherwse provded n the artces of
ncorporaton or the by-aws, a member may vote by
proxy n accordance wth the provsons of ths Code. (n)
Votng by ma or other smar means by
members of non-stock corporatons may be authorzed
by the by-aws of non-stock corporatons wth the
approva of, and under such condtons whch may be
prescrbed by, the Securtes and Exchange Commsson.
Other corporate offcers other than the
governng board secton 25
Section 2#. Corporate offcers, quorum. -
Immedatey after ther eecton, the drectors of a
corporaton must formay organze by the eecton of a
presdent, who sha be a drector, a treasurer who may
or may not be a drector, a secretary who sha be a
resdent and ctzen of the Phppnes, and such other
offcers as may be provded for n the by-aws. Any two
(2) or more postons may be hed concurrenty by the
same person, except that no one sha act as presdent
and secretary or as presdent and treasurer at the same
tme.
The drectors or trustees and offcers to be
eected sha perform the dutes en|oned on them by aw
and the by-aws of the corporaton. Uness the artces of
ncorporaton or the by-aws provde for a greater
ma|orty, a ma|orty of the number of drectors or
trustees as fxed n the artces of ncorporaton sha
consttute a quorum for the transacton of corporate
busness, and every decson of at east a ma|orty of the
drectors or trustees present at a meetng at whch there
s a quorum sha be vad as a corporate act, except for
the eecton of offcers whch sha requre the vote of a
ma|orty of a the members of the board.
Drectors or trustees cannot attend or vote by
proxy at board meetngs. (33a)
Is the presdent requred to be a stockhoder.
YES
The charman may be another person
The presdent may aso be another person
Prohbted s presdent to be secretary or
treasurer at the same tme
Board of drector must st and act as a body to
arrve at a corporate act
What woud consttute a quorum f 5 then 3
must be present
May the vote of 2 members past a 5 man
governng board pass a vad corporate act?
- YES. Votng requrement s ma|orty of drectors
present at whch there where a quorum
1 1 and 2 present=vad votng
requrement
2 1 and 2 voted yes
3 3 voted no
4
5
Is t absoute?
- NO, except n the eecton because t requres
the ma|orty of a the members of the board
- If by-aws or artces provde a hgher votng
requrement
Artfca bengs must act through ts members
and act as a body to have a vad corporate act
Excepton:
- Deegaton
- Expressy conferred
- Where the offcer or agent s cothed wth
actua or apparent authorty
- Otherwse t w not bnd the corporaton
Yao ka sn tradng case "aready asked n the
bar"
- Ony bnd the corporaton to the extent of
authorty confned to hm or vrtue of customs, usage
and pocy
- Must pass frst the controer and counse
What f the notce requrement s not comped
wth?
Lopez reaty vs. Fotencha
- Notce requrement must be comped wth
hence t shoud have been wth force and effect, but
accordng to the SC, t may be ratfed expressy f there
s a subsequent meetng caed for that purpose
- Impedy through acts
- Asuncon was aware of the corporatons
obgaton
- There was mped ratfcaton or she was
estopped
Pua casm vs. Neumark and Co.
- Consdered 3 crcumstanced
- Check whch was the proceed of the oan whch
was endorsed and depost n the corporate account
- Neumark as presdent and aso stockhoder
Yu chuck vs. Kong L Po
- Genera manager usuay has the power to hre
but the SC sad the contract must be reasonabe
- The contract here s so onerous that t woud
throw the corporaton nto nsovency
Francsco vs. GSIS
- GSIS cannot evade the bndng effect of the
teegram
- Ony 15 months ater that the corporaton sad
there was a mstake
- The sence couped wth the uncondtona
acceptance of the other subsequent remttances s
bndng to the corporaton
Board of qudators vs. Kaaw
"Setted |ursprudence has t that where smar
acts have been approved by the drectors as a matter of
genera practce, custom and pocy, the genera
manager may bnd the company wthout forma
authorzaton of the board of drectors. In varyng
anguage, exstence of such authorty s estabshed, by
proof of the course of busness, the usages and practces
of the company and by the knowedge whch the board
of drectors has, or must be presumed to have, of acts
and dongs of ts subordnates n and about the affars of
the corporaton. So aso, "xx authorty to act for and
bnd a corporaton may be presumed from acts of
recognton n other nstances where the power was n
fact exercsed." "xx Thus, when, n the usua course of
busness of a corporaton, an offcer has been aowed n
hs offca capacty to manage ts affars, hs authorty to
represent the corporaton may be mped from the
manner n whch he has been permtted by the drectors
to manage ts busness."
In the case at bar, the practce of the
corporaton has been to aow ts genera manager to
negotate and execute contracts n ts copra tradng
actvtes for and n NACOCOs behaf wthout pror board
approva. If the by-aws were to be teray foowed, the
board shoud gve ts stamp of pror approva on a
corporate contracts. But that Board tsef, by ts acts and
through acquescence, practcay ad asde the by-aw
requrement of pror approva.
- Kaaw sgned aone and sad contracts were
submtted to the board of drectors after ts
consummaton and not before
Buenaseda vs. Bowen
- Express ratfcaton s made through a forma
board acton
- Imped ratfcaton s through: sence or
acquescence, acceptance benefts and asty
recognton or adopton
An unauthorzed act may nevertheess be
bndng ether by express or mped by estoppes
By vrtue of sence the board had mpedy
accepted the act
By recognton or adopton
By vrtue of payment of obgatons arsng
therefore- Lopez reaty
May drectors or trustees be dsquafed to act
as such?
- YES, crme, etc. dsquafcatons n book
- Possess or dspossess any of the quafcatons
or dsquafcatons , cease to hod at east one share
May drectors be ousted from offce?
- At east 2/3 of members representng
outstandng capta stock. Agan notce requrement
must be comped wth
1-200 1-5 same
famy
2-200
3-200
4-100
5-100 eectng
6-100 6 to 10 not
reated
7-50
8-40
9-5
10-5 outstandng
drector
Meetngs caed by the presdent or the
secretary ordered by the presdent
It depends f the remova s wthout cause they
cannot do so because remova wthout cause sha not
deprve the mnorty stockhoders or members of the
rght of representatve
If wth cause they can even f t w pre|udce
the rghts of the mnorty, provded of course addtona
requrements by-aws and artces of ncorporaton
Who w f up the vacancy created due to the
ouster of a member of the board of drectors <secton
29>
Section 2!. Vacances n the offce of drector
or trustee. - Any vacancy occurrng n the board of
drectors or trustees other than by remova by the
stockhoders or members or by expraton of term, may
be fed by the vote of at east a ma|orty of the
remanng drectors or trustees, f st consttutng a
quorum; otherwse, sad vacances must be fed by the
stockhoders n a reguar or speca meetng caed for
that purpose. A drector or trustee so eected to f a
vacancy sha be eected ony or the unexpred term of
hs predecessor n offce.
Any drectorshp or trusteeshp to be fed by
reason of an ncrease n the number of drectors or
trustees sha be fed ony by an eecton at a reguar or
at a speca meetng of stockhoders or members duy
caed for the purpose, or n the same meetng
authorzng the ncrease of drectors or trustees f so
stated n the notce of the meetng. (n)
Other than by remova or expraton of term
they do not have the power
When w the vacances be fed up?
Is notce requred, to f up vacances due to
remova?
What f the vacancy s due to an ncrease, can t
be fed up n the same meetng where n the number s
ncreased?
Eecton due to remova-n the same meetng
notce s not requred
Eecton due to ncrease n number- t must be
so stated n the meetng
Secton 30
precedng year. (n)
- Generay not entted to receve compensaton
because they render t gratutousy
- Uness the by-aws aows
- Stockhoders may aso grant pursuant to a
ma|orty vote
- Must not exceed net ncome of 10% tax of the
precedng year
- Actng n speca capacty
- In, sum drectors may receve compensaton
when
1. there s a provson n the by-aws to that effect
2. When the stockhoders, by a ma|orty vote of
the outstandng capta stock grant the same; and,
3. If the drector renders extra-ordnary or unsua
servce
Centra cooperatve exchange vs. Tbe
- By-aws may aow, stockhoders may aso aow
such
What do you understand by the phrase "as
such drectors"
Western nsttute vs. Saas
- Compensaton was granted wthout by-aws
authorty
- Prohbton s not a sweepng rue
- Members of the board may receve when they
receve n a speca capacty
- Mere act of the board w suffce
Is the 10% ceng appcabe to other offcers?
- NO. the phrase "as such drector" was used
twce <Secton 30>
- The SC rued that the 10% ceng w not
kewse appy f they acted n a capacty other than "as
such drectors"
Government vs. E Hogar
- |udca nterventon s not proper
- The approprates remedy s to those who can
make or unmake the by-aws
Labty of corporate offcers
- Obgatons ncurred by those actng for and n
behaf of the corporatons are not theres BUT there are
exceptons even f they are actng for and n behaf of
the corporaton
Tramat vs. CA
- Genera rue was apped n the case
- Ong acted as offcers and acted wthn the
scope of hs authorty
- Court ad down 4 nstances when even f actng
wthn the scope of hs authorty he s hed sodary
abe
1. He assents (a) to a patenty unawfu act of the
corporaton, or (b) for bad fath, or gross neggence n
drectng ts affars, or (c) for confct of nterest,
resutng n damages to the corporaton, ts stockhoders
or other persons;
2. He consents to the ssuance of watered stocks
or who, havng knowedge thereof, does not forthwth
fe wth the corporate secretary hs wrtten ob|ecton
thereto;
3. He agrees to hod hmsef personay and
sodary abe wth the corporaton;
4. He s made, by a specfc provson of aw, to
personay answer for hs corporate acton.
- Watered stocks- ssued, fuy pad up when n
fact they have not been fuy pad or promsed as such
Lamado vs. CA
- The corporate entty theory cannot be used as
a defense to escape abty n voaton of B.P. 22
- Where the check s drawn by a corporaton the
persons who sgned the check sha be abe.
Uchco vs. NLRC
- Labor case corporate drectors and offcers are
sodary abe wth the corporaton for the termnaton
of empoyment of corporate empoyee done wth mace
and bad fath
3 fod duty of drectors
- obedent
- dgent
- oya
Busness |udgment rue
- Ouestons of pocy and management are eft
soey to the honest decson of the board of drectors
and the courts are wthout authorty to substtute ts
|udgment as aganst the former. The drectors are the
busness managers of the corporaton and as ong as
they act n good fath, ts actuatons are not sub|ect to
|udca revew. Montebano vs. Bacood Murca Mng
- questons of pocy and management are eft
soey to the board of drectors
- BOD, busness manager of the corporaton and
as ong as they act n good fath, ts actuatons are not
sub|ect to |udca revew
- They are not nsurer of the property of the
company, they were guarantors that the enterprse
undertaken by the corporaton sha be successfu
Montebano vs. Bacood Murca Mng Co.
- Drectors are not abe due to mprudence or
honest error of |udgment
- Duty of oyaty of corporate drectors
- 31,32,33,34
- 31,32,33- specfc nstances when corporate
offcers may voate oyaty
- 32,33 sef-deang and nterockng drector
Corporate opportunty doctrne
- It paces a drector of a corporaton n the
poston of a fducary and prohbts hm form sezng a
busness opportunty and/or deveopng t at the
expense and wth the factes of the corporaton. He
cannot approprate to hmsef a busness opportunty
whch n farness shoud beong to the corporaton.
Last paragraph of secton 31 and the provson
of secton 34 make reference to recovery of "forbdden
profts"
Dstncton between secton 31 and 34 reatve
to the ratfcaton by the stockhoders
- The second paragraph of secton 31 whch
makes a drector abe to account for profts f he
attempts to acqure or acqures any nterest adverse to
the corporaton n respect to any matter reposed n hm
n confdence as to whch equty mposes a dsabty
upon hm to dea n hs own behaf s not sub|ect to
ratfcaton by the stockhoders. Whereas, n secton 34 f
a drector acqures for hmsef a busness opportunty
whch shoud beong to the corporaton, he s bound to
account for such profts uness hs act s ratfed by the
stockhoders ownng ore representng at east 2/3 of the
outstandng capta stock.
- If reposed n hm n confdence, not sub|ect to
ratfcaton
- If the acquston s merey that of a busness
opportunty whch has not been reposed n hm n
confdence, the same may be sub|ect to ratfcaton by
the stockhoders.
Drector x co.
A-REALTY
B
Z owns property and s gong abroad never to Return, he
wants to se for 25M the far market vaue s 30M
D
E
E goes to Z and offers to pay the property for 26 M and
ater he ses t for 30M makng 4M proft, one of the
stockhoders earned and compans that he shoud
submt the profts. E sad that he w move for
ratfcaton of hs actuaton. Can t be ratfed?
- It can be ratfed he merey acqured a busness
ownng to the corporaton
- It woud be dfferent f t was entrusted n hs
confdence
Another scenaro:
(*+ A not *tten+e+ t,e -eetin. he woud not have
known of the sae t s then a matter reposed n hm n
confdence
A corporaton cannot reaqure ts share f t has
no restrcted unretaned earnngs
Strong vs. Rapde
- What duty dd he voate?
- He voated hs duty of oyaty
- The aw woud be mpotent f the sae were not
nvadated
Sef-deang drector and nterockng drector
What s a sef-deang drector?
- Drector of a corporaton deang or transactng
busness wth hs corporaton
Are the contracts and deang of a sef0deang
drector vad?
Genera rue: vodabe
May the contracts of a sef-deang drector be
vad per se.
- YES. If a the 4 condtons are present they w
be vad per se
1. That the presence of such drector or trustee n
the board meetng n whch the contract was approved
was not necessary to consttute a quorum for such
meetng;
2. That the vote of such drector or trustee was
not necessary for the approva of the contract;
3. That the contract s far and reasonabe under
the crcumstances; and
4. That n case of an offcer, the contract has been
prevousy authorzed by the board of drectors.
When do they become vodabe?
- When any of the two requstes are absent t s
vodabe, but sub|ect to ratfcaton by 2/3 of the
outstandng capta stock or 2/3 of the member
Requstes for ratfcaton (sub|ect to ratfcaton
by the stockhoders hodng or representng at east 2/3
of the outstandng capta stock or 2/3 of the members.)
- t must be at a meetng caed for the purpose
- fu dscosure of the adverse nterest of the
drector concerned must be made
- the contract s far and reasonabe under the
crcumstances
Probem f sef-deang drector nvoved owns
a or substantay a of the shares of stock of the
corporaton thereby makng t easy possbe to have the
contract ratfed
- ast sentence of secton 32 shoud be made to
appy by determnng the reasonabeness and farness of
the contract
Section 32. Deangs of drectors, trustees or
offcers wth the corporaton. - A contract of the
corporaton wth one or more of ts drectors or trustees
or offcers s vodabe, at the opton of such corporaton,
uness a the foowng condtons are present:
1. That the presence of such drector or trustee n the
board meetng n whch the contract was approved was
not necessary to consttute a quorum for such meetng;
2. That the vote of such drector or trustee was not
necessary for the approva of the contract;
3. That the contract s far and reasonabe under the
crcumstances; and
4. That n case of an offcer, the contract has been
prevousy authorzed by the board of drectors.
Where any of the frst two condtons set forth
n the precedng paragraph s absent, n the case of a
contract wth a drector or trustee, such contract may be
ratfed by the vote of the stockhoders representng at
east two-thrds (2/3) of the outstandng capta stock or
of at east two-thrds (2/3) of the members n a meetng
caed for the purpose: Provded, That fu dscosure of
the adverse nterest of the drectors or trustees nvoved
s made at such meetng: Provded, however, That the
contract s far and reasonabe under the crcumstances.
(n)
Prme whte cement vs. IAC
- a drector of a corporaton owes a poston n
trust
- n case of confct between hmsef and that of
the corporaton, he cannot sacrfce the nterest of the
corporaton to hs own advantage
- as a drector he shoud have acted n a manner
as not to unduy pre|udce the corporaton
- he cannot be aowed to enrch hmsef
May corporate drectors purchase the corporate
property?
Mead vs. Mccuogh
- nterockng drector- a drector of one
corporaton who deas and transacts busness wth
another corporaton who s hmsef a drector
A- drector of X company aso a drector of Y
corporaton
B-
C-
D-
E-
Both companes enter nto a contract and A
sts, s the contract vad?
- Yes on the ground of fraud or f t s unfar
- May be sub|ect to the provson of secton 32
- Secton 32 contract may become vodabe,
hence t may aso be ratfed
X Co.
Y Co.
A owe 20%
A owe 20%
Is t generay vad or vodabe? VALID
25%
25% VALID
15%
25% VOIDABLE SUB|ECT TO secton 32
More than 20 substanta
BOD msmanages corporate offcers. Who may
fe a sut?
- Genera rue: BOD whch can nsttute a case
because t has a the powers. To aow stockhoders to
fe woud voate the doctrne of corporate entty and
may resut to mutpcty of suts
- Stockhoders cannot therefore generay fe a
case EXCEPT of course n a DERIVATIVE SUIT
Dervatve sut
- An acton based on n|ury to the corporaton-to
enforce a corporate rght- wheren the corporaton tsef
s |oned as a necessary party, and recovery s n favor of
and for the corporaton.
- Remedy granted by aw to stockhoders to
nsttute a case to remedy a wrong done drecty to the
corporaton and ndrecty to the stockhoders, f the
board refuses to do so. Otherwse f not they woud be
eft wthout any recourse
Avaabe suts
ndvdua or persona
- Wrong done aganst hs person as a stockhoder
Cass sut
- Fed by a stockhoder n representaton of other
stockhoders
- A wrong or redress done, a dervatve sut n
nature
Intra-corporate remedes
- Demand to the BOD to nsttute such acton
- Negated by the BOD
- The one who nsttuted must be a stockhoder
at the date when the act was done, must have been a
stockhoder by that tme
Demand w not be requred f the ma|orty of
the BOD are the ones guty of the wrong charged
The corporaton must be made a party n the
case whatever sde w not matter because under
Phppne aw ms|onder s not a ground for dsmssa
Non-|onder s a ground for dsmssa
Any beneft shoud nure to the corporaton
Stockhoder brngng the acton s entted to
rembursement such as attorneys fee ONLY IF the case
s SUCCESSFUL to avod harassment sut to ther
management
Pascua vs. Orozco
- By vrtue of the fact that he s a stockhoder,
may mantan a dervatve sut
- Depend on how, when and what reason
- Seekng for the years 1898 a the way 1907
- Ony became a stockhoder n 1903
- He can sue ony n 1903 forward because he
must be a stockhoder
- The rght of acton s persona n nature. He
became a stockhoder ony n 1902
Dervatve sut
- By a stockhoder to address a wrong done
aganst the corporaton and the stockhoder ndrecty
- Essenta requste must have been a
stockhoder from the tme the act companed of took
pace
- Cannot nsttute an acton from the years he
was st not a stockhoder
Everett vs. Asa Bankng
- Stockhoders cannot ordnary commence sut
n equty and such s n the hands of ts BOD however
there are exceptons when the BOD w not sue snce
they are themseves prncpas to the fraud.
Repubc vs. Cuaderno
- The facts consttute suffcent cause of acton
- It s not the corporate nterest to shed one
from crmna prosecuton whch s persona nterest
- Perez s not sung n hs behaf, but n behaf of
the corporaton
Western nsttute vs. Saas
- Assumng t was fed n the proper forum woud
there argument that t s a dervatve sut prosper? NO. t
s peope of the Phppnes vs. ndvdua drector, t
must be stated n the compant that t s beng
nsttuted as a dervatve sut and for and n behaf of the
corporaton
- Grantng arguendo, that ths s a dervatve sut,
the same s st outrghty dsmssbe for havng been
wrongfuy fed n the reguar court devod of any
|ursdcton to entertan the compant. The case shoud
have been fed wth the SEC whch exercses orgna
and excusve |ursdcton over dervatve suts, they
beng ntra-corporate dsputes, per Secton 5 (b) of P.D.
902-A
San Mgue vs. Khan
- Was a demand made? NO
- It s not necessary because he ob|ected n the
board meetng, but st t was adopted therefore t was
useess
Chase vs. Buencamno
- Argument that he shoud be n estoppes snce
he fed n the U.S.
- Assumng the case prospered n the U.S. woud
not estoppes appy as aganst hm? NO for estoppes to
step n t must be a case by the corporaton
Reyes vs. tan
- Corporate drector are guty of breach of trust
- A stockhoder may nsttute an acton to
remedy a wrong done
- Fraud n the conduct of corporate affars
Gamboa vs. Vctorano
- Is dervatve sut approprate n ths case
- They are not vndcatory damage done to the
corporaton, but rather they where vndcatng damage
aganst hm
- Voaton of ther rghts as ndvduas, hence
dervatve sut s not the remedy
Evangesta vs. Santos
- Dervatve sut s not proper
- Cam s not for the beneft of the corporaton,
but rather hs ndvdua beneft
From the cases above cted, these are the
requrements and the procedures that must be foowed
n order that a dervatve sut may prosper
1. That the party brngng the sut shoud be a
stockhoder as of the tme the act or transacton
companed of took pace, or whose shares have evoved
upon hm snce by operaton of aw. Ths rue, however,
does not appy f such act or transacton contnues and s
n|urous to the stockhoder or affect hm specfcay n
some other way.
The number of hs hares s mmatera snce he s not
sung n hs own behaf or for the protecton or
vndcaton of hs own rght, or the redress of a wrong
done aganst hm, ndvduay, but n behaf and for the
beneft of the corporaton.
2. He has tred to exhaust ntra-corporate
remedes, he has made a demand on the board of
drectors for the approprate reef but the atter had
faed or refused to heed hs pea. Demand, however, s
not requred f the company s under the compete
contro of the drectors who are the very ones to be sued
(or where t becomes obvous that a demand upon them
woud have been fute and useess) snce the aw does
not requre a tgant to perform useess acts;
3. The stockhoder brngng the sut must aege n
hs compant that he s sung on a dervatve cause of
acton on behaf of the corporaton and a other
stockhoders smary stuated, otherwse, the case s
dsmssbe. Ths s because the cause of acton actuay
devoves on the corporaton and not to a partcuar
stockhoder.
4. The corporaton shoud be made a party, ether
as party-pantff or defendant, n order to make the
courts |udgment bndng upon t, and thus, bar future
tgaton of the same ssues. On what sde the
corporaton appears oses mportance when t s
consdered that t ay wthn the power of the court to
drect the makng of amendment of the peadng, by
addng or droppng partes, as may be requred n the
nterest of |ustce. Ms|onder of partes s not a ground
to dsmss acton; and,
5. Any beneft or damages recovered sha pertan
to the corporaton. Ths s so because n a nstances,
dervatve sut s nsttuted for and n behaf of the
corporaton and not for the protecton or vndcaton of a
rght or rghts of a partcuar stockhoder, otherwse, the
aggreved stockhoder shoud nsttute, nstead, an
ndvdua or persona sut to vndcate hs persona or
ndvdua rght. Or, for that matter, representatve or
cass sut for a other stockhoders whose rghts are
smary stuated, n|ured or voated, personay or
ndvduay.
Executve commttee
- Not aowed under the OLD aw
How may executve commttee created and
consttuted?
- Secton 35
Section 3#. Executve commttee. - The by-
aws of a corporaton may create an executve
commttee, composed of not ess than three members of
the board, to be apponted by the board. Sad commttee
may act, by ma|orty vote of a ts members, on such
specfc matters wthn the competence of the board, as
may be deegated to t n the by-aws or on a ma|orty
vote of the board, except wth respect to: (1) approva of
any acton for whch sharehoders' approva s aso
requred; (2) the fng of vacances n the board; (3) the
amendment or repea of by-aws or the adopton of new
by-aws; (4) the amendment or repea of any resouton
of the board whch by ts express terms s not so
amendabe or repeaabe; and (5) a dstrbuton of cash
dvdends to the sharehoders.
- Sad commttee may act and bnd the
corporaton by the ma|orty vote of a ts members
except wth respect to those matters provded for n sec.
35 these are:
1. Approva of any acton for whch sharehoders
approva s aso requred
2. The fng of vacances n the board;
3. Amendment or repea of by-aws or the
adopton of new by-aws;
4. Amendment or repea of any resouton of the
board whch by ts express terms s not so amenabe or
repeaabe; and,
5. Dstrbuton of cash dvdends to the
sharehoders.
May the board aone create an executve
commttee wthout any authorty provded for the by-
aws?
- NO board of drectors must st and act as a
body to have a vad transacton
May a non-member of the board of drectors be
a member of the executve commttee?
- NO, a of them must be members of the board
of drectors
- BOD cannot act by proxy t woud be abdcaton
of powers
Purpose causes necessary because t confers
and aso mts the actua authorty of the corporaton
CORPORATE POWERS AND AUT(ORIT/
Corporate authorty may be cassfed nto three
casses namey:
1. Those expressy granted or authorzed by aw
ncusve of the corporate charter or artces of
ncorporaton;
2. Those mpedy granted as are essenta or
reasonaby necessary to the carryng out of the express
powers;
3. Those that are ncdenta to ts exstence.
Secton 36 to 45- POWER GRANTED BY LAW
Section 3$. Corporate powers and capacty. - Every
corporaton ncorporated under ths Code has the power
and capacty:
1. To sue and be sued n ts corporate name;
2. Of successon by ts corporate name for the perod of
tme stated n the artces of ncorporaton and the
certfcate of ncorporaton;
3. To adopt and use a corporate sea;
4. To amend ts artces of ncorporaton n accordance
wth the provsons of ths Code;
5. To adopt by-aws, not contrary to aw, moras, or
pubc pocy, and to amend or repea the same n
accordance wth ths Code;
6. In case of stock corporatons, to ssue or se stocks to
subscrbers and to se stocks to subscrbers and to se
treasury stocks n accordance wth the provsons of ths
Code; and to admt members to the corporaton f t be a
non-stock corporaton;
7. To purchase, receve, take or grant, hod, convey, se,
ease, pedge, mortgage and otherwse dea wth such
rea and persona property, ncudng securtes and
bonds of other corporatons, as the transacton of the
awfu busness of the corporaton may reasonaby and
necessary requre, sub|ect to the mtatons prescrbed
by aw and the Consttuton;
8. To enter nto merger or consodaton wth other
corporatons as provded n ths Code;
9. To make reasonabe donatons, ncudng those for the
pubc wefare or for hospta, chartabe, cutura,
scentfc, cvc, or smar purposes: Provded, That no
corporaton, domestc or foregn, sha gve donatons n
ad of any potca party or canddate or for purposes of
partsan potca actvty;
10. To estabsh penson, retrement, and other pans for
the beneft of ts drectors, trustees, offcers and
empoyees; and
11. To exercse such other powers as may be essenta or
necessary to carry out ts purpose or purposes as stated
n the artces of ncorporaton. (13a)
Section 3%. Power to extend or shorten
corporate term. - A prvate corporaton may extend or
shorten ts term as stated n the artces of ncorporaton
when approved by a ma|orty vote of the board of
drectors or trustees and ratfed at a meetng by the
stockhoders representng at east two-thrds (2/3) of the
outstandng capta stock or by at east two-thrds (2/3)
of the members n case of non-stock corporatons.
Wrtten notce of the proposed acton and of the tme
and pace of the meetng sha be addressed to each
served personay: Provded, That n case of extenson of
corporate term, any dssentng stockhoder may exercse
hs apprasa rght under the condtons provded n ths
code. (n)
Section 3". Power to ncrease or decrease
capta stock; ncur, create or ncrease bonded
ndebtedness. - No corporaton sha ncrease or
decrease ts capta stock or ncur, create or ncrease
any bonded ndebtedness uness approved by a ma|orty
vote of the board of drectors and, at a stockhoder's
meetng duy caed for the purpose, two-thrds (2/3) of
the outstandng capta stock sha favor the ncrease or
dmnuton of the capta stock, or the ncurrng, creatng
or ncreasng of any bonded ndebtedness. Wrtten
notce of the proposed ncrease or dmnuton of the
capta stock or of the ncurrng, creatng, or ncreasng
of any bonded ndebtedness and of the tme and pace
of the stockhoder's meetng at whch the proposed
ncrease or dmnuton of the capta stock or the
ncurrng or ncreasng of any bonded ndebtedness s to
be consdered, must be addressed to each stockhoder
at hs pace of resdence as shown on the books of the
corporaton and deposted to the addressee n the post
offce wth postage prepad, or served personay.
A certfcate n dupcate must be sgned by a ma|orty of
the drectors of the corporaton and countersgned by
the charman and the secretary of the stockhoders'
meetng, settng forth:
(1) That the requrements of ths secton have been
comped wth;
(2) The amount of the ncrease or dmnuton of the
capta stock;
(3) If an ncrease of the capta stock, the amount of
capta stock or number of shares of no-par stock thereof
actuay subscrbed, the names, natonates and
resdences of the persons subscrbng, the amount of
capta stock or number of no-par stock subscrbed by
each, and the amount pad by each on hs subscrpton
n cash or property, or the amount of capta stock or
number of shares of no-par stock aotted to each stock-
hoder f such ncrease s for the purpose of makng
effectve stock dvdend therefor authorzed;
(4) Any bonded ndebtedness to be ncurred, created or
ncreased;
(5) The actua ndebtedness of the corporaton on the
day of the meetng;
(6) The amount of stock represented at the meetng; and
(7) The vote authorzng the ncrease or dmnuton of
the capta stock, or the ncurrng, creatng or ncreasng
of any bonded ndebtedness.
Any ncrease or decrease n the capta stock or the
ncurrng, creatng or ncreasng of any bonded
ndebtedness sha requre pror approva of the
Securtes and Exchange Commsson.
One of the dupcate certfcates sha be kept on fe n
the offce of the corporaton and the other sha be fed
wth the Securtes and Exchange Commsson and
attached to the orgna artces of ncorporaton. From
and after approva by the Securtes and Exchange
Commsson and the ssuance by the Commsson of ts
certfcate of fng, the capta stock sha stand
ncreased or decreased and the ncurrng, creatng or
ncreasng of any bonded ndebtedness authorzed, as
the certfcate of fng may decare: Provded, That the
Securtes and Exchange Commsson sha not accept
for fng any certfcate of ncrease of capta stock
uness accompaned by the sworn statement of the
treasurer of the corporaton awfuy hodng offce at the
tme of the fng of the certfcate, showng that at east
twenty-fve (25%) percent of such ncreased capta
stock has been subscrbed and that at east twenty-fve
(25%) percent of the amount subscrbed has been pad
ether n actua cash to the corporaton or that there has
been transferred to the corporaton property the
vauaton of whch s equa to twenty-fve (25%) percent
of the subscrpton: Provded, further, That no decrease
of the capta stock sha be approved by the
Commsson f ts effect sha pre|udce the rghts of
corporate credtors.
Non-stock corporatons may ncur or create bonded
ndebtedness, or ncrease the same, wth the approva
by a ma|orty vote of the board of trustees and of at
east two-thrds (2/3) of the members n a meetng duy
caed for the purpose.
Bonds ssued by a corporaton sha be regstered wth
the Securtes and Exchange Commsson, whch sha
have the authorty to determne the suffcency of the
terms thereof. (17a)
Section 3!. Power to deny pre-emptve rght. -
A stockhoders of a stock corporaton sha en|oy pre-
emptve rght to subscrbe to a ssues or dsposton of
shares of any cass, n proporton to ther respectve
sharehodngs, uness such rght s dened by the artces
of ncorporaton or an amendment thereto: Provded,
That such pre-emptve rght sha not extend to shares to
be ssued n compance wth aws requrng stock
offerngs or mnmum stock ownershp by the pubc; or
to shares to be ssued n good fath wth the approva of
the stockhoders representng two-thrds (2/3) of the
outstandng capta stock, n exchange for property
needed for corporate purposes or n payment of a
prevousy contracted debt.
Section 4&. Sae or other dsposton of assets.
- Sub|ect to the provsons of exstng aws on ega
combnatons and monopoes, a corporaton may, by a
ma|orty vote of ts board of drectors or trustees, se,
ease, exchange, mortgage, pedge or otherwse dspose
of a or substantay a of ts property and assets,
ncudng ts goodw, upon such terms and condtons
and for such consderaton, whch may be money,
stocks, bonds or other nstruments for the payment of
money or other property or consderaton, as ts board of
drectors or trustees may deem expedent, when
authorzed by the vote of the stockhoders representng
at east two-thrds (2/3) of the outstandng capta stock,
or n case of non-stock corporaton, by the vote of at
east to two-thrds (2/3) of the members, n a
stockhoder's or member's meetng duy caed for the
purpose. Wrtten notce of the proposed acton and of
the tme and pace of the meetng sha be addressed to
each stockhoder or member at hs pace of resdence as
served personay: Provded, That any dssentng
stockhoder may exercse hs apprasa rght under the
condtons provded n ths Code.
A sae or other dsposton sha be deemed to cover
substantay a the corporate property and assets f
thereby the corporaton woud be rendered ncapabe of
contnung the busness or accompshng the purpose
for whch t was ncorporated.
After such authorzaton or approva by the stockhoders
or members, the board of drectors or trustees may,
nevertheess, n ts dscreton, abandon such sae, ease,
exchange, mortgage, pedge or other dsposton of
property and assets, sub|ect to the rghts of thrd partes
under any contract reatng thereto, wthout further
acton or approva by the stockhoders or members.
Nothng n ths secton s ntended to restrct the power
of any corporaton, wthout the authorzaton by the
stockhoders or members, to se, ease, exchange,
mortgage, pedge or otherwse dspose of any of ts
property and assets f the same s necessary n the usua
and reguar course of busness of sad corporaton or f
the proceeds of the sae or other dsposton of such
property and assets be approprated for the conduct of
ts remanng busness.
In non-stock corporatons where there are no members
wth votng rghts, the vote of at east a ma|orty of the
trustees n offce w be suffcent authorzaton for the
corporaton to enter nto any transacton authorzed by
ths secton.
Section 41. Power to acqure own shares. - A
stock corporaton sha have the power to purchase or
acqure ts own shares for a egtmate corporate
purpose or purposes, ncudng but not mted to the
foowng cases: Provded, That the corporaton has
unrestrcted retaned earnngs n ts books to cover the
shares to be purchased or acqured:
1. To emnate fractona shares arsng out of stock
dvdends;
2. To coect or compromse an ndebtedness to the
corporaton, arsng out of unpad subscrpton, n a
denquency sae, and to purchase denquent shares
sod durng sad sae; and
3. To pay dssentng or wthdrawng stockhoders entted
to payment for ther shares under the provsons of ths
Code. (a)
Section 42. Power to nvest corporate funds n
another corporaton or busness or for any other
purpose. - Sub|ect to the provsons of ths Code, a
prvate corporaton may nvest ts funds n any other
corporaton or busness or for any purpose other than
the prmary purpose for whch t was organzed when
approved by a ma|orty of the board of drectors or
trustees and ratfed by the stockhoders representng at
east two-thrds (2/3) of the outstandng capta stock, or
by at east two thrds (2/3) of the members n the case
of non-stock corporatons, at a stockhoder's or
member's meetng duy caed for the purpose. Wrtten
notce of the proposed nvestment and the tme and
pace of the meetng sha be addressed to each
stockhoder sha have apprasa rght as provded n ths
Code: Provded, however, That where the nvestment by
the corporaton s reasonaby necessary to accompsh
ts prmary purpose as stated n the artces of
ncorporaton, the approva of the stockhoders or
members sha not be necessary. (17 1/2a)
Stock corporatons are prohbted from retanng surpus
profts n excess of one hundred (100%) percent of ther
pad-n capta stock, except: (1) when |ustfed by
defnte corporate expanson pro|ects or programs
Section 44. Power to enter nto management
contract. - No corporaton sha concude a management
contract wth another corporaton uness such contract
sha have been approved by the board of drectors and
by stockhoders ownng at east the ma|orty of the
outstandng capta stock, or by at east a ma|orty of the
members n the case of a non-stock corporaton, of both
the managng and the managed corporaton, at a
meetng duy caed for the purpose: Provded, That (1)
where a stockhoder or stockhoders representng the
same nterest of both the managng and the managed
corporatons own or contro more than one-thrd (1/3) of
the tota outstandng capta stock entted to vote of the
managng corporaton; or (2) where a ma|orty of the
members of the board of drectors of the managng
corporaton aso consttute a ma|orty of the members of
the board of drectors of the managed corporaton, then
the management contract must be approved by the
stockhoders of the managed corporaton ownng at
east two-thrds (2/3) of the tota outstandng capta
stock entted to vote, or by at east two-thrds (2/3) of
the members n the case of a non-stock corporaton. No
management contract sha be entered nto for a perod
onger than fve years for any one term.
The provsons of the next precedng paragraph sha
appy to any contract whereby a corporaton undertakes
to manage or operate a or substantay a of the
busness of another corporaton, whether such contracts
are caed servce contracts, operatng agreements or
otherwse: Provded, however, That such servce
contracts or operatng agreements whch reate to the
exporaton, deveopment, expotaton or utzaton of
natura resources may be entered nto for such perods
as may be provded by the pertnent aws or reguatons.
(n)
Section 4#. Utra vres acts of corporatons. -
No corporaton under ths Code sha possess or exercse
any corporate powers except those conferred by ths
Code or by ts artces of ncorporaton and except such
as are necessary or ncdenta to the exercse of the
powers so conferred. (n)
Secton 36
Where shoud the corporaton be sued?
- prncpa offce s mportant because t
estabshes the resdence of the corporaton and
determnng servce of summons, venue of acton
- t can be sued n the cty or muncpaty where
ts prncpa offce s found
Prncpa offce s aso mportant for venue of
meetngs
Non-stock corporaton may provde n ts by-
aws that the venue of meetng be anywhere n the
Phppnes
Upon whom servce of summons be made?
- Secton 11. Servce upon domestc prvate
|urdca entty- when the defendant s a corporaton,
partnershp or assocaton organzed under the aws of
the Phppnes wth a |urdca personaty, servce may
be made upon the presdent, managng partner, genera
manager, corporate secretary, treasurer, or n house
counse.
Deta motor vs. Mangosng
- strct compance s necessary
- shoud be served to those named n the statute
- secretary of a dept are not those ncuded n
the statute
E.B. Varosa vs. Bento
- decson En Banc repeas a other
pronouncement
- secton 13 Rue 14 was repeaed
- the od rues was ambguous and broad and at
a tme ogca
the partcuar revson under Secton 11 of Rue
14 was expaned by retred Supreme Court |ustce
Forenz Regaado, thus:
"xxx the then secton 13 of ths Rue aowed servce
upon a defendant corporaton to "be made on the
presdent, manager, secretary, casher, agent or any of
ts drectors." The aforesad terms were obvousy
ambguous and susceptbe of broad and sometmes
ogca nterpretatons, especay the word "agent" of
the corporaton. The Fo case, nvovng the tgaton
awyer of the corporaton who precsey appeared to
chaenge the vadty of servce of summons but whose
very appearance for that purpose was sezed upon to
vadate the defectve servce, s an ustraton of the
need for ths revsed secton wth mted scope and
specfc termnoogy. Thus the absurd resut n the Fo
case necesstated the amendment permttng servce
ony on the n-house counse of the corporaton who s n
effect an empoyee of the corporaton, as dstngushed
from an ndependent practtoner."
o notes: addtona knowedge
- speca appearance enter for that partcuar
appearance you are not the counse n the case
- woud appy ony f t does not nvove an ntra-
corporate controversy (controversy between and among
the stockhoders)
- upon any of the statutory offcers or offcers
fxed n the by-aws any secretary, any of the drectors;
any managers n the by-aws
Sea
- merey mnstera or permssve
Power to amend
- secton 16
- speca 37,38,120
Power to adopt by-aws
- secton 46-48
Power to ssue or se stocks and to admt
members
- stock of stockhoders and provson governng
non-stock
Power to acqure or aenate rea or persona
property
- s there any mtaton? YES
- Two specfc mtaton
1. Secton 36, as awfu transactons of busness of
the corporaton may reasonaby and necessary requre
2. Consttuton and aw
Luneta vs. A.D. Santos
- Importance of the purpose cause
- Cannot have the power to acqure
- Cannot engage n and transportaton
- Doctrne of mted capacty
Govt vs. E Hogar
- As the awfu transacton of ts busness may
reasonaby represent
Drector of Lands vs. CA
- Excepton to the rue n the consttuton
- Aenabe pubc and
- Converts the property to a prvate and
automatcay once converted t can now be regstered
Power to make donaton
- Lmtaton secton 36 par.9
- These are crcumstances, however, under
whch a donaton by a corporaton may be to ts beneft
as a means of ncreasng ts busness or promotng
patronage. Thus, paragraph 9 of secton 36 expressy
authorzes a corporaton to make donatons. The ony
mtatons mposed are the foowng:
1. The donaton must be "reasonabe";
2. It must be for pubc wefare, or for hospta,
chartabe, scentfc, cutura or smar purpose; and,
3. It sha not be n ad of potca party or
canddate, or for purposes of partsan potca actvty.
Power to estabsh penson
- Incude any act to promote and mprove the
convenence, wefare and beneft of the empoyees or
offces
Repubc vs. Aco|e
- Whe as a rue an utra-vres act s one
commtted outsde the ob|ect for whch a corporaton s
created as defned by aw, there are however certan
corporate acts that may be performed outsde of the
scope of the powers expressy conferred f they are
necessary to promote the nterest or wefare of the
corporaton. Thus, t has been hed that "athough not
expressy authorzed to do so a corporaton may become
a surety where the partcuar transacton s reasonaby
necessary or proper to the conduct of ts busness," and
here t s undsputed that the estabshment oca post
offce s a reasonabe and proper ad|unct to the conduct
of the busness of appeant company. Indeed, such post
offce s a vta mprovement n the vng condton of ts
empoyees and aborers who came to sette n ts mnng
camp whch s far removed from the posta factes or
means of communcaton accorded to peope vng n a
cty or muncpaty.
Power to exercse such other powers essenta
or necessary to carry out ts purpose (mped power)
1. Acts n the usua course of busness;
2. Acts to protect debts owng to the corporaton;
3. Embarkng n a dfferent busness;
4. Acts n part or whoy to protect or ad
empoyees; and,
5. Acts to ncrease busness
Teresa Eectrc and Power Co. vs. P.S.C.
- Examned the artces of ncorporaton to arrve
at ts decson
Natona Power vs. Vera
- For purpose of prohbtng the NAPOCOR
- The court must decde whether or not a ogca
and necessary reaton exsts between the act
questoned and the corporate purpose expressed n the
NPC charter
Importance of PLACE of regstraton
- Resdence
- Venue
- Pace of meetngs
- Pace or regstraton of chatte mortgage
Power to extend ts terms
- Once ts term expres, aready dssoved
automatcay, thus can no onger ask for extenson
- After dssouton, t has 3 years to wndup
What are the modes of ncreasng capta stock?
1. Increasng the par vaue of the exstng number
of shares wthout ncreasng the number of shares;
2. Increasng the number of exstng shares
wthout ncreasng the par vaue thereof; and,
3. Increasng the number of exstng shares and at
the same tme ncreasng the par vaue of the shares.
Why a corporaton ncreases t capta stock?
- Generate funds, busness expanson, or
payment of abtes, purposes of acqurng other
busness. (exampe: to buy cars for the offcers, purpose
of acqurng other busness, expanson, other vad
reasons)
How do you decrease capta stock and why a
corporaton decreases?
- Reduce or wpeout exstng defct where no
credtors woud thereby be effected
- When capta s more than necessary to
procreate the busness or reducton of capta surpus
- To wrte down the vaue of ts fxed assets to
refect those present and actua
o NOTE: any ncrease or decrease of capta stock
requres approva of government agency ke SEC t can
never take pace uness SEC approves the same
Reevance of decrease of capta?
1. To reduce or wpe out exstng defct where no
credtors woud thereby be affected;
2. When the capta s more than what s
necessary to procreate the busness or reducton of
capta surpus; or,
3. To wrte down the vaue of ts fxed assets to
refect there present actua vaue n case where there s
a decne n the vaue of the fxed assets of the
corporaton.
- Exampes: Php 10M capta for grocery
busness, mayor ddnt want to ssue cense/permt
because mayor has 3 other grocery stores, ony aowed
sar-sar store permt, reduce capta for sar-sar so that
the money w not seep n bank
- Exampe: car renta agences-Php 10M capta
for 20 taxs, after some tme each tax s ony 250K,
nagmura ang tax, to reduce capta s to show actua
assets
Lmtaton mposed by aw
- Decrease sha not n any way affect the rghts
of the credtors
Phppne Trust Company vs. Rvera
- Wthout the apprasa of SEC, a decrease n
capta stocks has no effect
TRUST FUND DOCTRINE:
- Subscrpton to capta stock of a corporaton
consttute a fund to whch the credtors have a rght to
ook upon for satsfacton of ther cams and that the
assgnee n nsovency can mantan an acton upon any
unpad stock subscrpton n order to reaze assets for
the payment of ts debts.
Madrga vs. Zamora
- Decrease n capta has a subterfuge to evade
payment
- Thus not vad and effectve
- Must not pre|udce credtors whch ncudes the
empoyees
Bond
- Commony understood as an obgaton of a
state, ts subdvson or a prvate corporaton,
represented by a certfcate or an nstrument for the
prncpa and by detachabe coupons for the payment of
nterests. In ts smpest term, t s one where an obgor
obges hmsef to pay a certan sum of money to
another at a day named.
- There are dfferent knds of bond but before
they may be ssued or foated by the corporaton, the
same must be regstered and approved by the SEC
sub|ect to the rues and reguatons that may be adopted
by that agency. The procedure and requrements set
forth n secton 38 s the same as n ncreasng or
decreasng the capta stock except that the certfcate
does not have to state the matters requred n sub-
secton 2 & 3 thereof.
Pre-emptve rghts
- A rght granted by aw to a exstng
stockhoders of a stock corporaton to subscrbe to a
ssues or dsposton of shares of any cass, n proporton
to ther respectve stockhodngs, sub|ect ony to the
mtatons mposed under secton 39 of the Code.
- Internatonay granted
Pre-emptve rghts, why t s granted?
- In order that the exstng stockhoders may
mantan ther proportonate rght as not to dute ther
rght
Power to deny pre-emptve rghts
May t be dened? How?
- Yes, f provded by artces of ncorporaton or
by an amendment
- However, pre-emptve rghts s unavaabe to
shares n tradng n stock exchange otherwse
stockhoders must wave frst ther rght before they may
se such.
Exceptons
1. When the shares to be ssued s n compance
wth aws requrng stock offerngs or mnmum stock
ownershp by the pubc
2. Shares to be ssued n good fath wth the
approva of the stockhoders representng 2/3 of the
outstandng capta stock ether
a. In exchange for property needed for corporate
purpose or,
b. In payment of a prevousy contracted debt
- The exceptons, however w not appy to
stockhoders of a cose corporaton by vrtue of a
subsequent and specfc provson of the Code whch
provdes that the "pre-emptve rght of a stockhoder n
a cose corporaton sha extend to a stock to be ssued,
ncudng ressuance of treasury shares, whether for
money, property or persona servces or n payment of a
corporate debt, uness the artces of ncorporaton
provde otherwse, f not entrey absoute, n that t
extends to a ssuance and dsposton of shares
- Such rght of pre-empton may be ost by
waver of the stockhoder, expressy or mpedy by hs
nabty or faure to exercse t after havng been
notfed of the proposed ssuance or dsposton of shares
When s t unavaabe?
- In shares traded openy n stock
exchange/market
Is t appcabe to cose corporatons?
- See secton 96, cose corporatons must provde
t frst on ts artces of ncorporaton, that ts artces
does not reay deny such pre-emptve rghts.
Secton 102, w not appy to cose corporatons
The rght of pre-emptve rghts s absoute n
cose corporatons
"A ssues or depostng shares of any cass" form part of
ACS
Certan nstances when a stockhoder may
nevertheess be unabe to exercse ths rght:
- Issued for pubc ownershp
- Issued n good fath, wth approva of 2/3 of
outstandng capta stock ether a) n exchange for
property needed or b) for payment of a prevousy
contracted debt
Pre- emptve rghts of stockhoders n ordnary
stock corporatons may be dened
- f the shares are to be ssued n compance
wth aws requrng stock offerng or mnmum stock
ownershp by the pubc
- In exchange for property needed for corporate
purposes
- In payment of prevousy contracted debts
Ths rue, however, does not appy n a cose
corporaton as the pre-emptve rghts of the
stockhoders thereof s broadened to ncude a ssues
wthout exceptons uness, of course, dened or mted
by the artces of ncorporatons. Secton 102 provdes:
Section 1&2. Pre-emptve rght n cose
corporatons. - The pre-emptve rght of stockhoders n
cose corporatons sha extend to a stock to be ssued,
money, property or persona servces, or n payment of
corporate debts, uness the artces of ncorporaton
provde otherwse.
Dena w not appy to a cose corporaton,
ABSOLUTE
- secton 96
May a stock hoder n a cose corporaton nsst
n the exercse of hs pre-emptve rghts?
- Yes, secton 102
What type or shares are covered by pre-
emptve rghts?
Does t ncude those orgnay unsubscrbed?
- NO. Bento vs. SEC
W the stockhoders be abe to exercse ther
pre-emptve rght wth respect to the od unssued
shares?
- Pre-emptve rghts s appcabe ony to new
ssued shares and not to the od unssued shares
because t s presumed that the orgna subscrbers s
deemed to have taken hs shares knowng that they
form a defnte proportonate part of the whoe number
of authorzed shares
- When the shares, eft unsubscrbed are re-
offered, he cannot therefore cam. DILUTION OF
INTEREST
W the acqurng purchaser be abe for debts
of the former corporaton?
- Generay no, corporate entty theory because
there may be nstances when purchasng corporaton
may be hed abe
May a corporaton acqure ts own shares?
- Yes
Is there any restrcton provded for by aw n
reacqurng ts own shares?
- Yes, t must have been unrestrcted retaned
earnngs appearng n the books of corporaton
A corporaton can never acqure ts own shares
f t has no unrestrcted retaned earnngs
- Fase, excepton cose corporaton and
redeemabe shares
EXAMPLE:
ACS 2M
SUBSCRIBED 1M
PAID UP 1M
1 100K
2 100K
TO
10 100K
If 1-5 became 200K each, may 6-10 demand
the exercse ther pre-emptve rght?
- YES
May 1-5 subscrbe to the unsubscrbed capta
stock to the excuson of 6-10?
- If a corporaton makes 2M unrestrcted retaned
earnngs, t s the shares and not the number of persons
that matters
May 6-10 compan for a duton of ther
nterest?
- YES, ts an nternatonay recognzed rght
because t ncudes "a ssues and dsposton of shares
of any cass" and a knds of shares new or od
- If the remanng unsubscrbed shares are
ssued, ts an ssuance of any cass
May a corporaton se/dspose a or
substantay a of ts corporate assets and abtes?
- YES
- 1) RESOLUTION 2) AUTHORIZATION 3)
RATIFICATION 4) PRIOR WRITTEN NOTICE 5) SALE
SUB|ECT TO PROVISIONS OF EXITING LAWS 6)
DISSENTING STOCKHOLDERS HAVE THE RIGHT TO
EXERCISE THEIR APPRAISAL RIGHT
If a corporaton ses substantay a of t assets
and propertes, w the buyer assume abty?
- NO, EXCEPT
1) Express or mped agreement to the purchase
2) Where the transacton amounts to consodaton
or merger of the corporatons
3) When purchasng corporaton s merey a
contnuaton of the seng corporaton
4) Where the transacton s entered nto
frauduenty n order to escape abty for such debt
Legtmate purpose: for a corporaton to
reacqure ts own shares
- Lmtaton: t must have surpus/unrestrcted
retaned earnngs
- Excepton: may redeem rrespectve of
unrestrcted retaned earnngs
1) Exercse of stockhoders rght to compe "cose
corporaton" to purchase hs shares
2) Where corporaton has suffcent assets n ts
books to cover ts debts and abtes excusve of
capta stock
ACS 1M
SUBSRIBED 1M
PAID-UP 1M
ASSETS 500K
1M PROFITS
- 500K LIABILITIES
____________________
500K RESERVES IN A CLOSE
CORPORATION IT CAN USE THIS TO REACOUIRE ISSUED
STOCKS
X - REALTY CORPORATION
THE ONLY PROPERTY OF THE CORPORATION
BOARD OF DIRECTORS DECIDED TO SELL IT
W t need the approva of the stockhoders?
- NO, f the same s necessary n the usua and
reguar course of busness of sad corporaton or f the
proceeds of the sae or other dsposton of such
property and assets be approprated for the conduct of
ts remanng busness
If X s a manufacturng company, then t can
se ts ony property upon approva of the stockhoders
because t w render tsef capabe of contnung ts
busness, BUT f the proceeds w be used to purchase a
better one for the contnuance of ts busness, then t
does not need the approva of the stockhoders
Condtons for the vad exercse of ths power
are the foowng
1. Resouton by the ma|orty vote of the board of
drectors/trustees
2. Authorzaton from the stockhoders
representng at east 2/3 of the outstandng capta stock
or 2/3 of the members;
3. The ratfcaton of the stockhoders or members
must be made at a meetng duy caed for that purpose
4. Pror wrtten notce of the proposed acton and
of the tme and pace of meetng must be made
addressed to a stockhoders of record, ether by ma or
persona servce;
5. The sae of the assets sha be sub|ect to the
provsons of exstng aws on ega combnatons and
monopoes
6. Any dssentng stockhoder sha have the
opton to exercse hs apprasa rght
IDP vs. CA
- Consent of the members was not secured
Edward Ne Co. vs. Pacfc Farms
- Generay where one corporaton ses or
otherwse transfers a of ts assets to another
corporaton, the atter s not abe for the debts and
abtes of the transferor, except:
1. Where the purchaser expressy or mpedy
agrees to assume such debts;
2. Where the transacton amounts to a
consodaton or merger of the corporatons;
3. Where the purchasng corporaton s merey a
contnuaton of the seng corporaton;
4. Where the transacton s entered nto
frauduenty n order to escape abty for such debts.
Power to acqure own shares
unrestrcted retaned earnngs n ts books to cover the
shares to be purchased or acqured:
dvdends;
Code. (a)
The corporaton must at a tmes have
"unrestrcted retaned earnngs" to exercse ths
corporate power
Stenberg vs. Veasco
- For as ong as there are debts and abtes, a
corporaton may not reacqure ts shares (sub|ect to
exceptons)
- Credtors of a corporaton have the rght to
assume that so ong as there are outstandng debts and
abtes, the board of drectors w not use the assets of
the corporaton to purchase ts own stock, and that t w
not decare dvdends to stockhoders when the
corporaton s nsovent.
Power to nvest funds <sec.42>
Section 42. Power to nvest corporate funds n
another corporaton or busness or for any other
purpose. - Sub|ect to the provsons of ths Code, a
prvate corporaton may nvest ts funds n any other
corporaton or busness or for any purpose other than
the prmary purpose for whch t was organzed when
approved by a ma|orty of the board of drectors or
trustees and ratfed by the stockhoders representng at
east two-thrds (2/3) of the outstandng capta stock, or
by at east two thrds (2/3) of the members n the case
of non-stock corporatons, at a stockhoder's or
member's meetng duy caed for the purpose. Wrtten
notce of the proposed nvestment and the tme and
pace of the meetng sha be addressed to each
stockhoder sha have apprasa rght as provded n ths
Code: Provded, however, That where the nvestment by
the corporaton s reasonaby necessary to accompsh
ts prmary purpose as stated n the artces of
ncorporaton, the approva of the stockhoders or
members sha not be necessary. (17 1/2a)
- For any other purpose other than the prmary
purpose, stockhoders consent or approva s necessary
- Thus, f ts for the secondary purpose, t s
necessary
- If ts n connecton wth the prmary purpose,
ony board resouton s necessary
Requrements and steps to be foowed for a
vad nvestment of corporate funds are:
1. Resouton by the ma|orty of the board of
drectors or trustees;
2. Ratfcaton by the stockhoders representng at
east 2/3 of the outstandng capta stock or 2/3 of the
members n case of non-stock corporatons;
3. The ratfcaton must be made at a meetng
duy caed for that purpose;
4. Pror wrtten notce of the proposed nvestment
and the tme and pace of the meetng sha be made,
addressed to each stockhoder or member by ma or by
persona servce, and;
5. Any dssentng stockhoder sha have the
opton to exercse hs apprasa rght
Dea rama vs. Ma-ao Sugar
- There s a substanta and not remote
connecton between the sugar bags and the sugar
manufacture, thus stockhoders approva s not
necessary for vadty
- A prvate corporaton, n order to accompsh ts
purpose as stated n ts artces of ncorporaton, and
mposed by the Corporaton Law, has the power to
acqure, hod, mortgage, pedge, or dspose of shares
bonds, securtes and other evdences of ndebtedness of
any domestc or foregn corporaton. Such an act, f done
n pursuance of the corporate purpose, does not need
the approva of the stockhoders; but when the purchase
of shares of another corporaton s done soey for
nvestment and not to accompsh the purpose of ts
ncorporaton, the vote of approva of the stockhoders s
necessary.
Gokongwe vs. SEC
- Investments made by SMC s necessary
connected wth ts prmary purpose and ths was ratfed
n a meetng
- Submsson of prevous acton s a sound
corporate practce
Redeemabe shares
Cosed corporaton (see secton 105)
- For any reason, compe the vaue of shares
"wthdrawa shares" provded corporaton has suffcent
funds to cover ts debts and abtes
Section 1&#. Wthdrawa of stockhoder or
dssouton of corporaton. - In addton and wthout
pre|udce to other rghts and remedes avaabe to a
stockhoder under ths Tte, any stockhoder of a cose
corporaton may, for any reason, compe the sad
corporaton to purchase hs shares at ther far vaue,
whch sha not be ess than ther par or ssued vaue,
when the corporaton has suffcent assets n ts books to
cover ts debts and abtes excusve of capta stock:
Provded, That any stockhoder of a cose corporaton
may, by wrtten petton to the Securtes and Exchange
Commsson, compe the dssouton of such corporaton
whenever any of acts of the drectors, offcers or those
n contro of the corporaton s ega, or frauduent, or
dshonest, or oppressve or unfary pre|udca to the
corporaton or any stockhoder, or whenever corporate
assets are beng msapped or wasted.
If shares are reacqured, what happens?
- It becomes treasury shares
Stockhoders consent/ approva s not
necessary and mere board acton s suffcent f n
accordance wth prmary purpose
The ogca reaton of act done and prmary
purpose of corporaton and between the board of
drectors to undertake submsson of acts s a sound
corporate practce
Dvdends
What are dvdends?
- Corporate profts set asde, decared and
ordered by the Board of Drectors to be pad to the
stockhoders.
What are property dvdends?
- Those pad n property surpus
Lke tabes and chars? Can tabes and chars
make surpus profts?
- No, they do not make surpus, bonds, etc.
Where shoud dvdends come from?
- Stock dvdends are decared as stocks comng
from corporaton
Who decares dvdends to be decared? Do
stockhoders have any say?
- Board of Drectors, f stock approva of 2/3
outstandng capta stock
ACS-1M SUB-1M P.U.-1M 1M-U.R.E. (surpus
profts of the corporaton)
1-100k
2-100k
To
10-100k
1M
Board decdes to decare 1M, how much w
each receve? May the board decare stock dvdend
- NO. that woud be over ssuance of shares,
voaton of securtes reguaton code
- It must have a free porton
- The corporaton may ncrease ts capta
Z co. 1M to X Co. s 2/3 of Xco. Stockhoders
reacqured?
- No, because n property 2/3 s not requred
What s the effect of decaraton of dvdends
wth regards to the assets of a company?
- As compared to stock dvdends, the
decaraton of cash or property dvdends have the effect
of reducng corporate assets to the extent of dvdends
decared.
- Nether woud stock dvdends ncrease the
proportonate nterest of the stockhoders of the
corporaton athough t w have the effect of ncreasng
the subscrbed and pad-up capta of the corporaton. It
gves the stockhoders nothng n the way of dstrbuton
of assets but merey dvdes hs exstng shares nto
smaer unts.
Earnngs beong to the corporaton unt
decared or gven
Revocaton
- No revocaton of dvdend may be has uness t
has not been offcay communcated to the
stockhoders or s n the form of stock dvdends whch s
revocabe at any tme pror to dstrbuton.
Stock dvdends- no reducton, you captaze
your restrcted retaned earnngs, what s ssued s a
pece of paper. The restrcted earnngs reman n the
corporaton
Cash and property- reduces corporate assets
Stock dvdends ncrease corporate assets? No,
t w ony have the effect of ncreasng the subscrbed
and pad-up capta of the corporaton
W there be a correspondng ncrease n ther
proportonate nterest?
- REMAINS THE SAME
- Excepton: when stock dvdends w resut n a
fractona share
ACS-2M 1-100K 200 (10%)
*VOTING AND DIVIDEND RIGHTS STILL THE
SAME
SUB-1M TO
10%
PU-1M 10-100K
ACS 2M
SUB 1M
PU 1M
1M RE
1 100K
2 100K
TO
10 100K
1M
May they be compeed?
- NO. You cannot decare f t does not come from
unrestrcted retaned earnngs.
1. 1M-U.R.E. (s t true there s no way to compe?)
2. 2M-U.R.E.
May they be compeed to decare dvdends
- Mandatory f earned, the board may be
compeed to decare dvdends
- f exceeds 100% of the pad-up capta the
boards may be compeed
ACS 2M 1M U.R.E.
SUB 1M
PU 800K
1-100K 50K PU
2-100K 50K
TO
10-100K
1M
W 1 and 2 receve fu amount of dvdends?
- YES. They are entted however f they are
decared denquent, the amount due them sha frst be
apped to hs denquency pus expenses.
Denquency occurs, you are caed to pay, but
you faed to pay. In case of stock dvdend, the
denquent stock hoder w not be entted thereto unt
he has pad hs subscrpton n fu.
Are non-stockhoders entted to receve
dvdends?
- No, tock dvdends are cv fruts of the orgna
nvestment, and to the owners of the shares beong the
cv fruts.
How dd the court decde dvdends n the case
of Nesen
- Stock dvdends cannot be ssued to a person
who s not a stockhoder n payment of servces
rendered.
- Whether cash, property or stock, ony
stockhoders may receve dvdends. Dvdends are fruts
of nvestments. They come from the U.R.E. or surpus
profts of the corporaton.
ACS 2M 1M U.R.E.
SUB 1M |ULY 24 DECLARATION |ULY
31
PU 1M
1 100K 100T |ULY 26-Y(NEW ONE WAS
DECLARED TO Y) |ULY 30- 100K
2
TO TO HAVE THE TRANSFER
RECORDED
10 100K
1M
Insofar as 1 and Y who has a better rght?
Aready decared, but not yet pad?
- Rght to receve vest upon decaraton. Who
ever owns at the tme of decaraton owns the dvdends
- Uness there s a stpuaton to the contrary
TRUST FUND DOCTRINE
- The power to decare t f pad-up capta s not
mantaned or s mpared
- Trust fund must be kept ntact for the protecton
of credtors who have the rght to rey on such
subscrpton and the pad-up capta for the satsfacton
of ther cams
Cannot accumuate surpus unreasonaby
Bass s the pad-up capta
Entted to dvdends
Irrespectve of whether the subscrpton s fu
Iegay decared
- Decare dvdend wth the beef that t formed
part of the U.R.E., but yun paa sa capta
Drectors are not abe, uness sec31 acted n
bad fath or gross neggence n the conduct of corporate
affars
Drectors even f actng n behaf of the
corporaton, may st be hed sodary abe
Power to enter nto management contract
- New provson
Section 44. Power to enter nto management
contract. - No corporaton sha concude a management
contract wth another corporaton uness such contract
sha have been approved by the board of drectors and
by stockhoders ownng at east the ma|orty of the
outstandng capta stock, or by at east a ma|orty of the
members n the case of a non-stock corporaton, of both
the managng and the managed corporaton, at a
meetng duy caed for the purpose: Provded, That (1)
where a stockhoder or stockhoders representng the
same nterest of both the managng and the managed
corporatons own or contro more than one-thrd (1/3) of
the tota outstandng capta stock entted to vote of the
managng corporaton; or (2) where a ma|orty of the
members of the board of drectors of the managng
corporaton aso consttute a ma|orty of the members of
the board of drectors of the managed corporaton, then
the management contract must be approved by the
stockhoders of the managed corporaton ownng at
east two-thrds (2/3) of the tota outstandng capta
stock entted to vote, or by at east two-thrds (2/3) of
the members n the case of a non-stock corporaton. No
management contract sha be entered nto for a perod
onger than fve years for any one term.
The provsons of the next precedng paragraph
sha appy to any contract whereby a corporaton
undertakes to manage or operate a or substantay a
of the busness of another corporaton, whether such
contracts are caed servce contracts, operatng
agreements or otherwse: Provded, however, That such
servce contracts or operatng agreements whch reate
to the exporaton, deveopment, expotaton or
utzaton of natura resources may be entered nto for
such perods as may be provded by the pertnent aws
or reguatons. (n)
The requrement for a vad management
contract are as foows:
1. Resouton of the board of drectors
2. Approva by the stockhoders hodng or
representng a ma|orty of the outstandng capta stock
or ma|orty of the members n case of non-stock
corporaton of both the managng and the managed
corporaton
3. The approva of the stockhoders or members
must be made at the meetng caed for that purpose
4. The contract sha not be for a perod onger
than 5 years for any one term, except those whch reate
to exporaton, deveopment or utzaton of natura
resources whch may be entered nto for such perods as
may be provded by pertnent aws and reguatons
Every corporate act emanates from the BOARD
Is the votng requrements of a ma|orty
stockhoder ABSOLUTE?
- Not ony a ma|orty but 2/3 of the outstandng
capta stock or 2/3 of the members n a non-stock
corporaton woud be requred for the approva of a
management contract n the foowng nstances:
1. Where the stockhoders representng the same
nterest of both the managng and managed corporaton
own or contro more than 1/3 of the tota outstandng
capta stock of the managng corporaton; and
2. Where a ma|orty of the members of the board
of drectors of the managng corporaton aso consttute
a ma|orty of the drectors of the managed corporaton
3. Where the contract woud consttute the
management or operaton of a or substantay a of the
busness of another corporaton, whether such contracts
are caed servce contracts. If t w not consttute the
management of a or substantay a of the busness of
another corporaton the frst paragraph of secton 44 w
appy and not that of the second, that s, ony the vote of
the stockhoders hodng or representng at east a
ma|orty of the outstandng capta stock or ma|orty of
the members n the case of non-stock corporaton w be
requred.
How ong?
- Not onger than 5 years for any one term
- Excepton: exporaton, deveopment or
utzaton of natura resources
What s an utra-vres act or contract?
- Doctrne of mted capacty. Corporaton can do
such acts and thngs as t s aowed to do
- Acts beyond t w be utra vres, aowng a
coatera attack
- If not ega per se merey vodabe. Can be
ratfed expressy or mpedy or even stopped as
equtabe grounds
- Utra-vres acts whch are not ega per se may
become bndng and enforceabe ether by satsfacton,
estoppes or equtabe grounds
Consequences of utra-vres acts?
1. On the corporaton tsef
- The proper forum, n accordance wth the
provsons of PD 902-A, as amended and R.A. No. 8799
may suspend or revoke, after proper notce and hearng,
the franchse or certfcate of regstraton of the
corporaton for serous msrepresentaton as to what the
corporaton can do or s dong to the great damage or
pre|udce of the genera pubc
2. On the rghts of the stockhoders
- A stockhoder may brng ether an ndvdua or
dervatve sut to en|on a threatened utra-vres act or
contract. If the act or contract has aready been
performed, a dervatve sut for damages aganst the
drectors may be fed, but ther abty w depend on
whether they acted n good fath and wth reasonabe
dgence n enterng nto the contract.
3. On the mmedate partes
- The courts have not agreed as to the ega
effect of a corporate contract outsde of ts authorzed
busness but Baatne gves the foowng summary of
the doctrnes evoved:
a. If the contract s fuy executed on both sdes,
the contract s effectve and the courts w no nterfere
to deprve ether party of what has been acqured under
t
b. If the contract s executory on both sdes, as a
rue, nether party can mantan an acton for ts non-
performance
c. Where the contract s executor on one sde
ony, and has been fuy performed on the other, the
courts dffer as to whether an acton w e on the
contract aganst the party who has receved benefts of
performance under t. Ma|orty of the courts, however,
hod that the party who has receved benefts from the
performance s estopped to set up that the contract s
utra-vres to defeat an acton on the contract. Ths s
more n conformty wth the doctrne that no person sha
be aowed to enrch hmsef at the expense of another
Prvano vs. Dea Rama
- Court ooked nto the purpose cause
- The purpose cause empowers and mts
- Artces kewse provde that t may dea wth
any of ts money
- "dea" broad enough to cover the donaton t s
not then utra-vres
- Not ega per se hence (aw of agency) excess
powers are sub|ect to ratfcaton
- Ratfed by passng the resouton n queston
Caros vs. Mndoro sugar Co.
- PTC- trust company as such, t aso has mped
powers as to make them more attractabe
- Not utra-vres n pursuance of ts egtmate
busness
|apanese war notes vs. SEC
- Non-stock corporatons cannot make profts and
dstrbute profts to ts sharehoders
- Utra-vres because |apanese war notes s a
non-stock corporaton
Crsoogo-|ose vs. CA (ALWAYS ASKED BY DEAN
SUNDIANG)
- The negotabe nstruments aw whch hods an
accommodaton party abe on the nstrument to a
hoder for vaue, athough such hoder at the tme of
takng the nstrument knew hm to be ony an
accommodaton party, does not ncude nor appy to
corporatons whch are accommodaton partes. Ths s
because the ssue or ndorsement of negotabe paper by
a corporaton wthout consderaton and for the
accommodaton of another s utra-vres
- Corporate offcers may guarantee or endorse
an accommodaton ony f specfcay authorzed
Secton 36 paragraph 11
Secton 10
Secton 14 and 15
Corporate powers depend on the agreement of
the stockhoders rather than any drector
- It may se and t may guarantee, contract not
necessary ega, t w n the absence of proof to the
contrary presumed wthn ts power. Corporatons are
presumed to contract wth n ts powers- CARLOS CASE
- Purpose cause may be stretched to cover PLDT
nternet. It may be wthn ts busness.
- May t se computers? NO! other ne of
busness. Its tradng!
B/0LAWS
By-Laws
- Rue adopted by the corporaton for ts nterna
governance
Is the adopton of by-aws mandatory?
When shoud the by-aws be adopted or fed?
Can t not be adopted earer?
- After ncorporaton- wthn 1 month (emanates
from the BOARD)
- Pror-more convenent (sgned by the
ncorporators)
Who w sgn the adopton cause?
- Ma|orty of the stockhoders or members
attested to by the corporate secretary
What happens f the corporaton fas to adopt
the by-aws from the te provded by the aw? Woud
there be an automatc revocaton or suspenson?
- Proper notce and hearng, must frst be
comped wth
Loyoa grand vas vs. CA
- Not the SEC, but the HIGC
- Must - not aways mperatve
- Fng of by-aws mandatory
- Empowered by SEC
- Merey a ground, there must be proper notce
and hearng
- Not affect the status of the corporaton as a
|urdca person
- Sub|ect the corporaton to a fne, as may be
ssued by the SEC
When do by-aws become effectve?
- Unt and uness the SEC gves t stamped of
approva
- Suspenson of any government agency. The
permsson must frst be secured- secton 46
Eements of a vad by-aw
1. It must not be contrary to aw, pubc pocy or
moras;
2. It must not be nconsstent wth the artces of
ncorporaton;
3. It must be genera and unform n ts effect or
appcabe to a ake or those smary stuated;
4. It must not mpar obgatons and contracts or
vested rghts; and
5. It must be reasonabe.
- Must not be nconsstent wth exstng aws. Not
be nconsstent wth artces of ncorporaton
By-aws
- None fng woud not affect the status of the
corporaton, Loyoa grand vas case
- The word "must" s not aways mperatve
- Stockhoders are conusvey presumed to know
the provsons of the by-aws
How about 3
rd
persons?
- NO. uness there s actua knowedge of the
same they are not presumed to know of the provsons of
the by-aws
Fescher vs. Botka Noasco
- Shares of stock are persona propertes
- Shares of stock may transfer to whom ever he
wshes
- The by-aws s contrary to aw
Artces of ncorporaton
- May provde reasonabe restrcton
- By-aws merey nterna aws
- Artces s the contract between and among the
partes and corporaton
Govt vs. E Hogar
- Dd the court categorcay rued here that the
provson n the 5
th
cause of acton s vad?
- Rues governng equty, consderng the fact
that there was aways ack of quorum
- Secton 29 BOD f st consttutng a quorum
may f up a vacancy other than by remova, etc.
Gokongwe vs. SEC
- Secton 48 aows a corporaton to amend t by-
aws
- Secton 47 of the code, the by-aws may
provde for the quafcaton and dsquafcaton
- It cannot be sad Gokongwe has a vested rghts
- Prevent drectors from takng advantage of
poston to promote hs ndvdua nterest to the damage
of others
- The vadty or reasonabeness of a by-aws s a
queston of aw
- Sub|ect to the mtatons that reasonabeness
of a by-aw s a mere matter of |udgment
- Rue of the ma|orty and not the tyranny of the
mnorty
May the by-aws be amended atered or
appeaed?
- YES. HOW? Two modes
1. By a ma|orty vote of the drectors or trustees
and the ma|orty vote of the outstandng capta stock or
members n a non-stock corporaton, at a reguar or
speca meetng caed for that purpose;
2. By the board of drectors aone when deegated
by 2/3 of the outstandng capta stock or 2/3 of the
members n a non-stock corporaton.
- Ths deegated power, however, s consdered
revoked whenever a ma|orty of the outstandng capta
stock or members sha so vote at a reguar or speca
meetng.
If t s to be amended what s the proceedng?
- Secton 48 2
nd
paragraph provdes:
Section 4". Amendments to by-aws. - The
board of drectors or trustees, by a ma|orty vote thereof,
and the owners of at east a ma|orty of the outstandng
capta stock, or at east a ma|orty of the members of a
non-stock corporaton, at a reguar or speca meetng
duy caed for the purpose, may amend or repea any
by-aws or adopt new by-aws. The owners of two-thrds
(2/3) of the outstandng capta stock or two-thrds (2/3)
of the members n a non-stock corporaton may deegate
to the board of drectors or trustees the power to amend
or repea any by-aws or adopt new by-aws: Provded,
That any power deegated to the board of drectors or
trustees to amend or repea any by-aws or adopt new
by-aws sha be consdered as revoked whenever
stockhoders ownng or representng a ma|orty of the
outstandng capta stock or a ma|orty of the members
n non-stock corporatons, sha so vote at a reguar or
speca meetng.
Whenever any amendment or new by-aws are
adopted, such amendment or new by-aws sha be
attached to the orgna by-aws n the offce of the
corporaton, and a copy thereof, duy certfed under
oath by the corporate secretary and a ma|orty of the
drectors or trustees, sha be fed wth the Securtes
and Exchange Commsson the same to be attached to
the orgna artces of ncorporaton and orgna by-aws.
The amended or new by-aws sha ony be
effectve upon the ssuance by the Securtes and
Exchange Commsson of a certfcaton that the same
are not nconsstent wth ths Code. (22a and 23a)
Baretto vs. La Prevsora
- Any corporate act emanates from the board
- Drectors themseves cannot amend the by-
aws f they were not granted the same
Secton 48
The power granted s not sub|ect to revocaton
T or F?
- FALSE
If the by-aws are amended when w they
become vad?
- Upon ssuance of the SEC that they are not
nconsstent
What f the SEC faed to act wthn 10 months
wthout faut attrbutabe to the corporaton?
T or F any amendment of the by-aws w never
become vad unt t gves ts stamp of approva even
after 1 year
- TRUE. Artces of ncorporaton and by-aws are
dfferent
MEETINGS
Meetngs
- Meetngs of stockhoders 1. Date fxed
n the by-aws or by-aw
- Meetngs of drector or trustees
Meetngs are reguar and speca
Meetngs of stockhoders
What s reguar and what s speca?
When are reguar meetngs of the stockhoders
hed?
- Fxed date provded by the by-aws
What f there s no date?
- Apr
Why apr?
- Pont n tme the audted fnanca statement
have been prepared
What f n the date specfed n the by-aws or
by the aw tsef the meetng was not convened, for
nstance ack of quorum or force ma|eure?
- It may be postponed on a reasonabe date
Notce requrement?
- Reguar- 2 weeks pror notce
- Speca- 1 week
May the notce requrement be essened?
- By-aws may provde a onger or a shorter
duraton
What f the notce requrement s not comped
wth?
What happened to any act passed n a meetng
when notce requrement was not requred wth?
- Vodabe, sub|ect to ratfcaton
Board of drectors vs. Tan
- Notce requrement s the by-aws s a
mandatory requrement
- Impropery served, any acton w be
nvadated at the ob|ecton of any stockhoder or
member
Must be hed n the proper pace
Where shoud t be hed?
- Apparent from the foregong provson s that
meetngs of stockhoders must, at a tmes, be hed n
the cty or muncpaty where the prncpa offce of the
corporaton s ocated and, as far as practcabe, n the
prncpa offce of the corporaton.
May the by-aws of a corporaton provde that
meetngs be hed anywhere n the Phppnes?
- Whe there s no provson authorzng a stock
corporaton to hod stockhoders meetngs outsde of
the Cty of Muncpaty where the prncpa offce s
ocated, the aw aows a non-stock corporaton to
provde n ts by-aws any pace of members meetng
provded that proper notce s sent to a members
ndcatng the date, tme and pace of the meetng whch
sha be wthn the Phppnes.
T or F the by-aws of a stock corporaton may
vady provde that meetngs sha be hed anywhere n
the Phppnes?
- FALSE. Non-stock corporatons ang pwede
provded nakaagay sa by-aws and provded proper
notce s gven
Corporaton can do ony such thngs as the aw
aows t to do, DOCTRINE OF LIMITED CAPACITY
San Mgue offce ocated n Ortgas Center. May
stockhoders meetng be hed n PICC center?
- YES. Metro Mana, one snge cty
Must be caed by the proper party
Who cas?
- Presdent unt and uness there s a provson ,
secretary on order of the presdent
What f there s nobody who can ca?
- The pettoner, stockhoder may petton the
court
What f there s a person who can ca, but he
fas or negects to ca the meetng? May a stockhoder
petton to authorze a meetng?
- Ponce case ony appes when there s NO
person authorzed to ca the meetng. If there s a
person, but negects hs duty. Ponce w not appy.
Wrt of n|uncton may never be ssued ex parte
Is there any excepton?
- Secton 28 ony nstance
Section 2". Remova of drectors or trustees. -
Any drector or trustee of a corporaton may be removed
from offce by a vote of the stockhoders hodng or
representng at east two-thrds (2/3) of the outstandng
capta stock, or f the corporaton be a non-stock
corporaton, by a vote of at east two-thrds (2/3) of the
members entted to vote: Provded, That such remova
sha take pace ether at a reguar meetng of the
corporaton or at a speca meetng caed for the
purpose, and n ether case, after prevous notce to
stockhoders or members of the corporaton of the
ntenton to propose such remova at the meetng. A
speca meetng of the stockhoders or members of a
corporaton for the purpose of remova of drectors or
trustees, or any of them, must be caed by the secretary
on order of the presdent or on the wrtten demand of
the stockhoders representng or hodng at east a
ma|orty of the outstandng capta stock, or, f t be a
non-stock corporaton, on the wrtten demand of a
ma|orty of the members entted to vote. Shoud the
secretary fa or refuse to ca the speca meetng upon
such demand or fa or refuse to gve the notce, or f
there s no secretary, the ca for the meetng may be
addressed drecty to the stockhoders or members by
any stockhoder or member of the corporaton sgnng
the demand. Notce of the tme and pace of such
meetng, as we as of the ntenton to propose such
remova, must be gven by pubcaton or by wrtten
notce prescrbed n ths Code. Remova may be wth or
wthout cause: Provded, That remova wthout cause
may not be used to deprve mnorty stockhoders or
members of the rght of representaton to whch they
may be entted under Secton 24 of ths Code. (n)
Cases of remova or ouster of a drector
Mandamus woud be approprate remedy f
there s a person authorzed but refuses
Ouorum and votng requrement
- Ma|orty stockhoders or members consttute a
quorum
Is the presence of the ma|orty owners of the
outstandng capta stock ABSOLUTE to have a quorum?
- NO. when the code requres a hgher quorum t
must aso be equvaent to the vote requred
Do you ncude non-votng shares n arrvng at
the votng requrement to have a vad corporate act?
- It depends.
- Secton 6 ast par. If t fas wthn the
penutmate par. Of secton 6
Fve requstes of a vad meetng
1. It must be hed on the date fxed n the by-aws
or n accordance wth aw
2. Pror notce must be gven
3. It must be hed at he proper pace
4. It must be caed by the proper party
5. Ouorum and votng requrements must be met
Date not comped wth, notce, pace, not
comped wth and the person who caed not authorzed,
what happens to any resouton caed?
- Secton 51, any meetng sha be vad provded
a the stockhoders are present or duy represented and
provded t s wthn the power of the corporaton. 3
RD
paragraph of 324
- If the votng requrement s met, any resouton
passed n the meetng, even f mpropery hed or caed
w be vad f a the stockhoders or members are
present or duy represented thereat. The ast paragraph
of secton 51 s cear on the matter when t provdes:
"a proceedngs had and any busness transacted at any
meetng of the stockhoders or members, f wthn the
powers or authorty of the corporaton, sha be vad
even f the meetng be mpropery hed or caed,
provded a the stockhoders or members of the
corporaton are present or duy represented at the
meetng."
Drectors/trustees meetng
Reguar (monthy) and speca (anytme)
May that be restrcted (wthn or outsde the
Ph)
- YES. uness the by-aws provde otherwse.
Is there any notce requrement?
- YES. 1 day uness otherwse provded by the by-
aws
What happens f notce s not comped wth?
- If the notce requrement s not comped wth
the meetng s ega and w not bnd the corporaton
except when subsequenty ratfed or n the case of a
cose corporaton where the act of any one drector may
bnd the corporaton even wthout a meetng under the
speca provson of Secton 101 of the Code.
Can notce be waved? <sec.53>
Section #3. Reguar and speca meetngs of
drectors or trustees. - Reguar meetngs of the board of
drectors or trustees of every corporaton sha be hed
monthy, uness the by-aws provde otherwse.
Speca meetngs of the board of drectors or
trustees may be hed at any tme upon the ca of the
presdent or as provded n the by-aws.
Meetngs of drectors or trustees of
corporatons may be hed anywhere n or outsde of the
Phppnes, uness the by-aws provde otherwse. Notce
of reguar or speca meetngs statng the date, tme and
pace of the meetng must be sent to every drector or
trustee at east one (1) day pror to the schedued
meetng, uness otherwse provded by the by-aws. A
drector or trustee may wave ths requrement, ether
expressy or mpedy. (n)
- YES. Expressy and mpedy
- SEC rung
A speca meetng s vad wthout notce where the
drectors are a present or where they consent to the
meetng. Presence at the meetng waves the want of
notce. Moreover, t has been rued that the meetng of
the drectors wthout a forma ca frst beng had, and
notce thereof gven to the members, dd not operate to
nvadate t or to render the proceedngs whch were
taken at t vod, for every member of the board were
present, and ther |ont acton had competey bound the
corporaton as f the meetng has been caed wth due
formaty, and everyone of the drectors had receved
proper notce.
What s the quorum and votng requrement n
the drectors meetng?
- Ma|orty of the members of the board of
drectors (entre membershp)
Vote requred to pass a vad corporate act?
- Ma|orty of those present at whch there s a
quorum (3 present, vote of 2 suffcent)
- Excepton, ma|orty of a the members of the
board n case of eecton of corporate offcers, uness the
artces provde for a greater quorum or votng
requrement
Shoud the drector or trustees be physcay
present?
- Genera rue, must st and act as a body to
have a vad corporate act
Fve man member board, a meetng was caed
today, shoud the physca presence or warm bodes
requres to consttute a quorum?
- NO. t s not requred. Teeconference or vdeo
conference s aowed, E- commerce aw
Membershp sub|ect to aws
Stockhoder not yet
May drector vote by proxy?
- NO
If A s a drector and a meetng s caed for the
purpose of eectng a new set of BOD can A vote by
proxy?
- YES. Because t s a stockhoders meetng
If drectors meetng, cannot vote by proxy
Stockhoders rght to vote
- Inherent n stock ownershp
- However ths rght s not aways nherent,
because t may be dened:
1. Redeemabe and preferred shares, however f
founders shares are ssued others may be dened the
rght to vote.
2. May be dened by the artces of ncorporaton
or contracts
- When not dened they may do so n person or
by proxy
May the rght to vote by proxy be dened?
May the artces of ncorporaton deny?
May the by-aws vady provde that proxy
votng s not aowed?
- NO
Ony non-stock may be dened proxy votng
(may be broaden, mted or dened)
Proxy votng s a matter of rght granted by aw
Requrements of a vad proxy?
- Secton 58
Section #". Proxes. - Stockhoders and
members may vote n person or by proxy n a meetngs
of stockhoders or members. Proxes sha n wrtng,
sgned by the stockhoder or member and fed before
the schedued meetng wth the corporate secretary.
Uness otherwse provded n the proxy, t sha be vad
ony for the meetng for whch t s ntended. No proxy
sha be vad and effectve for a perod onger than fve
(5) years at any one tme. (n)
How ong may a proxy exst?
- Maxmum of 5 years
- Vad for the meetng n whch t s ntended
Is proxy revocabe?
- Generay revocabe, uness couped wth
nterest
Revocaton
- A proxy, ke agency n genera s revocabe
uness couped wth an nterest and revocaton need not
be made by forma notce n wrtng. Revocaton may be
expressed to the proxy hoder, to the eecton
commttee, by a subsequent proxy to another or by sae
of the shares. Thus t may be revoke oray by conduct
such that appearng and assertng the rght to vote at a
meetng by the regstered owner of the shares revokes a
proxy prevousy gven.
Must be submtted to a vadaton commttee
By-aws of non-stock corporatons may deny
proxy votng
What s votng trust agreement?
- One created by an agreement between a group
of stockhoders of a corporaton and a trustee, or a
group of dentca agreements between ndvdua
stockhoders and a common trustee, whereby t s
provded that for a term o years or for a perod
contngent upon a certan event, or unt the agreement
s termnated, contro over the stock owned by such
stockhoders, sha be odged n the trustee, ether wth
or wthout reservaton to the owners or persons
desgnated by them the power to drect how such
contro sha be ssued.
- It s a devse of bndng stockhoders to vote as
a unt and thus assurng a desrabe stabty and
contnuty n management n stuatons where t s
needed.
What s the effect of a votng trust agreement
reatve to the rghts?
- Lee vs. CA must pass these crtera
1. That the votng rghts of the stock are
separated from the other attrbutes of ownershp;
2. That the votng rghts granted are ntended to
be rrevocabe for a defnte perod of tme; and,
3. That the prncpa purpose of the grant of
votng rghts s to acqure votng contro of the
corporaton.
Durng the duraton of the trust they are
rrevocabe uness there s a voaton ether by fraud
Requstes
- Secton 59
Section #!. Votng trusts. - One or more
stockhoders of a stock corporaton may create a votng
trust for the purpose of conferrng upon a trustee or
trustees the rght to vote and other rghts pertanng to
the shares for a perod not exceedng fve (5) years at
any tme: Provded, That n the case of a votng trust
specfcay requred as a condton n a oan agreement,
sad votng trust may be for a perod exceedng fve (5)
years but sha automatcay expre upon fu payment of
the oan. A votng trust agreement must be n wrtng
and notarzed, and sha specfy the terms and
condtons thereof. A certfed copy of such agreement
sha be fed wth the corporaton and wth the Securtes
and Exchange Commsson; otherwse, sad agreement s
neffectve and unenforceabe. The certfcate or
certfcates of stock covered by the votng trust
agreement sha be canceed and new ones sha be
ssued n the name of the trustee or trustees statng that
they are ssued pursuant to sad agreement. In the
books of the corporaton, t sha be noted that the
transfer n the name of the trustee or trustees s made
pursuant to sad votng trust agreement.
The trustee or trustees sha execute and
dever to the transferors votng trust certfcates, whch
sha be transferabe n the same manner and wth the
same effect as certfcates of stock.
The votng trust agreement fed wth the
corporaton sha be sub|ect to examnaton by any
stockhoder of the corporaton n the same manner as
any other corporate book or record: Provded, That both
the transferor and the trustee or trustees may exercse
the rght of nspecton of a corporate books and records
n accordance wth the provsons of ths Code.
Any other stockhoder may transfer hs shares
to the same trustee or trustees upon the terms and
condtons stated n the votng trust agreement, and
thereupon sha be bound by a the provsons of sad
agreement.
No votng trust agreement sha be entered nto
for the purpose of crcumventng the aw aganst
monopoes and ega combnatons n restrant of trade
or used for purposes of fraud.
Uness expressy renewed, a rghts granted n
a votng trust agreement sha automatcay expre at
the end of the agreed perod, and the votng trust
certfcates as we as the certfcates of stock n the
name of the trustee or trustees sha thereby be deemed
canceed and new certfcates of stock sha be ressued
n the name of the transferors.
The votng trustee or trustees may vote by
proxy uness the agreement provdes otherwse. (36a)
Does t need to be notarzed?
- Yes, otherwse t s neffectve and
unenforceabe
Ony ega ownershp s transferred
Beng st the benefca owner they may
transfer these rghts
Is the rght granted to a votng trust agreement
absoute? (to nspect)
- NO.
- The votng trust agreement fed wth the
corporaton sha be sub|ect to examnaton by any
stockhoder of the corporaton n the same manner as
any other corporate book or record. Provded, that both
the transfer and the trustee or trustees may exercse the
rght of nspecton of a corporate books and records n
accordance wth the provsons of ths Code.
Lega tte s transferred to the votng trustee
May the votng trustee vote by proxy?
- Yes, ega owner may vote by proxy
May the proxy hoder vote by proxy?
- NO, (AGENT) an agent can have no other agent
uness specfcay aowed by the prncpa
Stockhoder executng as a proxy, s he
quafed to be voted as a drector?
Why s he quafed to act as a drector f the
stockhoder executes as a drector?
- The benefca owner of the shares n a votng
trust s dsquafed to be a drector n a votng trust
whereas n a proxy, the owner of the shares may be
eected as such snce ega tte thereof remans wth hm
- YES he remans to be the owner
Is the stockhoder executng n a votng trust
agreement, s he quafed to act as a drector?
- NO. ceases to be stockhoder of record, no
onger the ega owner of shares
May the corporaton enforce the votng trust
agreements executed by ts stockhoders?
- NO. NIDC vs. AOUINO
- Not a prvy to the contract
- Rghts abtes of a stockhoder are there n
ther ndvdua capacty- corporate entty theory
Votng trust agreements
- Normay executed n favor of bankng and
fnanca nsttutons
- So that they can vote a certan set of drectors
- They w be more secured
Votng pu agreement
- Enters nto an agreement
- Pu a ther shares to cast one vote
- Covered by rues governng contracts
- By pung ther votes they can decne the
resouton passed by the board
E N D O F M I D T E R M S
STOC1S AND STOC1(OLDERS
3 modes
1. By a contract of subscrpton wth the
corporaton;
2. By purchase of treasury shares from the
corporaton; and,
3. By purchase or acquston of shares from
exstng stockhoders.
Secton 60 subscrpton
- Any contract
- Whether exstng or st to be formed
Section $&. Subscrpton contract. - Any contract
for the acquston of unssued stock n an exstng
corporaton or a corporaton st to be formed sha be
deemed a subscrpton wthn the meanng of ths Tte,
notwthstandng the fact that the partes refer to t as a
purchase or some other contract. (n)
Under the od aw the 4
th
mode s PURCHASE
Purchase
- Recproca n nature
- Purchaser can nether requre the ssuance
Xco. Inc.
P
Authorzed capta 1M
500 SUBSCRIBED
500 UNISSUED STOCKS (AS LONG AS GALING DITO)
Z wants to acqure 100K
Entered n |une 50% sha be down payment remander
December 08
o he w not be consdered a stockhoder uness
he has pad n fu
August 08 property s ravaged by fre a are turned nto
shares
Is Z abe to pay the baance of hs
acqustons?
- YES, no matter how the party refer to t, t s
consdered subscrpton
- Once you subscrbe, you become a stockhoder
whch s entted to a the abtes of a stockhoder
Z- subscrbed to 100T/S of XCo.
Amount he pad 50k
Z dd not pay on the date caed and was decared a
denquent share
Corporaton pad 100T/S therefore the
corporaton reacqured the shares agan, what are they
caed?
- Treasury shares
Y- 80T/S DECEMBER 08
40 % (AUGUST) WAS DESTROYED BY FIRE, IS HE STILL
LIABLE TO PAY THE UNPAID PORTION?
IT WAS AGREED THAT IT WAS A PURCHASE AND
WILL BE A STOCKHOLDER ONLY IF PAID IN FULL IS HE
LIABLE?
- NO, because that was a purchase
- Frst exampe gang sa unssued stock
- 2
nd
exampe gang sa treasury shares hnd sa
unssued share
NO such thng as purchase of unssued stocks
A subscrpton contract can be condtona
provded there s nothng n the charter or statute
prohbtng t and not aganst pubc order, aw, etc.
Must t be n wrtng?
- NO, t may be ora
5M shoud t be n wrtng to be vad and
bndng as a subscrpton?
- NO, statutes of frauds ony appes to SALES
Trana vs. Ouezon Coege
- Counter proposa, therefore there was a need
for an acceptance
- Facutatve because t s n hs own free w, t s
vod
What may be used as a consderaton and how
much shoud be the consderaton?
- Secton 62 provdes:
Section $2. Consderaton for stocks. - Stocks
sha not be ssued for a consderaton ess than the par
or ssued prce thereof. Consderaton for the ssuance of
stock may be any or a combnaton of any two or more
of the foowng:
1. Actua cash pad to the corporaton;
2. Property, tangbe or ntangbe, actuay receved by
the corporaton and necessary or convenent for ts use
and awfu purposes at a far vauaton equa to the par
or ssued vaue of the stock ssued;
3. Labor performed for or servces actuay rendered to
the corporaton;
4. Prevousy ncurred ndebtedness of the corporaton;
5. Amounts transferred from unrestrcted retaned
earnngs to stated capta; and
6. Outstandng shares exchanged for stocks n the event
of recassfcaton or converson.
Where the consderaton s other than actua
cash, or conssts of ntangbe property such as patents
of copyrghts, the vauaton thereof sha ntay be
determned by the ncorporators or the board of
drectors, sub|ect to approva by the Securtes and
Exchange Commsson.
Shares of stock sha not be ssued n exchange
for promssory notes or future servce.
The same consderatons provded for n ths
secton, nsofar as they may be appcabe, may be used
for the ssuance of bonds by the corporaton.
The ssued prce of no-par vaue shares may be
fxed n the artces of ncorporaton or by the board of
drectors pursuant to authorty conferred upon t by the
artces of ncorporaton or the by-aws, or n the absence
thereof, by the stockhoders representng at east a
ma|orty of the outstandng capta stock at a meetng
duy caed for the purpose. (5 and 16)
"Amounts transferred from unrestrcted
retaned earnngs to stated capta" what does t mean?
- Stock dvdends w n effect captaze the
After 5 years the founders shares may be
converted nto common shares or other knds of shares
May shares of stocks be ssued wthout
consderaton? Why?
- NO, two reasons by the SC, dscrmnatory
aganst other stockhoders and second unawfu, t
pre|udces the rght of the credtors "Trust Fund
Doctrne"
If ssued wthout a consderaton
- Secton 65, they w be consdered as watered
stocks
Section $#. Labty of drectors for watered
stocks. - Any drector or offcer of a corporaton
consentng to the ssuance of stocks for a consderaton
ess than ts par or ssued vaue or for a consderaton n
any form other than cash, vaued n excess of ts far
vaue, or who, havng knowedge thereof, does not
forthwth express hs ob|ecton n wrtng and fe the
same wth the corporate secretary, sha be sodary,
abe wth the stockhoder concerned to the corporaton
and ts credtors for the dfference between the far
vaue receved at the tme of ssuance of the stock and
the par or ssued vaue of the same. (n)
- Subscrbers may be compeed to pay the vaue
Issuance of a certfcate of stock s another
thng
What are the requstes for the ssuance of a
vad certfcate of stock?
1. It must be sgned by the presdent or vce-
presdent and countersgned by the secretary or
assstant secretary;
2. It must be seaed wth the corporate sea; and
the entre vaue thereof (together wth nterest or
expenses, f any) shoud have been pad.
Whe t appears, that a subscrber to shares of stock
cannot be entted to the ssuance of a certfcate of
stock unt the fu amount of hs subscrpton together
wth nterest and expenses (n case of denquent
shares) f any s due, has been pad, a subscrber to
shares of stock, even f not yet fuy pad, s entted to
exercse a the rghts of a stockhoder and the
correspondng abty that attach thereunder. Thus, the
Code provdes:
Section %2. Rghts of unpad shares. - Hoders
of subscrbed shares not fuy pad whch are not
denquent sha have a the rghts of a stockhoder. (n)
Is the ssuance of a certfcate of stock
necessary to consder the subscrber a stockhoder?
- NO, sha be consdered a stockhoder even
wthout a certfcate of stock
Instances when he may not be abe to exercse
hs rghts as such stockhoder
- Decared denquent
- When he exercses hs apprasa rght
Are certfcate of stocks transferrabe?
- YES
Are certfcate of stocks consdered negotabe?
- Ouas-negotabe
Why are they consdered quas-negotabe when
t may be transferred through endorsement and
devery?
100t/s 001 10/s
Abc co.
B stoe and forged the sgnature
C s purchaser n good fath and for vaue w C acqure
tte
Endorsement from
When ssued by owner
Endorsed by owner- strct compance
ANSWER: a certfcate of stock s not regarded as
negotabe n the same sense that a b or note s
negotabe, even f t s endorsed n bank. Thus, whe t
may be transferred by endorsement couped wth
devery thereof, and therefore merey quas-negotabe,
t s nonetheess non-negotabe n that the transferees
takes t wthout pre|udce to a the rghts and defenses
whch the true and awfu owner may have except n so
far as the prncpes governng estoppes may appy.
He acqured t by vrtue of a forged nstrument; no
matter how nnocent the purchaser s because t s
sub|ect to a the rghts and defenses
What f A endorsed t?
- He s estopped, uness there are other avaabe
defenses
Transfer s requred to be recorded n the books
of the corporaton, however even f not recorded, t w
be vad between the partes. Non-regstraton w not
however, affect the vadty thereof at east n so far as
the contractng partes are concerned.
Section $3. Certfcate of stock and transfer of
shares. - The capta stock of stock corporatons sha be
dvded nto shares for whch certfcates sgned by the
presdent or vce presdent, countersgned by the
secretary or assstant secretary, and seaed wth the
sea of the corporaton sha be ssued n accordance
wth the by-aws. Shares of stock so ssued are persona
property and may be transferred by devery of the
certfcate or certfcates ndorsed by the owner or hs
attorney-n-fact or other person egay authorzed to
make the transfer. No transfer, however, sha be vad,
except as between the partes, unt the transfer s
recorded n the books of the corporaton showng the
names of the partes to the transacton, the date of the
transfer, the number of the certfcate or certfcates and
the number of shares transferred.
No shares of stock aganst whch the
corporaton hods any unpad cam sha be transferabe
n the books of the corporaton. (35)
"Unt regstraton s accompshed, the transfer,
though vad between the partes, cannot be effectve as
aganst the corporaton. Thus the, unrecorded transfer
cannot en|oy the status of a stockhoder; he cannot vote
nor be voted for, and he w not be entted to dvdends.
The corporaton w be protected when t pays dvdend
to the regstered owner despte a prevous transfer of
whch t had no knowedge. The purpose of regstraton
therefore s twofod: to enabe the transferee to exercse
a the rghts of a stockhoder and to nform the
corporaton of any change n shares ownershp so that t
can ascertan the persons entted to the rghts and
sub|ect to the abtes of a stockhoder."
Thus, t was aso rued by the Hgh Court n Nautca
Cannng Corp. vs. Yumu that "A transfer of shares not
recorded n the stock and transfer book of the
corporaton s non-exstent n so far as the corporaton s
concerned." Ths s so because "the corporaton ooks
ony through ts books for the purpose of determnng
who ts stockhoders are."
Regstraton s necessary for the foowng:
1. To enabe the corporaton to know who ts
stockhoders are;
2. To enabe the transferee to exercse hs rghts a
s stockhoders;
3. To afford the corporaton an opportunty to
ob|ect or refuse regstraton of the transfer n case
aowed by aw;
4. To avod fcttous and frauduent transfers; and,
5. To protect credtors who have the rght to ook
upon stockhoders, n case of no-payment or watered
shares, for the satsfacton of ther cams.
Duty of the secretary s mnstera, hence
mandamus w e f the secretary refuses to record the
transfer, but he cannot be compeed when the
transferees tte to the sad shares has no prma face
vadty or uncertan
Transfer- absoute and uncondtona transfer to
warrant regstraton n the books of the corporaton n
order to bnd the atter and other thrd persons.
Other restrctons on the rght to transfer shares
woud ncude:
1. It s not vad, except as between the partes,
unt recorded n the books of the corporaton;
2. Shares of stock aganst whch the corporaton
hods any unpad cam sha not be transferabe n the
books of the corporaton; unpad cams, refer to cams
arsng from unpad subscrpton and not to any
ndebtedness whch a stockhoder may owe the
corporaton such as monthy dues;
3. Restrctons requred to be ndcated n the
artces of ncorporaton, by-aws and stock certfcates
of a cose corporaton;
4. Restrctons mposed by speca aw, such as
the Pubc Servce Act requrng the approva of the
government agency concerned f t w vest unto the
transferee 40% of the capta of the pubc servce
company;
5. Sae to aens n voaton of maxmum
ownershp of shares under the Natonazaton Laws;
6. Those covered by reasonabe agreement of the
partes.
Monserat vs. Ceron
- Does t ncude mortgage?
- NO, t s not an absoute transfer
- W not affect the transfer through mortgage
- Absoute and uncondtona transfer
- Ony the transfer or absoute conveyance of the
ownershp of the tte to a share need be entered and
noted upon the books of the corporaton n order that
such transfer may be vad, therefore, nasmuch as a
chatte mortgage of the aforesad tte s not a compete
and absoute aenaton of the domnon and ownershp
thereof, ts entry and notaton upon the books of the
corporaton s not necessary requste to ts vadty
Chua guan vs. Magsasaka
- Was the mortgage vad and effectve as
aganst subsequent thrd partes
- Regster of deeds where the corporaton resdes
and f dfferent n the regster of deeds of owners
domce
Unson vs. Dnamto
- A transferred not regster w not have a vad
force and effect
Rght to transfer may be reguated
May not be unreasonaby restrcted
Voaton of natonazaton aw- Centra Bank
Lambert vs. Fox
- Vad , may be reasonaby reguated, restrcted
by agreement of partes
- Reasonabe agreement by the partes
- Reasonabe as to ength of tme
Padgett vs. Babcock
- Any attempt to restran transfer
- SC, n the absence of a vad en upon ts
shares
- Vad restrctons shares are appcabe
- Any restrcton on a stockhoders rght to
dspose of hs shares must be construed strcty; and any
attempt to restran a transfer of shares s regarded as
beng n restrant of trade, n the absence of a vad en
upon ts shares, and except to the extent that vad
restrctve reguatons and agreements exst and are
appcabe. Sub|ect ony to such restrctons, a
stockhoder cannot be controed n or restraned from
exercsng hs rght to transfer by the corporaton or ts
offcers or by other stockhoders, even though the sae s
to a compettor of the company, or to an nsovent
person, or even though a controng nterest s sod to
one purchaser.
Certfcate of stocks are transferrabe
- By endorsement and devery of the stock
certfcate to the transferee
In order to be vad, must be regstered n the
books. If not, w ony be bndng among partes
How may shares of stock be transferred?
- Endorsement of stock certfcate by owner or
attorney-n-fact wth devery
Embassy farms vs. CA
- Must be endorsed by owner or attorney-n-fact
couped wth devery
- Endorsed not devered
- Proper mode and manner must be comped
wth
Razon vs. IAC
- Devered not endorsed
- Reverse of Embassy Farms
- Endorsement aone s not suffcent nor devery
wthout endorsement s not aowed
- Endorsement pus devery s mandatory
Is there any other mode of transferrng stock?
- Notarzed deed
- Deed of assgnment
Rura bank of Sanas vs. CA
- If dened or refused wthout good cause,
mandamus w e
Tay vs. CA
- Mandamus may ssue f petton has a cear
ega rght
- Never ssued n doubtfu cases
- Pettoner faed to estabsh a cear ega rght
and aeged ownershp s wthout mert
- Dd not acqure ownershp by vrtue of the
contract of pedge
- In a contract of pedge there must be
forecosure
- In the case there was no attempt to forecose
- Pettoner must have a prma face rght
Nava vs. Peers Marketng
- A stock subscrpton s a subsstng abty from
the tme the subscrpton s made
- The subscrber s as much bound to pay hs
subscrpton as he woud be to pay any other debt
- No stock certfcate was ssued. Wthout stock
certfcate, whch s the evdence of ownershp of
corporate stock, the assgnment of corporate shares s
effectve ony between the partes to the transacton
Excepton to the genera rue
Rura Bank of Lpa vs. CA
- By notarzed deed
- Certfcate of stocks aready ssued must be
couped wth devery, excepton (TAN vs. SEC)
Stock certfcate has aready been ssued t
must be couped wth the devery
After certfcate of stock s ssued, may t be
effectvey transferred even wthout endorsement or
devery of the stock certfcate?
- Person sought to be a stockhoder s an offcer
and has custody
Endorsement and devery s not necessary
(TAN vs. SEC)
Tan vs. SEC (FULL KNOWLEDGE, HE IS
ESTOPPED)
- Persons sought to be stockhoder s offcer and
has custody of the book (estopped)
Genera Rue for vad transfer
- Certfcate of stock must be endorsed by owner
or attorney-n-fact couped wth devery
Exceptons
- Secton 63 uses the word "may"
- Showng that there may be other modes of
transferrng shares
Is there a tme frame or fxed perod as when
transfer can be made?
- NO, (WON vs. WACK WACK)
Won vs. Wack Wack
- Vad between contractng partes even f not
recorded n corporaton books
- Rght accrues ony f refused
- Statute of mtatons does not appy n
regstraton of shares of stock
- Must determned from the tme of refusa
Why are they non-negotabe when they may
be transferred?
- Transferees pays t wthout pre|udce to a the
rghts and defenses as the true and awfu owner may
have under the aw except nsofar as such rghts and
defenses are sub|ect to the mtatons mposed by the
prncpes governng estoppes
De os Santos vs. Repubc
- Why s he, not consdered as the owner of
shares? When t has been sad that when endorsed by
the owner t s consdered as strct certfcate? Because
certfcate of stocks are non-negotabe
- Athough a stock-certfcate s sometmes
regarded as quas-negotabe, n the sense that t may
be transferred by endorsement, couped wth devery, t
s we setted that the nstrument s non-negotabe,
because the hoder thereof takes t wthout pre|udce to
such rghts or defenses as the regstered owner or
credtor may have under the aw, except nsofar as such
rghts or defenses are sub|ect to the mtatons mposes
by the prncpes governng estoppes.
Unauthorzed ssuance of stock certfcates
100/s 100
XYZCo
100 pesos per share
Stoen by B and forged the sgnature of A
B ses to C w C acqure tte? NO

ENDORSEMENT FORM
C armed wth the endorsement form certfcate,
sod to D (nnocent purchaser for vaue), w D acqure
tte?
- NO, sub|ect to such rghts and defenses as the
true and awfu owner may have
What f C now goes to the corporaton and
presents the form?
- Then the corporaton sha cance the od
certfcate and ssues a new one, now n the name of C,
now regstered n the name of C, w C acqure tte?
A found out what happened and goes to the
corporaton who has a better tte C or A?
- A, A cannot be deprved of hs rght by vrtue of
an unauthorzed transfer
Corporaton can compe C to dever the new
stock certfcate because he made a representaton that
the certfcate where good.
Armed wth the new certfcate ssued to C, C
devers to D a purchaser n good fath and for vaue w
D acqure tte?
- D w acqure tte took the shares not by vrtue of
a forged or unauthorzed transfer, but on the reance
that the stock certfcate s vad and owned by C
Stock certfcate now n possesson of D. A knew
of what happened and went to the corporaton and
compans. Who w have a better tte?
- the corporaton may be compeed to recognze
both, A as stockhoder (non-negotabe) D, reance that
the stock certfcate s vad and exstng and owned by C
Forged transfers
- If the corporaton shoud ssue a new certfcate
n pursuance of a forged transfer, the corporaton ncurs
no abty to the person n whose favor t s ssued and t
may demand ts return for canceaton. The corporaton
n such case has been guty of no msrepresentaton. On
the other hand, t s the duty of the purchaser to
determne that the ndorsement of the owner s genune.
However, f the new certfcate ssued to the purchaser
comes nto the hands of a bona fde purchaser for vaue,
the corporaton w be stopped from denyng vadty
thereof, snce by ssung such new certfcate t
represents that the person named theren s a
stockhoder of the corporaton. The corporaton s thus
forced to recognze both the orgna certfcate and new
certfcate-the orgna, because the true owner coud not
be deprved of hs tte by a forged transfer, and the
new, because of ts representaton that the person
named theren s the owner of shares n the corporaton.
But f the recognton of both stockhoders woud resut
n an over ssue of shares, then ony the orgna and
true owner can be recognzed as a stockhoder. The
bona fde purchaser of the new certfcate w however
have a rght of damages aganst the corporaton. The
corporaton, n turn, woud have a rght of acton aganst
the person who made fase representatons and n
whose favor t ssued a new certfcate. The true owner
of the shares whch were wrongfuy transferred woud of
course have a rght to compe the corporaton to ssue
hm a certfcate n eu of the orgna one whch was
wrongfuy canceed.
Authorzed capta stock 1M shares
A are subscrbed who w the corporaton
recognze as rghtfu owner A or D? f both w be
recognzed there w be over ssuance
- ony A ctng ctzens natona bank vs. state (but
f recognton of both stockhoders woud resut n an
over ssue of shares, then ony the orgna and true
owner can be recognzed as a stockhoder)
- by vrtue of the doctrne of non-negotabty of
certfcate of stocks
The true and awfu owner w never be
deprved of hs rghts
What happens to D?
- D w have a cause of acton aganst the
corporaton for the vaue of hs acquston cost ncusve
of damages, attorneys fees and cost of sut
D sues the corporaton for the vaue of hs
acquston cost, ncusve of damages, attorneys fees
and cost of sut. What may the corporaton do?
- NO defense, no vad defense, because t was
represented to other partes that the certfcate of stocks
s vad, subsstng, etc.
2
nd
stuaton, what cause of acton may the
corporaton have? Remedy?
- Thrd party compant aganst C, but what f he s
a purchaser for vaue? 4
th
party cam aganst B
When may certfcate of stocks be ssued?
Section $4. Issuance of stock certfcates. - No
certfcate of stock sha be ssued to a subscrber unt
the fu amount of hs subscrpton together wth nterest
and expenses (n case of denquent shares), f any s
due, has been pad. (37)
A certfcate of stock cannot be ssued uness
he fuy pad the amount subscrbed
Subscrpton to the capta stocks of the
corporaton are ndvsbe
Cear mandate of secton 148 of the code s
that the rung of the court n Batazar vs. Lngayen Guf,
no onger hods true
Section 14". Appcabty to exstng
corporatons. - A corporatons awfuy exstng and
dong busness n the Phppnes on the date of the
effectvty of ths Code and heretofore authorzed,
censed or regstered by the Securtes and Exchange
Commsson, sha be deemed to have been authorzed,
censed or regstered under the provsons of ths Code,
sub|ect to the terms and condtons of ts cense, and
sha be governed by the provsons hereof: Provded,
That f any such corporaton s affected by the new
requrements of ths Code, sad corporaton sha, uness
otherwse heren provded, be gven a perod of not more
than two (2) years from the effectvty of ths Code
wthn whch to compy wth the same. (n)
Subscrpton to shares of stocks are ndvsbe
Aso apparent s that once a subscrber has pad
hs subscrpton n fu, he becomes entted to be ssued
a stock certfcate and n the event that the corporaton
refuses to do so, the stockhoder my nsttute a case for
mandamus wth damages. Thus, t has been sad that
the duty of the corporate offcers to ssue stock
certfcates to those entted thereto s a mnstera duty
enforceabe by mandamus.
Fua Cun vs. Summers and Chna Bankng Corp.
- The court erred n hodng the pantff as the
owner of 250 shares of stock; "the pantffs rghts
consst n equty n 500 shares and upon payment of the
unpad porton of the subscrpton prce he becomes
entted to the ssuance of certfcate for sad 500 shares
n hs favor."
- No certfcate of stock unt the fu amount has
been pad.
Watered stock
- One whch s ssued by the corporaton as fuy
pad-up shares, when n fact the whoe amount of the
vaue thereof has not been pad.
- Bass s par vaue and not the far market vaue
Secton 62 states that stocks sha not be
ssued for a consderaton ess than par or ssued prce
thereof, whe secton 13 states that n no case sha be
pad-up capta be ess than fve thousand |P5000|
pesos.
If ssued beow par, ssued vaue consdered as
water
How may watered stocks be ssued?
1. For a monetary consderaton ess than ts par
or ssued vaue;
2. For a consderaton n property, tangbe or
ntangbe, vaued n excess of ts far market vaue;
3. Gratutousy or under an agreement that
nothng sha be pad at a; or
4. In the guse of stock dvdends when there are
no surpus profts of the corporaton.
Why s stock waterng ega?
1. The corporaton s deprved of ts capta
thereby hurtng ts busness prospects, fnanca
capabty and responsbty;
2. Stockhoders who pad ther subscrptons n
fu, or promsed to pay the same, are n|ured and
pre|udced by the reducton of ther proportonate
nterest n the corporaton; and,
3. Present and future credtors are deprved of the
corporate assets for the protecton of ther nterest.
- Corporaton s pre|udced
- Stockhoders, duton of nterest
- Credtors are pre|udced, vrtue of rght to ook
upon corporatons propertes for the satsfacton of ther
cams
What s the effect of ssuance of watered stocks
1. As to the corporaton - when a corporaton s
guty of utra-vres or ega acts whch consttute an
n|ury to or fraud upon the pubc, or whch w tend to
n|ure or defraud the pubc, the State may nsttute a
quo-warranto proceedng to forfet ts charter for the
msuse or abuse of ts franchse.
2. As between the corporaton and the subscrber-
The subscrpton s vod. Such beng the case, the
subscrber s abe to pay the fu par or ssued vaue
thereof, to render t vad and effectve.
3. As to the consentng stockhoders - They are
stopped from rasng any ob|ecton thereto;
4. As to dssentng stockhoders - In vew of the
duton of ther proportonate nterest n the corporaton,
they may compe the payment of the "water" n the
stock sodary aganst the responsbe and consentng
drectors and offcers ncusve of the hoder of the
watered stocks;
5. As to credtors - They may enforce payment of
the dfference n the prce, or the water n the stock,
sodary aganst the responsbe drectors/offcers and
the stockhoders concerned; and
6. As aganst transferees of the watered stock -
Hs rght s the same as that of hs transferor. If,
however, a certfcate of stock has been ssued and duy
ndorsed to a bona fde purchaser, wthout knowedge,
actua or constructve, the atter cannot be hed abe, at
east as aganst the corporaton, snce he took the
shares on reance of the msrepresentaton made by the
corporaton that the stock certfcate s vad and
subsstng. Ths s because a corporaton s prohbted
from ssung certfcates of stock unt the fu vaue of
the subscrptons have been pad and coud not,
therefore, deny the vadty of the stock certfcate t
ssued as aganst a purchaser n good fath. Thus,
Baentne states that whether there s any abty on
the part of the transferee of watered stock s made to
depend upon whether he acqured the same wthout
notce, ether as purchaser or donee. If he had
knowedge thereof, he s sub|ect to the same abty as
hs transferor.
7.
What s the nature of the abty of the
corporate drectors consentng to the ssuance of
watered stocks and the extent of ther abtes?
-
- Sodary abe wth the hoder of the watered
stocks to the extent of the water from sad shares of
stocks
W a the drectors be abe? What f you

ob|ected w you aso be abe?
- If you do not ssue a wrtten ob|ecton, you are
st abe
- Even passve drectors may be abe
- Those havng knowedge thereof, but dd not
nterpose ther ob|ecton sha be abe
Section $#. Labty of drectors for watered
stocks. - Any drector or offcer of a corporaton
consentng to the ssuance of stocks for a consderaton
ess than ts par or ssued vaue or for a consderaton n
any form other than cash, vaued n excess of ts far
vaue, or who, havng knowedge thereof, does not
forthwth express hs ob|ecton n wrtng and fe the
same wth the corporate secretary, sha be sodary,
abe wth the stockhoder concerned to the corporaton
and ts credtors for the dfference between the far
vaue receved at the tme of ssuance of the stock and
the par or ssued vaue of the same. (n)
ACS-100M 100M/S PAR VALUE-
1.00
SUBSCRIBED-50M FAIR MARKET VALUE-
12.00/S
UNSUBSCRIBED-50M
A
B
C
D
E
There s a dena of pre-emptve rghts and drectors
A,B,C,D,E decded to ssue the remanng 50M and
subscrbed for 10M each at 2 per share.
Is there stock waterng f the far market vaue
s 12.00?
- No stock waterng
- The bass s the par vaue
- The shares where n fact pad more than the
par vaue ndcated n the artces of ncorporaton
3 days ater they sod ther 10M share for P11.00 each,
therefore makng a proft.
Can you queston there actuatons? What woud
be the cause of acton?
- It may be questoned.
-
- Duty of oyaty or fducary duty as such
drectors
- They cannot advance ther own motves to the
damage pre|udce of the corporaton whch they
represents and stockhoders as a whoe nstead of t
beng sod outsde
- 500M woud have gone to the coffers of the
corporaton, 500M shoud be there for the protecton of
credtors
- They are paced n a fducary reatonshp
- Sa ang ba ang kkta, pano naman yung
corporaton, opportunty na yun para kumta
-
When are unpad subscrptons due and
payabe?
- Section $%. Payment of baance of
subscrpton. - Sub|ect to the provsons of the contract
of subscrpton, the board of drectors of any stock
corporaton may at any tme decare due and payabe to
the corporaton unpad subscrptons to the capta stock
and may coect the same or such percentage thereof, n
ether case wth accrued nterest, f any, as t may deem
necessary.
Payment of any unpad subscrpton or any percentage
thereof, together wth the nterest accrued, f any, sha
be made on the date specfed n the contract of
subscrpton or on the date stated n the ca made by
the board. Faure to pay on such date sha render the
entre baance due and payabe and sha make the
stockhoder abe for nterest at the ega rate on such
baance, uness a dfferent rate of nterest s provded n
the by-aws, computed from such date unt fu
payment. If wthn thrty (30) days from the sad date no
payment s made, a stocks covered by sad subscrpton
sha thereupon become denquent and sha be sub|ect
to sae as herenafter provded, uness the board of
drectors orders otherwse. (38)
Remedes of the corporaton to enforce
payment of unpad subscrpton
1. By board acton n accordance wth the
procedure ad down n sectons 67 to 69 of the code
2. By a coecton case n court as provded for n
secton 70
Are subscrbers of shares of stocks not fuy
pad, abe to pay nterest?
- Genera rue s they are not abe to pay
nterest because the code says uness requres n the by-
aws
- Asde from the mandate of the aw that
subscrbers to shares of stock must pay the fu vaue of
ther subscrpton, they may kewse be requred to pay
nterest on a unpad subscrptons f so mposed n the
contract or n the corporate by-aws at such rate as may
be ndcated thereat or the ega rate f not so fxed.
Uness so requred or provded, however, subscrbers to
shares of stock, not fuy pad, are not abe to pay
nterest on ther unpad subscrptons. The code thus
provdes:
Section $$. Interest on unpad subscrptons. -
Subscrbers for stock sha pay to the corporaton
nterest on a unpad subscrptons from the date of
subscrpton, f so requred by, and at the rate of nterest
fxed n the by-aws. If no rate of nterest s fxed n the
by-aws, such rate sha be deemed to be the ega rate.
(37)
Unt a ca s made, they are not due and
payabe, but st sub|ect to the provsons of the
contracts
Procedures n case of sae of denquent stocks
- Section $". Denquency sae. - The board of
drectors may, by resouton, order the sae of denquent
stock and sha specfcay state the amount due on
each subscrpton pus a accrued nterest, and the date,
tme and pace of the sae whch sha not be ess than
thrty (30) days nor more than sxty (60) days from the
date the stocks become denquent.
Notce of sad sae, wth a copy of the
resouton, sha be sent to every denquent stockhoder
ether personay or by regstered ma. The same sha
furthermore be pubshed once a week for two (2)
consecutve weeks n a newspaper of genera crcuaton
n the provnce or cty where the prncpa offce of the
corporaton s ocated.
Uness the denquent stockhoder pays to the
corporaton, on or before the date specfed for the sae
of the denquent stock, the baance due on hs
subscrpton, pus accrued nterest, costs of
advertsement and expenses of sae, or uness the board
of drectors otherwse orders, sad denquent stock sha
be sod at pubc aucton to such bdder who sha offer
to pay the fu amount of the baance on the subscrpton
together wth accrued nterest, costs of advertsement
and expenses of sae, for the smaest number of shares
or fracton of a share. The stock so purchased sha be
transferred to such purchaser n the books of the
corporaton and a certfcate for such stock sha be
ssued n hs favor. The remanng shares, f any, sha be
credted n favor of the denquent stockhoder who sha
kewse be entted to the ssuance of a certfcate of
stock coverng such shares.
Shoud there be no bdder at the pubc aucton
who offers to pay the fu amount of the baance on the
subscrpton together wth accrued nterest, costs of
advertsement and expenses of sae, for the smaest
number of shares or fracton of a share, the corporaton
may, sub|ect to the provsons of ths Code, bd for the
same, and the tota amount due sha be credted as
pad n fu n the books of the corporaton. Tte to a the
shares of stock covered by the subscrpton sha be
vested n the corporaton as treasury shares and may be
dsposed of by sad corporaton n accordance wth the
provsons of ths Code. (39a-46a)
Who s the wnnng bdder n a denquency
sae?
- Bdder who sha "offer to pay the fu amount of
the baance on the subscrpton together wth accrued
nterest, cost of advertsement and expenses of sae, for
the smaest number of shares or fracton of a share."
X Co. has 1M authorzed capta stock
500 thousand s aready subscrbed
A subscrbed to 100 thousand shares, 50 thousand s
aready pad eavng 50 thousand unpad
The corporaton s at a oss of 250 thousand, the board
decdes to make a ca for the payment of the unpad
subscrptons, however A coud not pad, hence decared
denquent and decdes to se hs share at a pubc
aucton
55 thousand s to be pad, remanng baance pus cost
and expenses
BIDDERS:
X-55K FOR 99,900 shares
Y-55K FOR 99,500 shares
Z-55K FOR 99,000 shares (wnnng bdder)
Assume there s no bdder, may the corporaton
bd?
- NO. It cannot bd because the aw says, sub|ect
to the provsons of ths CODE. Secton 68 and 41 shoud
be reconced. Secton 68 states that:
Shoud there be no bdder at the pubc aucton
who offers to pay the fu amount of the baance on the
subscrpton together wth accrued nterest, costs of
advertsement and expenses of sae, for the smaest
number of shares or fracton of a share, the corporaton
may, 2345ect to t,e 67o8i2ion2 o9 t,i2 Co+e: bd for
the same, and the tota amount due sha be credted as
pad n fu n the books of the corporaton. Tte to a the
shares of stock covered by the subscrpton sha be
vested n the corporaton as treasury shares and may be
dsposed of by sad corporaton n accordance wth the
provsons of ths Code. (39a-46a)
- There was no unrestrcted retaned earnngs n
the exampe gven therefore the corporaton cannot bd ,
secton 41, t states that:
3n7e2t7icte+ 7et*ine+ e*7nin.2 n ts books to cover
the shares to be purchased or acqured:
dvdends;
Code. (a)
What f the shares of A were sod wthout
compance of the requrements? May A queston the
sae?
- The aw prescrbes two condtons before an
acton to recover denquent stocks rreguary sod may
be aowed. These are:
1. The party seekng to mantan such acton frst
pays or tenders to the party hodng the stock the sum
for whch the same was sod, wth nterest from the date
of the sae at the ega rate; and,
2. The acton sha be commenced by the fng of
a compant wthn sx months from the date of the sae.
- The reason for such s the stabty of
transactons of the shares of stock
Suppose n the exampe, snce there are no
unrestrcted retaned earnngs, hence the corporaton
cannot bd, s the corporaton eft wthout any recourse?
- Section %&. Court acton to recover unpad
subscrpton. - Nothng n ths Code sha prevent the
corporaton from coectng by acton n a court of proper
|ursdcton the amount due on any unpad subscrpton,
wth accrued nterest, costs and expenses. (49a)
Veasco vs. Pozat
- The subscrber s as much bound to pay the
amount of the share subscrbed by hm as he woud be
to pay any other debt, and the rght of the company to
demand payment s no ess ncontestabe.
- Two avaabe remedes: the frst and most
speca remedy gven by the statute consst n permttng
the corporaton to put up the unpad stock and dspose
of t for the account of the denquent subscrber. The
other remedy s by acton n court.
De Sva vs. Abotz and Co.
- Dscretonary on the part of the board of
drectors to do whatever s provded n the sad artce
reatve to the appcaton of the part of the 70 percent
of the proft dstrbutabe n equa parts on the payment
of the shares subscrbed to and fuy pad
Lngayen Guf vs. Batazar
- Excepton: pursuant to a bona fde compromse
or to set off a debt due from the corporaton, a reease
supported by consderaton, w be effectua as aganst
dssentng stockhoders and subsequent and exstng
credtors. A reease whch mght orgnay have been
hed nvad may be sustaned after a consderabe apse
of tme
Apocada vs. NLRC
- Set-off s wthout any ega bass
- It was premature
- Unpad subscrptons w become due and
payabe ony upon certan nstance
- Ca or f there s a stpuaton n contract
- If no ca and no stpuaton n contract then t
w not be demandabe or payabe at a
Lumanan vs. Cura
- Trust Fund Doctrne- subscrpton to the capta
of a corporaton consttute a fund to whch the credtors
have a rght to ook for satsfacton of ther cams and
that the assgnee n nsovency can mantan an acton
upon any unpad stock subscrpton n order to reaze
assets for the payment of ts debts.
PNB vs. Btuak
- Where t not for the promse, the defendants
woud have not subscrbed
- Trust Fund Doctrne, t s estabshed doctrne
that subscrptons to the capta of a corporaton
consttute a fund to whch credtors have a rght to ook
for satsfacton of ther cams and that the assgnee n
nsovency can mantan an acton upon any unpad
stock subscrpton n order to reaze assets for the
payment of ts debts.
- A corporaton has no power to reease an
orgna subscrber to ts capta stock from the obgaton
of payng for hs shares, wthout a vauabe
consderaton for such reease; and as aganst credtors
a reducton of the capta stock can take pace ony n
the manner and under the condtons prescrbed by the
statute or the charter or the artces of ncorporaton.
Edward Keer and Co. vs. COB
- May the stockhoder be hed abe for the debts
of the corporaton? YES. To the extent of ther unpad
subscrpton
- As to the abty of the stockhoders, t s
setted that a stockhoder s personay abe for the
fnanca obgatons of a corporaton to the extent of hs
unpad subscrptons
Is there a prescrptve perod wheren a demand
for unpad subscrpton shoud be made?
- NO. Garca vs. Suarez case
Garca vs. Suarez
- Never became due and payabe unt there s a
ca made
- Prescrpton w not run unt and uness there s
demand
- Prescrpton shoud be determned from the
tme demand has been made and not from the tme of
subscrpton
If decared denquent, what woud be the effect
as to the owner of sad shares?
- Section %1. Effect of denquency. - No
denquent stock sha be voted for or be entted to vote
or to representaton at any stockhoder's meetng, nor
sha the hoder thereof be entted to any of the rghts of
a stockhoder except the rght to dvdends n
accordance wth the provsons of ths Code, unt and
uness he pays the amount due on hs subscrpton wth
accrued nterest, and the costs and expenses of
advertsement, f any. (50a)
- However f the shares are not denquent,
subscrbers to the capta of a corporaton, though not
fuy pad, are entted to a the rghts of a stockhoder,
accordng to secton 72
denquent sha have a the rghts of a stockhoder. (n)
May the rues governng denquency sae appy
to a non-stock corporaton? Are there unpad shares n a
non-stock corporaton?
- Rues governng stock corporatons, when
appcabe, aso appes to a non-stock corporaton
- There are denquent sharehoders aso n a
non-stock corporaton. Exampe s membershp dues
A corporaton pad 50% of subscrpton and was
ater on decared denquent when he coud not pay
upon ca; A s aso a drector of the corporaton. W A,
upon decaraton of denquency , st be abe to exercse
hs rght as a drector?
- Yes, he oses a hs rght as a stockhoder
except hs rght to receve dvdends
- He remans to be a drector, ony quafcaton
to be a drector s he must own at east 1 share and
snce t st stands n hs name pendng the sae, he
remans to be and act as a drector
- Even f there s sae, he may st be drector
because the wnnng bdder may not bd or pay for a
the shares or there mght be remanng shares, whch
woud be credted n favor of the denquent stockhoder
When a certfcate of stock s oss or destroyed,
what must be done by the owner thereof?
- Section %3. Lost or destroyed certfcates. -
The foowng procedure sha be foowed for the
ssuance by a corporaton of new certfcates of stock n
eu of those whch have been ost, stoen or destroyed:
1. The regstered owner of a certfcate of stock
n a corporaton or hs ega representatve sha fe wth
the corporaton an affdavt n trpcate settng forth, f
possbe, the crcumstances as to how the certfcate was
ost, stoen or destroyed, the number of shares
represented by such certfcate, the sera number of the
certfcate and the name of the corporaton whch ssued
the same. He sha aso submt such other nformaton
and evdence whch he may deem necessary;
2. After verfyng the affdavt and other
nformaton and evdence wth the books of the
corporaton, sad corporaton sha pubsh a notce n a
newspaper of genera crcuaton pubshed n the pace
where the corporaton has ts prncpa offce, once a
week for three (3) consecutve weeks at the expense of
the regstered owner of the certfcate of stock whch has
been ost, stoen or destroyed. The notce sha state the
name of sad corporaton, the name of the regstered
owner and the sera number of sad certfcate, and the
number of shares represented by such certfcate, and
that after the expraton of one (1) year from the date of
the ast pubcaton, f no contest has been presented to
sad corporaton regardng sad certfcate of stock, the
rght to make such contest sha be barred and sad
corporaton sha cance n ts books the certfcate of
stock whch has been ost, stoen or destroyed and ssue
n eu thereof new certfcate of stock, uness the
regstered owner fes a bond or other securty n eu
thereof as may be requred, effectve for a perod of one
(1) year, for such amount and n such form and wth
such suretes as may be satsfactory to the board of
drectors, n whch case a new certfcate may be ssued
even before the expraton of the one (1) year perod
provded heren: Provded, That f a contest has been
presented to sad corporaton or f an acton s pendng
n court regardng the ownershp of sad certfcate of
stock whch has been ost, stoen or destroyed, the
ssuance of the new certfcate of stock n eu thereof
sha be suspended unt the fna decson by the court
regardng the ownershp of sad certfcate of stock
whch has been ost, stoen or destroyed.
Except n case of fraud, bad fath, or neggence
on the part of the corporaton and ts offcers, no acton
may be brought aganst any corporaton whch sha
have ssued certfcate of stock n eu of those ost,
stoen or destroyed pursuant to the procedure above-
descrbed. (R.A. 201a)
- The ratonae of the above-quoted aw s to
avod dupcaton of certfcates of stock and the
avodance of fcttous and frauduent transfers.
When w the repacement certfcate be
ssued?
- The code provdes that:
after the e;6i7*tion o9 one <1= >e*7 97o-
t,e +*te o9 t,e ?*2t 634?ic*tion: f no contest has
been presented to sad corporaton regardng sad
certfcate of stock, the rght to make such contest sha
be barred and sad corporaton sha cance n ts books
the certfcate of stock whch has been ost, stoen or
destroyed and ssue n eu thereof new certfcate of
stock,
Coud t be ssued earer than 1 year?
- Yes t can be, the code states that:
uness the regstered owner fes a bond or
other securty n eu thereof as may be requred,
effectve for a perod of one (1) year, for such amount
and n such form and wth such suretes as may be
satsfactory to the board of drectors, n whch case *
ne@ ce7ti9ic*te -*> 4e i223e+ e8en 4e9o7e t,e
e;6i7*tion o9 t,e one <1= >e*7 6e7io+ 67o8i+e+
,e7einA Provded, That f a contest has been presented
to sad corporaton or f an acton s pendng n court
regardng the ownershp of sad certfcate of stock
whch has been ost, stoen or destroyed, the ssuance of
the new certfcate of stock n eu thereof sha be
suspended unt the fna decson by the court regardng
the ownershp of sad certfcate of stock whch has been
ost, stoen or destroyed.
May corporate offcers be hed abe for the
unauthorzed ssuance?
- YES, the code provdes that:
Except n case of fraud, bad fath, or neggence
on the part of the corporaton and ts offcers, no acton
may be brought aganst any corporaton whch sha
have ssued certfcate of stock n eu of those ost,
stoen or destroyed pursuant to the procedure above-
descrbed. (R.A. 201a)
Assumng the ast paragraph s not there; woud
t be not the same, that they shoud be hed abe due to
fraud, bad fath or neggence?
- YES. Secton 31 provdes that:
Section 31. Labty of drectors, trustees or
offcers. - Drectors or trustees who wfuy and
knowngy vote for or assent to patenty unawfu acts of
the corporaton or who are guty of gross neggence or
bad fath n drectng the affars of the corporaton or
acqure any persona or pecunary nterest n confct
wth ther duty as such drectors or trustees sha be
abe |onty and severay for a damages resutng
there from suffered by the corporaton, ts stockhoders
or members and other persons.
When a drector, trustee or offcer attempts to
acqure or acqures, n voaton of hs duty, any nterest
adverse to the corporaton n respect of any matter
whch has been reposed n hm n confdence, as to
whch equty mposes a dsabty upon hm to dea n hs
own behaf, he sha be abe as a trustee for the
corporaton and must account for the profts whch
otherwse woud have accrued to the corporaton. (n)
Certfcate of stock was ost, the owner
transfers hs shares by way of a notarzed deed w t be
vad?
- He cannot do so, f a certfcate of stock s
ssued by a corporaton, a mere notarzed deed w not
suffce
- Deed of assgnment was not suffcent snce
there was no endorsement (Rura Bank of Lpa vs. CA)
Rghts and abtes of stockhoders
- RIGHTS
1. Partcpaton n the management of the
corporate affars by exercsng ther rght to vote and be
voted upon ether personay or by proxy as provded for
under sectons 50 and 58 of the code;
2. To enter nto a votng trust agreement sub|ect
to the procedure, requrements and mtatons mposed
under secton 50;
3. To receve dvdends and to compe ther
decaraton f warranted under secton 43;
4. To transfer shares of stock sub|ect ony to
reasonabe restrctons such as optons and preferences
as may be aowed by aw ncusve of the rght of the
transferee to compe the regstraton of the transfer n
the books of the corporaton as provded for n secton
63;
5. To be ssued a certfcate of stock for fuy pad-
up shares n accordance wth 64;
6. To exercse pre-emptve rghts as provded for
n secton 39;
7. To exercse ther apprasa rght n accordance
wth the provson of secton 81 and n those nstance
aowed by aw such as secton 42 and 105;
8. To nsttute and fe a dervatve sut;
9. To recover shares of stock unawfuy sod for
denquency as may be aowed under secton 69;
10. To nspect the books of the corporaton sub|ect
ony to the mtatons mposed by secton 73;
11. To be furnshed by the most recent fnanca
statement of the corporaton as by secton 75;
12. To be ssued a new stock certfcate n eu of
the ost or destroyed one sub|ect to the procedure ad
down n secton 73;
13. To have the corporaton dssoved under secton
118 to 121, and secton 105 n a cose corporaton;
14. To partcpate n the dstrbuton of the assets of
the corporaton upon dssouton under secton 122;
15. In the case of a cose corporaton, to petton
the SEC to arbtrate n the event of a deadock as
aowed under secton 104; and,
16. Aso n the case of a cose corporaton, to
wthdraw therefrom, for my reason, and compe the
corporaton to purchase hs shares as provded for under
secton 105.
- LIABILITIES
1. To pay to the corporaton the baance of hs
unpad subscrptons sub|ect to the provson of secton
67 to 70;
2. To pay nterest on hs unpad subscrpton f
requred by the by-aws or by the contract of
subscrpton n accordance wth secton 66;
3. To answer to the credtors for the unpad
porton of hs subscrpton under the TRUST FUND
DOCTRINE;
4. To answer the "water" n hs stocks as provded
for n secton 65;
5. To be abe, as genera partners, for a debts,
abtes and damages of a determnabe corporaton as
envsoned under secton 21 (corporaton by estoppe);
and,
6. To be personay abe for torts, n the event
that a stockhoder n a cose corporaton actvey
partcpates n the management of the corporate affars.
CORPORATE BOO1S AND RECORDS
What are these books and records that are
requred to be kept?
- Section %4. Books to be kept; stock transfer
agent. - E8e7> co76o7*tion 2,*?? Bee6 *n+ c*7e93??>
67e2e78e *t it2 67inci6*? o99ice * 7eco7+ o9 *??
432ine22 t7*n2*ction2 *n+ -in3te2 o9 *?? -eetin.2
o9 2tocB,o?+e72 o7 -e-4e72: o7 o9 t,e 4o*7+ o9
+i7ecto72 o7 t732tee2: in @,ic, 2,*?? 4e 2et 9o7t, in
+et*i? t,e ti-e *n+ 6?*ce o9 ,o?+in. t,e -eetin.:
,o@ *3t,o7iCe+: t,e notice .i8en: @,et,e7 t,e
-eetin. @*2 7e.3?*7 o7 26eci*?: i9 26eci*? it2
o45ect: t,o2e 67e2ent *n+ *42ent: *n+ e8e7> *ct
+one o7 o7+e7e+ +one *t t,e -eetin.. U6on t,e
+e-*n+ o9 *n> +i7ecto7: t732tee: 2tocB,o?+e7 o7
-e-4e7: t,e ti-e @,en *n> +i7ecto7: t732tee:
2tocB,o?+e7 o7 -e-4e7 ente7e+ o7 ?e9t t,e
-eetin. -32t 4e note+ in t,e -in3te2D *n+ on *
2i-i?*7 +e-*n+: t,e >e*2 *n+ n*>2 -32t 4e t*Ben
on *n> -otion o7 67o6o2ition: *n+ * 7eco7+
t,e7eo9 c*7e93??> -*+e. T,e 67ote2t o9 *n>
+i7ecto7: t732tee: 2tocB,o?+e7 o7 -e-4e7 on *n>
*ction o7 67o6o2e+ *ction -32t 4e 7eco7+e+ in 93??
on ,i2 +e-*n+.
The records of a busness transactons of the
corporaton and the mnutes of any meetngs sha be
open to nspecton by any drector, trustee, stockhoder
or member of the corporaton at reasonabe hours on
busness days and he may demand, n wrtng, for a copy
of excerpts from sad records or mnutes, at hs expense.
Any offcer or agent of the corporaton who
sha refuse to aow any drector, trustees, stockhoder
or member of the corporaton to examne and copy
excerpts from ts records or mnutes, n accordance wth
the provsons of ths Code, sha be abe to such
drector, trustee, stockhoder or member for damages,
and n addton, sha be guty of an offense whch sha
be punshabe under Secton 144 of ths Code: Provded,
That f such refusa s made pursuant to a resouton or
order of the board of drectors or trustees, the abty
under ths secton for such acton sha be mposed upon
the drectors or trustees who voted for such refusa: and
Provded, further, That t sha be a defense to any acton
under ths secton that the person demandng to
examne and copy excerpts from the corporaton's
records and mnutes has mpropery used any
nformaton secured through any pror examnaton of
the records or mnutes of such corporaton or of any
other corporaton, or was not actng n good fath or for a
egtmate purpose n makng hs demand.
Stock corporatons must aso keep a book to be
known as the "stock and transfer book", n whch must
be kept a record of a stocks n the names of the
stockhoders aphabetcay arranged; the nstaments
pad and unpad on a stock for whch subscrpton has
been made, and the date of payment of any nstament;
a statement of every aenaton, sae or transfer of stock
made, the date thereof, and by and to whom made; and
such other entres as the by-aws may prescrbe. The
stock and transfer book sha be kept n the prncpa
offce of the corporaton or n the offce of ts stock
transfer agent and sha be open for nspecton by any
drector or stockhoder of the corporaton at reasonabe
hours on busness days.
No stock transfer agent or one engaged
prncpay n the busness of regsterng transfers of
stocks n behaf of a stock corporaton sha be aowed
to operate n the Phppnes uness he secures a cense
from the Securtes and Exchange Commsson and pays
a fee as may be fxed by the Commsson, whch sha be
renewabe annuay: Provded, That a stock corporaton
s not precuded from performng or makng transfer of
ts own stocks, n whch case a the rues and
reguatons mposed on stock transfer agents, except the
payment of a cense fee heren provded, sha be
appcabe. (51a and 32a; P.B. No. 268.)
To summarze:
1. Records of a busness transactons whch
ncude, among others, |ournas, edger, contracts,
vouchers and recepts, fnanca statements and other
books of accounts, ncome tax returns, and votng trust
agreements whch must be kept and carefuy preserved
at ts prncpa offce;
2. Mnutes of a meetngs of stockhoders or
members and of the drectors or trustees settng forth n
deta the date, tme, and pace of meetng, how
authorzed, the notce gven whether the same be
reguar or speca, and f speca, the purpose thereof
sha be specfed, those present and absent, and every
act done or ordered done there at whch ,must kewse
be kept at the prncpa offce of the corporaton; and,
3. Stock and transfer book showng the names of
the stockhoders, the amount pad or unpad on a
stocks for whch subscrpton has been made, a
statement of every aenaton, sae or transfer of stock
made, f any the date thereof, and by whom and to
whom made whch must aso be kept at the prncpa
offce of the corporaton or n the offce of ts stock
transfer agent.
These corporate books and records, ncusve of a
busness transactons and mnutes of meetngs, are
sub|ect to nspecton by any of the drectors, trustees,
stockhoders or members of the corporaton at
reasonabe hours on busness days and a copy of
excerpts of sad records may be demanded. In fact, n so
far as fnanca statement s concerned, the Code ceary
provdes:
Section %#. Rght to fnanca statements. -
Wthn ten (10) days from recept of a wrtten request of
any stockhoder or member, the corporaton sha furnsh
to hm ts most recent fnanca statement, whch sha
ncude a baance sheet as of the end of the ast taxabe
year and a proft or oss statement for sad taxabe year,
showng n reasonabe deta ts assets and abtes and
the resut of ts operatons.
At the reguar meetng of stockhoders or members, the
board of drectors or trustees sha present to such
stockhoders or members a fnanca report of the
operatons of the corporaton for the precedng year,
whch sha ncude fnanca statements, duy sgned and
certfed by an ndependent certfed pubc accountant.
However, f the pad-up capta of the corporaton s ess
than P50,000.00, the fnanca statements may be
certfed under oath by the treasurer or any responsbe
offcer of the corporaton. (n)
May books and records be examned? Who may
examne? Can they copy them? In whose expense?
- Yes, accordng to the code:
ET,e 7eco7+2 o9 *?? 432ine22 t7*n2*ction2
o9 t,e co76o7*tion *n+ t,e -in3te2 o9 *n>
-eetin.2 2,*?? 4e o6en to in26ection 4> *n>
+i7ecto7: t732tee: 2tocB,o?+e7 o7 -e-4e7 o9 t,e
co76o7*tion *t 7e*2on*4?e ,o372 on 432ine22 +*>2
*n+ ,e -*> +e-*n+: in @7itin.: 9o7 * co6> o9
e;ce76t2 97o- 2*i+ 7eco7+2 o7 -in3te2: *t ,i2
e;6en2e. E
Is there any defense avaabe that coud be
rased? By the corporate offcers to |ustfy the refusa?
- Yes, the code provdes that:
"and Provded, further, That t sha be a
defense to any acton under ths secton that t,e
6e72on +e-*n+in. to e;*-ine *n+ co6> e;ce76t2
97o- t,e co76o7*tionF2 7eco7+2 *n+ -in3te2 ,*2
i-67o6e7?> 32e+ *n> in9o7-*tion 2ec37e+ t,7o3.,
*n> 67io7 e;*-in*tion o9 t,e 7eco7+2 o7 -in3te2 o9
23c, co76o7*tion o7 o9 *n> ot,e7 co76o7*tion: o7
@*2 not *ctin. in .oo+ 9*it, o7 9o7 * ?e.iti-*te
6376o2e in -*Bin. ,i2 +e-*n+."
What s the stock and transfer? Where shoud
stock and transfer be kept? Can t be kept esewhere?
"Stock corporatons must aso keep a book to
be known as the "stock and transfer book", in @,ic,
-32t 4e Be6t * 7eco7+ o9 *?? 2tocB2 in t,e n*-e2
o9 t,e 2tocB,o?+e72 *?6,*4etic*??> *77*n.e+D t,e
in2t*??-ent2 6*i+ *n+ 3n6*i+ on *?? 2tocB 9o7
@,ic, 2342c7i6tion ,*2 4een -*+e: *n+ t,e +*te
o9 6*>-ent o9 *n> in2t*??-entD * 2t*te-ent o9
e8e7> *?ien*tion: 2*?e o7 t7*n29e7 o9 2tocB -*+e:
t,e +*te t,e7eo9: *n+ 4> *n+ to @,o- -*+eD *n+
23c, ot,e7 ent7ie2 *2 t,e 4>0?*@2 -*> 67e2c7i4e.
The stock and transfer book sha be Be6t in t,e
67inci6*? o99ice o9 t,e co76o7*tion o7 in t,e o99ice
o9 it2 2tocB t7*n29e7 *.ent and sha be open for
nspecton by any drector or stockhoder of the
corporaton at 7e*2on*4?e ,o372 on 432ine22 +*>2. E
Stock and transfer agent
- Records every movement
- Person who montors movement by the mnutes
or by the hours
- Non-stock corporaton- stock and transfer books
- Cub share- membershp
Are stockhoders entted to fnanca
statements?
- Yes, they are entted to a copy, the code
provdes that:
Section %#. Rght to fnanca statements. -
Wthn ten (10) days from recept of a wrtten request of
any stockhoder or member, the corporaton sha furnsh
to hm ts most recent fnanca statement, whch sha
ncude a baance sheet as of the end of the ast taxabe
year and a proft or oss statement for sad taxabe year,
showng n reasonabe deta ts assets and abtes and
the resut of ts operatons.
At the reguar meetng of stockhoders or
members, the board of drectors or trustees sha
present to such stockhoders or members a fnanca
report of the operatons of the corporaton for the
precedng year, whch sha ncude fnanca statements,
duy sgned and certfed by an ndependent certfed
pubc accountant.
However, f the pad-up capta of the
corporaton s ess than P50,000.00, the fnanca
statements may be certfed under oath by the treasurer
or any responsbe offcer of the corporaton. (n)
- Audted fnanca statement fed n the SEC,
120 days from the end of the fna year, or must be fed
on or before Apr of each year
- Must be stamp receved by the BIR
Those n the stock exchange
- Dscosure of any matter that have to do wth
ncreasng and decreasng
- If not "kuong" voaton of securtes and
reguaton act
Why s ths rght of nspecton granted to a
stockhoder?
- The bass of the rght of the stockhoder to
nspect the books and records of the corporaton for a
proper purpose s to protect hs nterest as a
stockhoder. Thus, t has been sad that:
"The rght of the sharehoders to ascertan how the
affars of hs company are beng conducted by ts
drectors and offcers s founded by hs benefca
nterest through ownershp of shares and the necessty
of 2e?9067otection. Managers of some corporatons
deberatey keep the sharehoders n gnorance or under
msapprehenson as to the true condton of ts affars.
Busness prudence demands that the nvestor keep a
watchfu eye on the management and the condton of
the busness. Those n charge of the company may be
guty of gross ncompetence or dshonesty for years and
escape abty f the sharehoders cannot nspect the
records and obtan nformaton."
Is there any dstncton of the rght of nspecton
of a stockhoder and that of a drector?
- Yes, as compared to a stockhoder or member,
the rght of a drector or trustee to nspect and examne
corporate books and records s consdered absoute and
unquafed and wthout regard to motve. Ths s
because a drector supervses, drects and manages
corporate busness and t s necessary that he be
equpped wth a the nformaton and data wth regard
to the affars of the company n order that he may
manage and drect ts operatons ntegenty and
accordng to hs best |udgment n the nterest of a the
stockhoders he represents. Thus, whe stockhoders
and members are entted to nspect and examne the
books and records as provded n sectons 74 and 75
they may not gan access to hghy senstve and
confdenta nformaton. In the case of drectors. "t s
not dened" that they have such access. Ths woud
ncude, among others,
a. Marketng strateges and prcng structure;
b. Budget for expanson and dversfcaton;
c. Research and deveopment;
d. Sources of fundng, avaabty of personne,
proposas of mergers or te-ups wth other frms
May ths rght be exercsed, other than by the
stockhoders themseves?
- Yes, whe the rght s founded on stock
ownershp thus persona n nature t may be made by
the stockhoders agent or representatve snce t may
be unavang n many nstances
What f the rght of the stockhoder to nspect s
dened? What s hs remedy?
1. Mandamus
2. Damages ether aganst the corporaton or
responsbe offcer who refused the nspecton
3. Crmna compant for voaton of hs rght to
nspect and copy excerpts of a busness transactons
and mnutes of meetng. Secton 74 provdes that Any
offcer or agent of the corporaton who sha refuse to
aow any drector, trustees, stockhoder or member of
the corporaton to examne and copy excerpts from ts
records or mnutes, n accordance wth the provsons of
ths Code, sha be abe to such drector, trustee,
stockhoder or member for damages, and n addton,
sha be guty of an offense whch sha be punshabe
under Secton 144 of ths Code. The atter provson
mposes a penaty of a fne of not ess than P1,000 but
not more than P10,000 or an mprsonment for not ess
than 30 days but not more than 5 years, or both, at the
dscreton of the court. If the refusa s pursuant to a
resouton or order of the board, the abty sha be
mposed upon the drectors or trustees who voted for
such refusa.
Defense of the responsbe corporate offcer
1. That the person demandng has mpropery
used any nformaton secured through any pror
examnaton of the records or mnutes of such
corporaton or of any other corporaton;
2. That he was not actng n good fath or for a
egtmate purpose n makng hs demand;
3. The rght s mted or restrcted by speca aw
or the aw of t creaton.
W.G. Phpotts vs. Phppne Manufacturng Co.
- The rght of nspecton gven to a stockhoder
can be exercsed ether by hmsef or by any proper
representatve or attorney-n-fact, and ether wth or
wthout the attendance of the stockhoder
- The rght may be regarded as persona, n the
sense that ony a stockhoder may en|oy t; but the
nspecton and examnaton may be made by another.
Otherwse t woud be unavang n many nstances.
o Note: Usuay hres an audtor or accountant to
safeguard hs nterest
Pardo vs. Hercues Lumber Co.
- The aw s cear, t may be exercsed durng
reasonabe hours on any busness days, the by-aws
cannot deny ths rght a together
- The genera rght gven by the statute may not
be awfuy abrdged to the extent attempted n ths
resouton. It may be admtted that the offcas n charge
of a corporaton may deny nspecton when sought at
unusua hours or under other mproper condtons; but
nether the executve offcers nor the board of drectors
have the power to deprve a stockhoder of the rght
atogether.
- The corporaton, or ts responsbe drectors and
offcers cannot unduy restrct ths rght of nspecton
and may not arbtrary set a few days of the year wthn
whch the stockhoder may make the nspecton.
- A by-aw unduy restrctng the rght of
nspecton s undoubtedy nvad
Vegaruth vs. Isabea Sugar Co.
- Drectors of a corporaton have the unquafed
rght to nspect the books and records of the corporaton
at a reasonabe hours.
- We do not conceve, however, that a drector or
stockhoder has any absoute rght to secure certfed
copes of the mnutes of the corporaton unt these
mnutes have been wrtten up and approved by the
drectors.
May a stockhoder of a hodng company
nspect the books and records of a subsdary?
- It depends
- The rght of the stockhoders to examne
corporate books extends to whoy-owned subsdary
whch s competey under the contro and management
of the parent company where he s such a stockhoder.
But f the two enttes (subsdary and parent) are egay
beng operated as separate and dstnct enttes, there s
no such rght of nspecton on the part of the stockhoder
of the parent company.
AYALA- HOLDING COMPANY/PARENT COMPANY
SUBSIDIARIES: BPI/GLOBE/AYALA LAND (not whoy-
owned subsdary)
o HOLD ATLEAST 50 +1 shares n order to be a
PARENT COMPANY
A, s a stockhoder of Ayaa, does he have a
rght to nspect the records of ts subsdares?
- If whoy owned pwede, but ts subsdares are
not whoy owned kaya hnd pwede
Gokongwe vs. SEC
- San Mgue corporaton owns a of the shares of
stock of San Mgue Internatona
- It s whoy-owned
- It woud be n accord wth equty, good fath
and far deang to construe the statutory rght of
pettoner as stockhoder to nspect the books and
records of such whoy-owned subsdary whch are n
respondent corporatons possesson and contro
If beng operated as separate and dstnct
corporatons, there s no such rght
Teecommuncatons- speca franchse, t s a
egsatve grant
Gonzaes vs. PNB
- Provsons of the od aw was unquafed, when
t granted stockhoders the rght to nspect
- However, whoe seemngy enargng the rght
of nspecton, the new code has prescrbed mtatons to
the same. It s now expressy requred as a condton for
such examnaton that the one requestng t must not
have been guty of usng mpropery any nformaton
secured through a pror examnaton and that the person
askng for such examnaton must be actng n good fath
and for a egtmate purpose n makng hs demand
- Admttedy, he sought to be a stockhoder n
order to pry nto transactons entered nto by the
respondent bank even before he became a stockhoder.
Hs obvous purpose was to arm hmsef wth materas
he can use aganst the respondent bank for acts done by
the atter when the pettoner was a tota stranger to the
same.
- Bank was created by a speca aw, t has ts
own charter and prmary governed by the aw creatng
them
- The bank s ony sub|ect to the nspecton of the
Centra Bank and any nformaton pertanng to the bank
s confdenta and sha not be reveaed to any person
other than the Presdent of the Phppnes, the Secretary
of Fnance and the Board of Drectors, nor sha any
nformaton reatve to the funds n ts custody, ts
current accounts or deposts beongng to prvate
ndvduas, corporatons or other enttes except by
order of a Court of Competent |ursdcton, hence
nspecton sought to by the pettoner s voatve of the
provsons of ts charter and s even sub|ect to pena
sanctons
Assumng you are a stockhoder of PNB, and
then t was prvatzed, may you aready have the rght to
nspect?
- No, uness ts charter has been atered or
repeaed t s st sub|ect to the same aw
3 stages n the fe of a corporaton
- Formaton or brth
- We now dscuss the unon of the corporaton
- The ast woud be ts death or dssouton
MERGER AND CONSOLIDATION
Merger and consodaton
- In corporate parance t s caed spn-off
- Amost a year ago San Mgue separated ts
brewery busness
- San Mgue Corporaton s now a fu tme
hodng company; t can ater on absorb the company
- Corporatons are granted by the code to merge
or consodate
- most common type of corporate recognton
- not the same n every case
- but most common n the wea fnanca or
nsovent condton, am s to brng t back to ts fnanca
capabty
- aso a method of recaptazaton
o purchase and sae of corporate assets s
another form of corporate reorganzaton
How do you vaue the assets of the mergng
corporaton, do you consder goodw?
Frst secure favoraby recommendaton of
government agency
- Section %!. Effectvty of merger or
consodaton. - The artces of merger or of
consodaton, sgned and certfed as heren above
requred, sha be submtted to the Securtes and
Exchange Commsson n quadrupcate for ts approva:
P7o8i+e+: T,*t in t,e c*2e o9 -e7.e7 o7
con2o?i+*tion o9 4*nB2 o7 4*nBin. in2tit3tion2:
43i?+in. *n+ ?o*n *22oci*tion2: t732t co-6*nie2:
in237*nce co-6*nie2: 634?ic 3ti?itie2: e+3c*tion*?
in2tit3tion2 *n+ ot,e7 26eci*? co76o7*tion2
.o8e7ne+ 4> 26eci*? ?*@2: t,e 9*8o7*4?e
7eco--en+*tion o9 t,e *667o67i*te .o8e7n-ent
*.enc> 2,*?? 9i72t 4e o4t*ine+. If the Commsson s
satsfed that the merger or consodaton of the
corporatons concerned s not nconsstent wth the
provsons of ths Code and exstng aws, t sha ssue a
certfcate of merger or of consodaton, at whch tme
the merger or consodaton sha be effectve.
If, upon nvestgaton, the Securtes and
Exchange Commsson has reason to beeve that the
proposed merger or consodaton s contrary to or
nconsstent wth the provsons of ths Code or exstng
aws, t sha set a hearng to gve the corporatons
concerned the opportunty to be heard. Wrtten notce of
the date, tme and pace of hearng sha be gven to
each consttuent corporaton at east two (2) weeks
before sad hearng. The Commsson sha thereafter
proceed as provded n ths Code. (n)
Merger
- A unon effected by absorbng one or more
exstng corporatons by another whch survves and
contnues the combned busness
- It s the untng of two or more corporatons by
the transfer of property to one of them whch contnue n
exstence, the other or the others beng dssoved and
merged theren.
A B
A transfers a assets, propertes, rghts, obgatons,
abtes to B
B ssues shares of stocks n exchange of the transfer
A s then dssoved and B SURVIVES
o Partes to a merger are caed consttuent
corporaton
Consodaton
- The untng or amagamaton of two or more
exstng corporatons to form a new corporaton
- In merger there s a survvng corporaton, the
others are dssoved, whe n consodaton, a
consttuent are dssoved and a new one organzed
A B
C
Lke a other corporate acts, t emanates from
the board
1. The board of drectors or trustees of each
consttuent corporatons sha *667o8e * 6?*n of
merger or consodaton settng forth the matters
requred n secton 76;
2. A667o8*? of the pan 4> t,e 2tocB,o?+e72
7e67e2entin. 2)3 o9 t,e o3t2t*n+in. c*6it*? 2tocB
o7 2)3 o9 t,e -e-4e7 in non02tocB co76o7*tion2 of
each of such corporatons at separate corporate
meetngs caed for the purpose;
3. Pror notice of such meetng, @it, * co6> o7
23--*7> o9 t,e 6?*n o9 -e7.e7 o7 con2o?i+*tion
sha be gven to a stockhoders or members at east
two (2) weeks pror to the schedued meetng, ether
6e72on*??> o7 7e.i2te7e+ -*i? statng the purpose
thereof;
4. Executon of the artces of merger or
consodaton by each consttuent corporatons to be
2i.ne+ 4> t,e 67e2i+ent o7 8ice067e2i+ent *n+
ce7ti9ie+ 4> t,e co76o7*te 2ec7et*7> o7 *22i2t*nt
2ec7et*7> 2ettin. 9o7t, t,e -*tte72 7eG3i7e+ in
2ection %"D
5. S34-i22ion o9 t,e *7tic?e2 o9 -e7.e7 o7
con2o?i+*tion in G3*+736?ic*te to t,e SEC sub|ect to
the requrement of secton 79 that f t nvove
corporatons under the drect supervson of any other
government agency or governed by speca aws the
favorabe recommendaton of the government agency
concerned sha frst be secured and;
6. I223*nce o9 t,e ce7ti9ic*te o9 -e7.e7 o7
con2o?i+*tion 4> t,e SEC at whch tme the merger or
consodaton sha be effectve. If the pan, however, s
beeved to be contrary to aw, the SEC sha set a
hearng to gve the corporatons concerned an
opportunty to be heard upon proper notce and
thereafter, the Commsson sha proceed as provded n
the Code.
Athough merger and consodaton s an
express power granted to corporaton, t s sub|ect to
mtatons, as maybe proscrbed by aw
What woud be the effect of merger or
consodaton? <sec. 80>
1. There w ony be a snge corporaton. In case
of merger, the survvng corporaton or the consodated
corporaton n case of consodaton;
2. The termnaton of the corporate exstence of
the consttuent corporatons, except that of the survvng
corporaton or the consodated corporaton;
3. The survvng corporaton or the consodated
corporaton w possess a the rghts, prveges,
mmuntes and powers and sha be sub|ect to a the
dutes and abtes of a corporaton organzed under
the Code;
4. The survvng or consodated corporaton sha
possess a the rghts, prveges, mmuntes and
franchses of the consttuent corporatons, and a
property and a recevabes due, ncudng subscrptons
to shares and other choses n acton, and every other
nterest of, or beongng to or due to the consttuent
corporatons sha be deemed transferred to and vested
n such survvng or consodated corporaton wthout
further act and deed; and,
5. The rghts of credtors or any en on the
property of the consttuent corporatons sha not be
mpared by the merger or consodaton.
Is there a qudaton process n case of merger
or consodaton?
- None, there s nothng to dstrbute
Assocated Bank vs. CA
- By vrtue of a specfc provson n the merger
agreement
- Athough the sub|ect promssory note names
CBTC as the payee, the reference to CBTC n the note
sha be construed, under the very provson of the
merger agreement, as a reference to pettoner bank,
"as f such reference (was a) drect reference to the
atter for a ntents and purposes
- Secton 80 par. 4 states:
The survvng or the consodated corporaton
sha thereupon and thereafter possess a the rghts,
prveges, mmuntes and franchses of each of the
consttuent corporatons; and a property, rea or
persona, and a recevabes due on whatever account,
ncudng subscrptons to shares and other choses n
acton, and a and every other nterest of, or beongng
to, or due to each consttuent corporaton, sha be
deemed transferred to and vested n such survvng or
consodated corporaton wthout further act or deed;
and
- Wthout further acts, meanng t s automatc
When do merger and consodaton become
effectve? What f the SEC fas to act on t wthout faut
attrbutabe to the corporaton nvoved?
- It w never become vad unt and uness the
SEC gves ts stamp of approva
- It w be up to the consttuent corporaton to
foow t up
- It w never take effect unt the SEC gves ts
approva and ssues the artces of merger
o Granted 3 years to wng up uness there s a
trustee to wng up ts affars
Coud there be qudators and wndng up wth
respect to the corporaton n consodaton and merger?
- No, there s none
- No assets propertes or rghts to coect, they
are transferred
- No debts and abtes to pay because they
become the abtes of the survvng corporatons
- No propertes transferred because they w be
the propertes of the survvng corporatons
o Hardest part s the fnanca act, regardng how
many shares woud be ssued, probabty of coecton
and the ke
o In merger and consodaton, there s due
dgence and an economst s usuay hred
APPRAISAL RIG(T
Defne apprasa
- Rght to wthdraw from the corporaton and
demand payment of the far vaue of hs shares after
dssentng from certan corporate acts nvovng
fundamenta changes n corporate structure <sec. 81>
What property? When may ths rght be
exercses?
Section "1. Instances of apprasa rght. - Any
stockhoder of a corporaton sha have the rght to
dssent and demand payment of the far vaue of hs
shares n the foowng nstances:
1. In case any amendment to the artces of
ncorporaton has the effect of changng or restrctng
the rghts of any stockhoder or cass of shares, or of
authorzng preferences n any respect superor to those
of outstandng shares of any cass, or of extendng or
shortenng the term of corporate exstence;
2. In case of sae, ease, exchange, transfer, mortgage,
pedge or other dsposton of a or substantay a of
the corporate property and assets as provded n the
Code; and
3. In case of merger or consodaton. (n)
May t be exercsed by a stockhoder who
dssents to the act of a busness other than a prmary
purpose?
X Co. nc
Prncpa offce s n Ouezon cty, t was changed to
Paranaque
A ob|ects and makes a wrtten demand. May he exercse
hs rght of apprasa?
- It s not avaabe n a amendments of the
corporaton
- It must be changng or restrctng the rghts of
any stockhoder
What f the prncpa offce s changed from OC
to TAWI-TAWI, w t change or affect the rghts of A?
- To some t may change or restrct the rghts to
others t may not
How s the rght exercsed?
- Accordng to secton 82 of the code:
Section "2. How rght s exercsed. - The
apprasa rght may be exercsed by any stockhoder who
sha have voted aganst the proposed corporate acton,
by makng a wrtten demand on the corporaton wthn
thrty (30) days after the date on whch the vote was
taken for payment of the far vaue of hs shares:
Provded, That faure to make the demand wthn such
perod sha be deemed a waver of the apprasa rght. If
the proposed corporate acton s mpemented or
affected, the corporaton sha pay to such stockhoder,
upon surrender of the certfcate or certfcates of stock
representng hs shares, the far vaue thereof as of the
day pror to the date on whch the vote was taken,
excudng any apprecaton or deprecaton n
antcpaton of such corporate acton.
If wthn a perod of sxty (60) days from the
date the corporate acton was approved by the
stockhoders, the wthdrawng stockhoder and the
corporaton cannot agree on the far vaue of the shares,
t sha be determned and apprased by three (3)
dsnterested persons, one of whom sha be named by
the stockhoder, another by the corporaton, and the
thrd by the two thus chosen. The fndngs of the
ma|orty of the apprasers sha be fna, and ther award
sha be pad by the corporaton wthn thrty (30) days
after such award s made: Provded, That no payment
sha be made to any dssentng stockhoder uness the
corporaton has unrestrcted retaned earnngs n ts
books to cover such payment: and Provded, further,
That upon payment by the corporaton of the agreed or
awarded prce, the stockhoder sha forthwth transfer
hs shares to the corporaton. (n)
X Co.
Prncpa Offce- OC, t was changed to Mana
A ob|ects and makes a wrtten demand for payment of
far vaue of shares. Can he make a demand of payment
of shares?
True or Fase, no stockhoder n a stock
corporaton can ever demand f the prncpa offce s
amended, changng t from OC to Mana
- Fase, a stockhoder n a cose corporaton may
for any reason compe the cose corporaton that he be
pad the far vaue of hs shares
Can he exercse hs apprasa rghts n the frst pace? He
hasnt even pad hs subscrpton n fu.
May a stockhoder who hasnt pad hs
subscrpton n fu exercse hs apprasa rghts?
- Yes, he can exercse hs apprasa rghts, by
reconcng the provsons of secton 72, secton 82 and
secton 86
denquent 2,*?? ,*8e *?? t,e 7i.,t2 o9 *
2tocB,o?+e7. (n)
Section "2. How rght s exercsed. - The
apprasa rght may be exercsed by any stockhoder who
sha have voted aganst the proposed corporate acton,
by makng a wrtten demand on the corporaton wthn
thrty (30) days after the date on whch the vote was
taken for payment of the far vaue of hs shares:
Provded, That faure to make the demand wthn such
perod sha be deemed a waver of the apprasa rght. If
the proposed corporate acton s mpemented or
affected, t,e co76o7*tion 2,*?? 6*> to 23c,
2tocB,o?+e7: 36on 2377en+e7 o9 t,e ce7ti9ic*te o7
ce7ti9ic*te2 o9 2tocB 7e67e2entin. ,i2 2,*7e2: the
far vaue thereof as of the day pror to the date on
whch the vote was taken, excudng any apprecaton or
deprecaton n antcpaton of such corporate acton.
If wthn a perod of sxty (60) days from the
date the corporate acton was approved by the
stockhoders, the wthdrawng stockhoder and the
corporaton cannot agree on the far vaue of the shares,
t sha be determned and apprased by three (3)
dsnterested persons, one of whom sha be named by
the stockhoder, another by the corporaton, and the
thrd by the two thus chosen. The fndngs of the
ma|orty of the apprasers sha be fna, and ther award
sha be pad by the corporaton wthn thrty (30) days
after such award s made: Provded, That no payment
sha be made to any dssentng stockhoder uness the
corporaton has unrestrcted retaned earnngs n ts
books to cover such payment: and Provded, further,
That upon payment by the corporaton of the agreed or
awarded prce, the stockhoder sha forthwth transfer
hs shares to the corporaton. (n)
Section "$. Notaton on certfcates; rghts of
transferee. - Wthn ten (10) days after demandng
payment for hs shares, a dssentng stockhoder sha
submt the certfcates of stock representng hs shares
to the corporaton for notaton thereon that such shares
are dssentng shares. Hs faure to do so sha, *t t,e
o6tion o9 t,e co76o7*tion, termnate hs rghts under
ths Tte. If shares represented by the certfcates
bearng such notaton are transferred, and the
certfcates consequenty canceed, the rghts of the
transferor as a dssentng stockhoder under ths Tte
sha cease and the transferee sha have a the rghts of
a reguar stockhoder; and a dvdend dstrbutons
whch woud have accrued on such shares sha be pad
to the transferee. (n)
- Notaton s not mandatory, t s even
dscretonary because the code provdes "at the opton
of the corporaton" because t never ssued one for that
matter snce the subscrptons are not yet fuy pad
May the corporaton be compeed to pay the
nterest of A
300 T, 150T, 150T and 0 unrestrcted retaned earnngs
No stockhoder may be abe to compe the
corporaton to pay the vaue of hs shares f the
corporaton has no unrestrcted retaned earnngs
- Fase, a stockhoder of a cose corporaton may
for any reason, provded ony that the corporaton has
suffcent assets to cover ts debts and abtes
o Genera rue: there shoud be unrestrcted
retaned earnngs
o Excepton: secton 105 "cose corporaton"
The procedure and requrements for the vad
exercse of ths rghts are:
1. The stockhoder must have voted aganst the
proposed corporate acton n any of the nstances
aowed by aw for the exercse of the rght of apprasa;
2. The wrtten demand for payment must be made
by the dssentng stockhoder wthn thrty (30) days
after the date on whch the vote was taken thereon.
Faure to make the demand wthn the sad perod sha
be deemed a waver on the part of the stockhoder
concerned to exercse hs apprasa rght;
3. Surrender of the certfcate of stock by the
dssentng stockhoder for notaton n the corporate
books and the payment by the corporaton of the far
market vaue of the sad shares as of the day pror to the
date on whch the vote was taken. If the stockhoder and
the corporaton cannot agree on the far market vaue
thereof, the same sha be determned n accordance
wth the provson of paragraph 2 of secton 82;
4. The far vaue of the shares of the dssentng
stockhoder must be pad by the corporaton ony f t
has "unrestrcted retaned earnngs" n ts books to
cover such payment. If the corporaton has no
unrestrcted retaned earnngs, the dssentng
stockhoder may not, therefore, be abe to effectvey
exercse hs apprasa rghts;
5. Upon payment of the shares by the corporaton,
the dssentng stockhoder sha transfer hs shares to
the corporaton.
What woud be the effect f the stockhoder
exercses hs apprasa rghts? What happens to hs
votng and dvdend rghts f he exercses hs apprasa
rghts?
- It w be suspended, wth a mtaton of 30
days, as provded for by secton 83 of the code:
Section "3. Effect of demand and termnaton
of rght. - From the tme of demand for payment of the
far vaue of a stockhoder's shares unt ether the
abandonment of the corporate acton nvoved or the
purchase of the sad shares by the corporaton, *??
7i.,t2 *cc73in. to 23c, 2,*7e2: inc?3+in. 8otin.
*n+ +i8i+en+ 7i.,t2: 2,*?? 4e 2326en+e+ in
*cco7+*nce @it, t,e 67o8i2ion2 o9 t,i2 Co+e:
e;ce6t t,e 7i.,t o9 23c, 2tocB,o?+e7 to 7ecei8e
6*>-ent o9 t,e 9*i7 8*?3e t,e7eo9A P7o8i+e+: T,*t
i9 t,e +i22entin. 2tocB,o?+e7 i2 not 6*i+ t,e 8*?3e
o9 ,i2 2,*7e2 @it,in 3& +*>2 *9te7 t,e *@*7+: ,i2
8otin. *n+ +i8i+en+ 7i.,t2 2,*?? i--e+i*te?> 4e
7e2to7e+. <n=
How do you compare the rghts of a
stockhoder, decared denquent compared to a
dssentng stockhoder exercsng hs apprasa rghts
What f a stockhoder exercsng hs apprasa
rghts s aso a drector, w he aso ose hs rghts as a
stockhoder?
- The shares reman to stand n hs name unt he
s pad, uness there s a stpuaton n the by-aws
When may the rght to be pad the vaue of hs
shares cease? Can he wthdraw hs rght of apprasa?
- Yes, he may wthdraw, but there must be
consent by the corporaton as provded for by secton 83
of the code:
Section "4. When rght to payment ceases. -
No demand for payment under ths Tte may be
wthdrawn uness the corporaton consents thereto. If,
however, such demand for payment s wthdrawn wth
the consent of the corporaton, or f the proposed
corporate acton s abandoned or rescnded by the
corporaton or dsapproved by the Securtes and
Exchange Commsson where such approva s
necessary, or f the Securtes and Exchange
Commsson determnes that such stockhoder s not
entted to the apprasa rght, then the rght of sad
stockhoder to be pad the far vaue of hs shares sha
cease, hs status as a stockhoder sha thereupon be
restored, and a dvdend dstrbutons whch woud have
accrued on hs shares sha be pad to hm. (n)
Instances when the rght of a dssentng
stockhoder to be pad the far vaue of hs shares
ceases.
1. When he wthdraws hs demand for payment
and the corporaton consents thereto;
2. When the proposed acton s abandoned or
rescnded by the corporaton;
3. When the proposed acton s dsapproved by
the SEC where such approva s necessary;
4. When the SEC determnes that he s not
entted to exercse hs apprasa rght;
5. When he fas to submt the stock certfcate
wthn ten (10) days from demand to the corporaton for
notaton that such shares are dssentng shares; and,
6. If the shares are transferred and the certfcate
subsequenty canceed.
Who bears the cost of apprasa?
- It depends
- The corporaton bears the cost f
a. The prce offered by the corporaton s ower
than the far vaue of the shares of the dssentng
stockhoder as determned by the apprasers;
b. Where an acton s fed by the dssentng
stockhoder to recover such far vaue and the refusa of
the stockhoder to receve payment s found by the court
to be |ustfed.
- Dssentng stockhoder w be abe for the cost
and expenses of apprasa when
a. When the prce offered by the corporaton s
approxmatey the same as the far vaue ascertaned by
the apprasers;
b. Where the acton fed by the dssentng
stockhoder and hs refusa to accept payment s found
by the court to be un|ustfed.
The dssentng stockhoder may aso se,
transfer or assgn hs shares
Section "$. Notaton on certfcates; rghts of
transferee. - Wthn ten (10) days after demandng
payment for hs shares, a dssentng stockhoder sha
submt the certfcates of stock representng hs shares
to the corporaton for notaton thereon that such shares
are dssentng shares. Hs faure to do so sha, at the
opton of the corporaton, termnate hs rghts under ths
Tte. I9 2,*7e2 7e67e2ente+ 4> t,e ce7ti9ic*te2
4e*7in. 23c, not*tion *7e t7*n29e77e+: *n+ t,e
ce7ti9ic*te2 con2eG3ent?> c*nce??e+: t,e 7i.,t2 o9
t,e t7*n29e7o7 *2 * +i22entin. 2tocB,o?+e7 3n+e7
t,i2 Tit?e 2,*?? ce*2e *n+ t,e t7*n29e7ee 2,*?? ,*8e
*?? t,e 7i.,t2 o9 * 7e.3?*7 2tocB,o?+e7D *n+ *??
+i8i+en+ +i2t7i43tion2 @,ic, @o3?+ ,*8e *cc73e+
on 23c, 2,*7e2 2,*?? 4e 6*i+ to t,e t7*n29e7ee. <n=
NON0STOC1 CORPORATIONS
What s a non-stock corporaton?
- A non-stock corporaton s one where no part of
ts ncome s dstrbutabe as dvdends to ts members,
trustees, or offcers, sub|ect to the provsons of ths
code on dssouton
What provson of the code w govern non-
stock corporatons? Woud the provson governng stock
corporatons aso appy to non-stock corporatons?
- Yes, 2
nd
par. Of secton 87 provdes:
The provsons governng stock corporaton,
when pertnent, sha be appcabe to non-stock
corporatons, except as may be covered by specfc
provsons of ths Tte. (n)
How s the rght to vote exercsed n a non-
stock corporaton compared to a stock corporaton
May a member n a non-stock corporaton vote
cumuatvey?
- Genera rue s NO
May t be granted or aowed by the by-aws?
- Yes
May the rght to cumuatve votng be dened n
a stock corporaton?
- No, Doctrne of Lmted Capacty
May members n a non-stock corporaton vote
by proxy?
- Yes, secton 89 provdes that:
"Uness otherwse provded n the artces of
ncorporaton or the by-aws, a member may vote by
proxy n accordance wth the provsons of ths Code. (n)
"
May the rght to vote by proxy be vady dened
n a stock corporaton?
- No, t s a matter of rght n a stock corporaton
May member of a non-stock corporaton cast
ther vote by text?
- Yes, sub|ect to the approva and terms and
condtons of the SEC <sec. 89>
"Votng by ma or other smar means by
members of non-stock corporatons may be authorzed
by the by-aws of non-stock corporatons wth the
approva of, and under such condtons whch may be
prescrbed by, the Securtes and Exchange Commsson.
"
How about n stock?
- Votng by ma or other smar means may aso
be authorzed and aowed by the by-aws of non-stock
corporatons. Generay, n stock corporatons, the vote
must be cast at a duy consttuted meetng. The ony
excepton, n case of the atter, s n the matter of
genera amendment of the artces of ncorporaton
where the wrtten assent of the stockhoder may be
suffcent.
How s the governng board consttuted n a
non-stock corporaton? How many members?
- It may exceed 15 n a non-stock corporaton
uness the AOI or by-aws provde otherwse, as provded
for by secton 92 of the code:
Section !2. Eecton and term of trustees. -
Uness otherwse provded n the artces of ncorporaton
or the by-aws, the board of trustees of non-stock
corporatons, whch may be more than ffteen (15) n
number as may be fxed n ther artces of ncorporaton
or by-aws, sha, as soon as organzed, so cassfy
themseves that the term of offce of one-thrd (1/3) of
ther number sha expre every year; and subsequent
eectons of trustees comprsng one-thrd (1/3) of the
board of trustees sha be hed annuay and trustees so
eected sha have a term of three (3) years. Trustees
thereafter eected to f vacances occurrng before the
expraton of a partcuar term sha hod offce ony for
the unexpred perod.
No person sha be eected as trustee uness he
s a member of the corporaton.
Uness otherwse provded n the artces of
ncorporaton or the by-aws, offcers of a non-stock
corporaton may be drecty eected by the members. (n)
Ouafcatons?
1. He s a member of the assocaton;
2. Ma|orty thereof must be resdents of the
Phppnes; and,
3. Other quafcatons as may be provded for n
the by-aws.
Governng board n a non-stock
- Board of Trustees, however secton 138
provdes that:
Section 13". Desgnaton of governng boards.
- The provsons of specfc provsons of ths Code to the
contrary notwthstandng, non02tocB o7 26eci*?
co76o7*tion2 -*>: t,7o3., t,ei7 *7tic?e2 o9
inco76o7*tion o7 t,ei7 4>0?*@2: +e2i.n*te t,ei7
.o8e7nin. 4o*7+2 4> *n> n*-e ot,e7 t,*n *2
4o*7+ o9 t732tee2. <n=
Dsquafcatons
- Secton 27 aso appes to a non-stock
corporaton, same hods true to the manner of remova
<sec. 29 ad 30>
Section 2!. Vacances n the offce of drector
or trustee. - Any vacancy occurrng n the board of
drectors or trustees other than by remova by the
stockhoders or members or by expraton of term, may
be fed by the vote of at east a ma|orty of the
remanng drectors or trustees, f st consttutng a
quorum; otherwse, sad vacances must be fed by the
stockhoders n a reguar or speca meetng caed for
that purpose. A drector or trustee so eected to f a
vacancy sha be eected ony or the unexpred term of
hs predecessor n offce.
Any drectorshp or trusteeshp to be fed by
reason of an ncrease n the number of drectors or
trustees sha be fed ony by an eecton at a reguar or
at a speca meetng of stockhoders or members duy
caed for the purpose, or n the same meetng
authorzng the ncrease of drectors or trustees f so
stated n the notce of the meetng. (n)
precedng year. (n)
Who eects the other offcers?
- Drecty by the genera members uness the by-
aws or artces provde otherwse. <sec.92>
"Uness otherwse provded n the artces of
ncorporaton or the by-aws, offcers of a non-stock
corporaton may be drecty eected by the members. (n)
"
In stock corporatons who eect offcers?
- Drectors
The provson that stock corporatons cannot
vady provde that members cannot be voted by
stockhoders s ony a genera rue because there s an
excepton secton 97 of the code states that:
T,e *7tic?e2 o9 inco76o7*tion o9 * c?o2e
co76o7*tion may provde that the busness of the
corporaton 2,*?? 4e -*n*.e+ 4> t,e 2tocB,o?+e72
o9 t,e co76o7*tion 7*t,e7 t,*n 4> * 4o*7+ o9
+i7ecto72. So ong as ths provson contnues n effect:
1. No meetng of stockhoders need be caed to eect
drectors;
2. Uness the context ceary requres otherwse, the
stockhoders of the corporaton sha be deemed to be
drectors for the purpose of appyng the provsons of
ths Code; and
3. The stockhoders of the corporaton sha be sub|ect to
a abtes of drectors.
T,e *7tic?e2 o9 inco76o7*tion may kewse
provde that a o99ice72 o7 e-6?o>ee2 o7 t,*t
26eci9ie+ o99ice72 o7 e-6?o>ee2 sha be eected or
*66ointe+ 4> t,e 2tocB,o?+e72: in2te*+ o9 4> t,e
4o*7+ o9 +i7ecto72.
Nature of membershp s non-transferrabe and
persona n nature uness the artces of ncorporaton or
by-aws provde otherwse
Section !&. Non-transferabty of
membershp. - Membershp n a non-stock corporaton
and a rghts arsng there from are persona and non-
transferabe, uness the artces of ncorporaton or the
by-aws otherwse provde. (n)
How s a membershp requrement n a non-
stock corporaton
A hods a membershp certfcate
B goes to the corporaton and compes the corporaton
to record the transfer n hs name
- Membershp n non-stock corporatons may be
acqured by compyng wth the provsons of ts rues
prescrbed n the by-aws. Ths s n consonance wth the
express power granted by aw under secton 36,
paragraph 6 of the code, authorzng them to admt
members thereof and that authorty carres wth t the
power to prescrbe rues on membershp. It has thus
been stated that n the absence of charter or statutory
restrctons, non-stock corporatons may determne who
sha be admtted to membershp and how they sha be
admtted.
Section 3$. Corporate powers and capacty. -
Every corporaton ncorporated under ths Code has the
power and capacty:
6. In case of stock corporatons, to ssue or se stocks to
subscrbers and to se stocks to subscrbers and to se
treasury stocks n accordance wth the provsons of ths
Code; and to admt members to the corporaton f t be a
non-stock corporaton;
- They can provde the manner n whch to admt
dependng on ther own rues
The power or authorty to termnate members
n non-stock corporatons s sad to be nherent but strct
compance wth the manner and procedure ad down n
the by-aws must be observed, otherwse t may render
the expuson neffectve and nvad.
Section !1. Termnaton of membershp. -
Membershp sha be termnated n the manner and for
the causes provded n the artces of ncorporaton or
the by-aws. Termnaton of membershp sha have the
effect of extngushng a rghts of a member n the
corporaton or n ts property, uness otherwse provded
n the artces of ncorporaton or the by-aws. (n)
Power s nherent and may be exercsed n
certan stuatons:
1. When an offense s commtted whch, athough
t has no mmedate reaton to a members duty as
such, t s so nfamous as to render hm unft for socety
of honest men, whch s ndctabe at common aw;
2. When the offense s a voaton of hs duty as
member of the corporaton; and,
3. When the offense s of a mxed nature, beng
both aganst hs duty as a member of the corporaton,
and aso ndctabe at common aw.
If the conduct of the member comes wthn any of ths
cases, t s a ground for vad expuson athough t may
not be expressy made so by the by-aws
Chnese YMCA vs. Chng
- Rght of the corporaton to choose who the
members are, cannot be nqured or ntervened by the
court
- The appeaed decson thus contravened the
estabsh prncpe that the courts cannot strp a member
of a non-stock corporaton of hs membershp theren
wthout cause.
Lons Cub Internatona vs. CA
- Courts w not generay nterfere on matters
nvovng the nterna affars of an unncorporated
assocaton such as eecton contest uness the acts
companed of are arbtrary, oppressve, frauduent,
voatve of cv rghts and the ke
- Genera rue s that the courts w not nterfere
wth the nterna affars of an unncorporated assocaton
so as to sette dsputes between the members, or
questons of pocy, dscpne, or nterna government,
so ong as the government of the socety s fary and
honesty admnstered n conformty wth ts by-aws and
the aw of the and, and no property or cv rghts are
nvoved.
- Exceptons are the foowng:
a. Where aw and |ustce so requre, and the
proceedngs of the assocaton are sub|ect to |udca
revew where there s fraud, oppresson, or bad fath, or
where the acton companed of s caprcous, arbtrary,
or un|usty dscrmnatory
b. To grant reef n case property or cv rghts are
nvaded, athough t has aso been hed that the
nvovement of property rghts does not necessary
authorze |udca nterventon, n the absence of
arbtrarness, fraud or couson.
c. Are voatve of the aws of the socety, or the
aw of the and, as by deprvng the person of due
process of aw
d. There s ack of |ursdcton on the part of the
trbuna conductng the proceedngs, where the
organzaton exceeds ts powers, or where the
proceedngs are otherwse ega
Corporatons, stock and non-stock, may be
dssoved n accordance and pursuant to the provsons
of Sectons 118 to 121 of the Corporaton Code and the
pertnent provsons of P.D. 902-A, as amended. If such
be the case, the assets of the corporaton are to be
dstrbuted n accordance wth aw and estabshed
|ursprudence.
If a non-stock corporaton s dssoved how w
ts propertes be dstrbuted?
Section !4. Rues of dstrbuton. - In case
dssouton of a non-stock corporaton n accordance wth
the provsons of ths Code, ts assets sha be apped
and dstrbuted as foows:
1. A abtes and obgatons of the corporaton sha
be pad, satsfed and dscharged, or adequate provson
sha be made therefore;
2. Assets hed by the corporaton upon a condton
requrng return, transfer or conveyance, and whch
condton occurs by reason of the dssouton, sha be
returned, transferred or conveyed n accordance wth
such requrements;
3. Assets receved and hed by the corporaton sub|ect to
mtatons permttng ther use ony for chartabe,
regous, benevoent, educatona or smar purposes,
but not hed upon a condton requrng return, transfer
or conveyance by reason of the dssouton, sha be
transferred or conveyed to one or more corporatons,
socetes or organzatons engaged n actvtes n the
Phppnes substantay smar to those of the
dssovng corporaton accordng to a pan of dstrbuton
adopted pursuant to ths Chapter;
4. Assets other than those mentoned n the precedng
paragraphs, f any, sha be dstrbuted n accordance
wth the provsons of the artces of ncorporaton or the
by-aws, to the extent that the artces of ncorporaton
or the by-aws, determne the dstrbutve rghts of
members, or any cass or casses of members, or
provde for dstrbuton; and
5. In any other case, assets may be dstrbuted to such
persons, socetes, organzatons or corporatons,
whether or not organzed for proft, as may be specfed
n a pan of dstrbuton adopted pursuant to ths
Chapter. (n)
Non-stock corporatons wth 4Bon funds, may
t be dstrbuted for and among ts members?
- Secton 94 number 3 provdes:
3. Assets receved and hed by the corporaton
sub|ect to mtatons permttng ther use ony for
chartabe, regous, benevoent, educatona or smar
purposes, but not hed upon a condton requrng return,
transfer or conveyance by reason of the dssouton,
sha be transferred or conveyed to one or more
corporatons, socetes or organzatons engaged n
actvtes n the Phppnes substantay smar to those
of the dssovng corporaton accordng to a pan of
dstrbuton adopted pursuant to ths Chapter;
- If there s no dstrbutve agreement then they
may do so through a pan of dstrbuton under secton
95
Section !#. Pan of dstrbuton of assets. - A
pan provdng for the dstrbuton of assets, not
nconsstent wth the provsons of ths Tte, may be
adopted by a non-stock corporaton n the process of
dssouton n the foowng manner:
The board of trustees sha, by ma|orty vote,
adopt a resouton recommendng a pan of dstrbuton
and drectng the submsson thereof to a vote at a
reguar or speca meetng of members havng votng
rghts. Wrtten notce settng forth the proposed pan of
dstrbuton or a summary thereof and the date, tme
and pace of such meetng sha be gven to each
member entted to vote, wthn the tme and n the
manner provded n ths Code for the gvng of notce of
meetngs to members. Such pan of dstrbuton sha be
adopted upon approva of at east two-thrds (2/3) of the
members havng votng rghts present or represented by
proxy at such meetng. (n)
CLOSE CORPORATIONS
Section !$. Defnton and appcabty of
Tte. - A cose corporaton, wthn the meanng of ths
Code, s one whose artces of ncorporaton provde
that: <1= A?? t,e co76o7*tionF2 i223e+ 2tocB o9 *??
c?*22e2: e;c?32i8e o9 t7e*237> 2,*7e2: 2,*?? 4e ,e?+
o9 7eco7+ 4> not -o7e t,*n * 26eci9ie+ n3-4e7 o9
6e72on2: not e;cee+in. t@ent> <2&=D <2= *?? t,e
i223e+ 2tocB o9 *?? c?*22e2 2,*?? 4e 2345ect to one
o7 -o7e 26eci9ie+ 7e2t7iction2 on t7*n29e7
6e7-itte+ 4> t,i2 Tit?eD *n+ <3= T,e co76o7*tion
2,*?? not ?i2t in *n> 2tocB e;c,*n.e o7 -*Be *n>
634?ic o99e7in. o9 *n> o9 it2 2tocB o9 *n> c?*22.
Notwthstandng the foregong, a corporaton sha not
be deemed a cose corporaton when at east two-thrds
(2/3) of ts votng stock or votng rghts s owned or
controed by another corporaton whch s not a cose
corporaton wthn the meanng of ths Code.
- Between and among themseves, they fee and
act ake
- Not more than 20 stockhoders
- Specfed persons, f you are not specfed, you
cannot be a stockhoder
- A the ssued stocks of a casses s sub|ect to
restrctons
- Sha not be sted n the stock exchange not
pubcy offered
- 3 quafyng condtons must be contaned n
the artces of ncorporaton, to be consdered as a cose
corporaton, f not, t w not be consdered as such and
w be governed by the genera provsons of the code
- Even f 100 % s owned by one person t w not
be consdered a cose corporaton wthout the 3
quafyng provsons
- Identty of stockhoders, specfed persons
- Actve management ether as drectors or
partners n management
- Combnaton of the corporaton and partnershp
type of busness
May any type of corporaton, be organzed as
such cose corporaton?
- No, the 3 quafyng condtons must be present
What f 2/3 of the outstandng capta stock s
owned by another corporaton whch s aso a cose
corporaton, w t be a cose corporaton?
- No, t w ony be a cosed corporaton f 2/3 of
the votng stocks of a cose corporaton s aso owned by
a cose corporaton. It must be "votng" stocks
- Even f another corporaton owns or contros
2/3 of the votng stocks of a cose corporaton, the atter
may st be consdered as such cose corporaton f the
corporaton ownng or controng the shares s aso a
cose corporaton.
"Notwthstandng the foregong, a corporaton
sha not be deemed a cose corporaton when at east
two-thrds (2/3) of ts votng stock or votng rghts s
owned or controed by another corporaton whch s not
a cose corporaton wthn the meanng of ths Code."
What knd of corporatons cannot be a cose
corporaton?
1. Mnng or o companes,
2. Stock exchange
3. Banks and nsurance companes,
4. Pubc uttes
5. Educatona nsttutons
6. Corporatons vested wth pubc nterest
Cassfcaton of drectors
- Ordnary stock- no such rght
- Cose corporaton-yes there s such a rght
Secton 97 s a permssve provson
Section !%. Artces of ncorporaton. - The
artces of ncorporaton of a cose corporaton may
provde:
1. For a cassfcaton of shares or rghts and the
quafcatons for ownng or hodng the same and
restrctons on ther transfers as may be stated theren,
sub|ect to the provsons of the foowng secton;
2. For a cassfcaton of drectors nto one or more
casses, each of whom may be voted for and eected
soey by a partcuar cass of stock; and
3. For a greater quorum or votng requrements n
meetngs of stockhoders or drectors than those
provded n ths Code.
After cassfcaton what then?
- After cassfcaton, quafcaton and then
restrcton as provded for under the 3 quafyng
condtons n secton 96
Cumuatve votng s restrcted n cose
corporatons f w be eected soey by a partcuar cass
In a cose corporaton, the artces of
ncorporaton may provde for a greater quorum and
votng requrement n meetngs of both stockhoders or
drectors to ncrease the veto power of mnorty
stockhoders, unke n a stock corporaton wheren ony
drectors meetngs may provde for greater quorum
requrement and n stockhoders meetng whch may not
be atered or ncreased, as provde for n secton 25,
foowng the doctrne of mted capacty
The artces of a cose corporaton may kewse
provde that the busness of the corporaton sha be
managed by the stockhoders rather than by the board
of drectors. However the same must contan the
contnung provsons requred n paragraph 2 of secton
97, that s:
1. No meetng of stockhoders need be caed to
eect drectors;
2. Uness the context ceary requres otherwse,
the stockhoders of the corporaton sha be deemed to
be drectors; and;
3. The stockhoders of the corporaton sha be
sub|ect to a abtes of drectors.
Labty of stockhoders actng as drectors n a
cose corporaton are more extensve snce they are
personay abe for corporate torts uness the
corporaton has obtaned a reasonabe adequate abty
nsurance, unke a ordnary stock corporaton, wheren
drectors thereof are ony abe for corporate torts ony f
they have been neggent or acted frauduenty n the
performance of ther functons.
Restrctons
- In ordnary stock corporatons, the restrctons
must appear n the artces of ncorporaton as we as
the certfcate of stocks
- In a cose corporaton, the restrctons must
appear n the artces of ncorporaton, the by-aws and
the certfcate of stocks. Otherwse, the same sha not
be bndng on any purchaser thereof n good fath
What f the stockhoders do not want to
exercse ther rght or opton to purchase may t be sod
to any person?
- Yes, any thrd person, secton 98 provdes:
Section !". Vadty of restrctons on transfer
of shares. - Restrctons on the rght to transfer shares
must appear n the artces of ncorporaton and n the
by-aws as we as n the certfcate of stock; otherwse,
the same sha not be bndng on any purchaser thereof
n good fath. Sad restrctons sha not be more onerous
than grantng the exstng stockhoders or the
corporaton the opton to purchase the shares of the
transferrng stockhoder wth such reasonabe terms,
condtons or perod stated theren. I9 36on t,e
e;6i7*tion o9 2*i+ 6e7io+: t,e e;i2tin.
2tocB,o?+e72 o7 t,e co76o7*tion 9*i?2 to e;e7ci2e
t,e o6tion to 637c,*2e: t,e t7*n29e77in.
2tocB,o?+e7 -*> 2e?? ,i2 2,*7e2 to *n> t,i7+
6e72on.
o ordnary stock corporatons are abe ony f
acted n Bad fath, fraud or neggence n performance of
duty
What f there are aready 20 stockhoders and
they want to add 2 more, may t compe?
- In ordnary stock corporatons, they may
compe by mandamus
- In cose corporatons, may not be compeed to
admt because t breaches the quafyng condtons
Snce they cannot be compeed, may they
admt?
- Yes, provded a the stockhoders consented or
nstead of consentng they decde to amend ther
artces of ncorporaton
- W have to amend the artces of ncorporaton
to accommodate other purchasers of share
- W cease to be a cose corporaton f t amends
and becomes n excess of 20
o Uness a the stockhoders consent they "may"
What f the other stockhoders ob|ect to
regster? What w be the remedy of the transferee?
- Hs remedy s rescsson. The effect of
rescsson s mutua resttuton
How about the stockhoder, what s hs
recourse?
- He may compe the cose corporaton to
purchase hs shares at ther far vaue for any reason,
provded the corporaton has suffcent assets n ts
books to cover the debts and abtes excusve of
capta
- In a cose corporaton, there s a wthdrawng
stockhoder, unke n an ordnary stockhoder where
there s none, they may ony do so n the exercse of
apprasa rghts
Section 1&#. Wthdrawa of stockhoder or
dssouton of corporaton. - In addton and wthout
pre|udce to other rghts and remedes avaabe to a
stockhoder under ths Tte, *n> 2tocB,o?+e7 o9 *
c?o2e co76o7*tion -*>: 9o7 *n> 7e*2on: co-6e? t,e
2*i+ co76o7*tion to 637c,*2e ,i2 2,*7e2 *t t,ei7
9*i7 8*?3e: @,ic, 2,*?? not 4e ?e22 t,*n t,ei7 6*7 o7
i223e+ 8*?3e: @,en t,e co76o7*tion ,*2 2399icient
*22et2 in it2 4ooB2 to co8e7 it2 +e4t2 *n+
?i*4i?itie2 e;c?32i8e o9 c*6it*? 2tocBA Provded, That
any stockhoder of a cose corporaton may, by wrtten
petton to the Securtes and Exchange Commsson,
compe the dssouton of such corporaton whenever
any of acts of the drectors, offcers or those n contro of
the corporaton s ega, or frauduent, or dshonest, or
oppressve or unfary pre|udca to the corporaton or
any stockhoder, or whenever corporate assets are beng
msapped or wasted.
Agreements may aso be entered n a cose
corporaton <sec.100>
- They can even agree to be partners n
management
- Pre-ncorporaton
- Manner n whch the busness of the corporaton
sha be managed
Board resouton
- Ordnary stock corporatons- st and act as a
body at a duy consttuted meetng, they may do so by
vrtue of the E-Commerce Act through teeconference or
vdeo conference
Excepton to the rue: other offcers may be
drecty apponted and hred by the stockhoders
Cose corporatons may vady act even wthout
a meetng provded the condtons are obtaned
Section 1&1. When board meetng s
unnecessary or mpropery hed. - Uness the by-aws
provde otherwse, any acton by the drectors of a cose
corporaton wthout a meetng sha nevertheess be
deemed vad f:
1. Before or after such acton s taken, wrtten consent
thereto s sgned by a the drectors; or
2. A the stockhoders have actua or mped knowedge
of the acton and make no prompt ob|ecton thereto n
wrtng; or
3. The drectors are accustomed to take nforma acton
wth the express or mped acquescence of a the
stockhoders; or
4. A the drectors have express or mped knowedge of
the acton n queston and none of them makes prompt
ob|ecton thereto n wrtng.
Pre-emptve rghts n a cose corporaton s
absoute
Section 1&2. Pre-emptve rght n cose
corporatons. - The pre-emptve rght of stockhoders n
cose corporatons sha extend to a stock to be ssued,
money, property or persona servces, or n payment of
corporate debts, uness the artces of ncorporaton
provde otherwse.
Why s t sad to be absoute?
- Because there s no pubc offerng n a cose
corporaton, otherwse t w not be consdered as cose
In a cose corporaton the pre-emptve rghts s
broadened to ncude a ssues wthout excepton uness
dened or mted by the artces of ncorporaton
Secton 39 s the governng provson
concernng rghts of the stockhoder n an ordnary stock
corporaton and t may be dened. If t s not dened a
stockhoder can exercse hs pre-emptve rghts for a
ssues of shares whether money, property or prevousy
ncurred ndebtedness.
Are treasury shares covered n the exercse of
pre-emptve rghts n ordnary stock corporatons?
As regards amendments
Section 1&3. Amendment of artces of
ncorporaton. - Any amendment to the artces of
ncorporaton whch seeks to deete or remove any
provson requred by ths Tte to be contaned n the
artces of ncorporaton or to reduce a quorum or votng
requrement stated n sad artces of ncorporaton sha
not be vad or effectve uness approved by the
affrmatve vote of at east two-thrds (2/3) of the
outstandng capta stock, whether wth or wthout
votng rghts, or of such greater proporton of shares as
may be specfcay provded n the artces of
ncorporaton for amendng, deetng or removng any of
the aforesad provsons, at a meetng duy caed for the
purpose.
What happens f there s a deadock?
- Secton 104 provdes for a remedy
Section 1&4. Deadocks. - Notwthstandng
any contrary provson n the artces of ncorporaton or
by-aws or agreement of stockhoders of a cose
corporaton, f the drectors or stockhoders are so
dvded respectng the management of the corporaton's
busness and affars that the votes requred for any
corporate acton cannot be obtaned, wth the
consequence that the busness and affars of the
corporaton can no onger be conducted to the
advantage of the stockhoders generay, the Securtes
and Exchange Commsson, upon wrtten petton by any
stockhoder, sha have the power to arbtrate the
dspute. In the exercse of such power, the Commsson
sha have authorty to make such order as t deems
approprate, ncudng an order: (1) canceng or aterng
any provson contaned n the artces of ncorporaton,
by-aws, or any stockhoder's agreement; (2) canceng,
aterng or en|onng any resouton or act of the
corporaton or ts board of drectors, stockhoders, or
offcers; (3) drectng or prohbtng any act of the
corporaton or ts board of drectors, stockhoders,
offcers, or other persons party to the acton; (4)
requrng the purchase at ther far vaue of shares of
any stockhoder, ether by the corporaton regardess of
the avaabty of unrestrcted retaned earnngs n ts
books, or by the other stockhoders; (5) appontng a
provsona drector; (6) dssovng the corporaton; or (7)
grantng such other reef as the crcumstances may
warrant.
A provsona drector sha be an mparta
person who s nether a stockhoder nor a credtor of the
corporaton or of any subsdary or affate of the
corporaton, and whose further quafcatons, f any,
may be determned by the Commsson. A provsona
drector s not a recever of the corporaton and does not
have the tte and powers of a custodan or recever. A
provsona drector sha have a the rghts and powers
of a duy eected drector of the corporaton, ncudng
the rght to notce of and to vote at meetngs of
drectors, unt such tme as he sha be removed by
order of the Commsson or by a the stockhoders. Hs
compensaton sha be determned by agreement
between hm and the corporaton sub|ect to approva of
the Commsson, whch may fx hs compensaton n the
absence of agreement or n the event of dsagreement
between the provsona drector and the corporaton.
- Powers of the SEC n ntra-corporate concerns
has been transferred to the proper commerca courts
- Prohbt, even f actng n good fath
- Provsona drector apponted by the court
- Requrng the purchase, rrespectve of
- The provson of the aw above-quoted gves the
SEC a very wde dscreton n respect to management of
a cose corporaton n the event of a deadock. It may:
1. Cance or ater any provson n the artces of
ncorporaton, by-aws or any stockhoders agreement
2. Cance, ater or en|on any resouton or other
act of the corporaton or ts board of drectors,
stockhoders or offcers
3. Prohbt any act of the corporaton or ts board
of drectors, stockhoders or offcers or other persons
party to the acton;
4. Requrng the purchase of the par vaue of the
shares of any stockhoders, ether by the corporaton
regardess of avaabty of unrestrcted earnngs, or by
the other sharehoders,
5. Appontment of a provsona drector
6. Dssovng the corporaton; or
7. Other reef as the crcumstances may warrant.
Secton 105
- Dshonesty s a ground for dssouton of a cose
corporaton
- Even one stockhoder may petton for
dssouton
o when there s a reef avaabe, dssouton
woud not be avaabe n an ordnary corporaton
CLOSE CORPORATION ORDINARY STOCK
CORPORATION
1. The number of
stockhoders cannot
exceed 20
No mtaton as to
number of sharehoder
2. To the extent that a
stockhoders can be
deemed drectors, the
number of drectors can
effectvey be more than
15
Maxmum number of
drectors s 15
3. Shares of stock are
sub|ect to specfed
restrctons
Generay no restrcton on
transfer of shares
4. Shares of stock are
prohbted from beng
sted n the stock
exchange or offered for
sae to the pubc
No prohbton
5. Stockhoders may take an
actve part n corporate
management by vestng
management to them
rather than a Board of
Drector
Management s odged n
the Board of Drectors
6. Those actve n
management are
personay abe for
corporate torts uness the
corporaton has obtaned
an adequate abty
nsurance
Drectors are abe for
torts ony f they have
acted neggenty or
frauduenty
7. Drectors can vady act
even wthout a meetng
Drectors must, as a rue,
act as a body at a duy
consttuted meetng
8. Agreements between
stockhoders regardng
the operatons of the
busness can vady be
made
Not vad and bndng
snce stockhoders
agreement cannot mt
the dscreton of the Board
to manage corporate
affars
9. To the extent that
drectors may be
cassfed nto one or more
casses and to be voted
soey by a partcuar cass
of stock, cumuatve
votng may, n effect, be
restrcted
Ordnary, no such
cassfcaton and no
restrctons on cumuatve
votng
10. The artces of
ncorporaton may provde
that a offcers sha be
eected or apponted by
the stockhoders
Offcers are eected by the
Board of Drectors
11. It may provde for
greater quorum and
votng requrements n
meetngs of stockhoders
and drectors
Athough the artces of
ncorporaton or by-aws
may provde for greater
quorum and votng
requrements n drectors
meetng under secton 25,
those for stockhoders
meetng cannot generay
be atered
12. Restrcton on transfer
of shares shoud be
ndcated n the artces of
ncorporaton, by-aws and
stock certfcates
Vad and bndng f
ndcated n the artces of
ncorporaton and stock
certfcates
13. Pre-emptve rghts of
stockhoders s broader as
t ncude a ssues
wthout excepton
Pre-emptve rghts may be
dened as provded for n
secton 39
14. A stockhoder may
wthdraw and compe the
corporaton to purchase
hs shares for any reason
wth the mtaton ony
that the corporaton has
suffcent assets to cover
ts abtes excusve of
capta stock
Uness he ses hs shares,
a stockhoder cannot get
back hs nvestment nor
compe the corporaton to
buy hs shares except n
the exercse of hs
apprasa rght
15. The proper forum may
nterfere n the
management of a cose
corporaton n case of
deadocks under Secton
104, even of the
drectors/stockhoders are
actng n good fath
Courts cannot nterfere I
the busness |udgment of
the drectors/stockhoders
"BUSINESS |UDGMENT
RULE"
16. Any stockhoder may
petton the SEC for
corporate dssouton on
grounds among others,
provdes for n secton 105
Dssouton may be had
ony on the grounds
provded by the provsons
of the Code on dssouton
and P.D. 902-A, as
amended
Manue Duay Enterprses vs. CA
- What was the poston of Manue Duay here?
Presdent, Genera Manager and Treasurer
- Cannot act both as presdent and treasurer at
the same tme
- Snce t s a cose corporaton owned by the
famy of Manue Duay, save and except the secretary, t
shoud be governed by Tte XII
- Pettoner s cassfed as a cose corporaton
and consequenty a board resouton authorzng the sae
or mortgage of the sub|ect property s not necessary to
bnd the corporaton for the acton of ts presdent. At
any rate, a corporate acton taken at a board meetng
wthout proper ca or notce n a cose corporaton s
deemed ratfed by the absent drector uness the atter
prompty fes hs wrtten ob|ecton wth the secretary of
the corporaton after havng knowedge of the meetng
whch, n ths case, pettoner Vrgo Duay faed to do.
- Vrgo Duay s a sgnatory wtness, he knows
very we about the deed of absoute sae, he s
estopped
Naguat vs. NLRC
- Secton 100 par. 5. To the extent that the
stockhoders are actvey engaged n the management
or operaton of the busness and affars of a cose
corporaton, the stockhoders sha be hed to strct
fducary dutes to each other and among themseves.
Sad stockhoders sha be personay abe for corporate
torts uness the corporaton has obtaned reasonaby
adequate abty nsurance.
Famy corporatons s not automatcay a cose
corporaton the 3 quafyng condtons must be present.
SPECIAL CORPORATIONS
2 types of speca corporatons
1. Educatona corporatons
2. Regous corporatons
2.1 Corporaton Soe
2.2 Regous Socetes
What provson governs educatona
corporatons?
Section 1&$. Incorporaton. - Educatona
corporatons sha be governed by speca aws and by
the genera provsons of ths Code. (n)
- Speca aws ke they Educaton Act of the
Phppnes
- These nsttutons of earnng, once recognzed
by the government as such are mandated by aw to be
ncorporated wthn nnety (90) days under the
provsons of the Corporaton Code and must, perforce,
compy wth the requrements and procedure ad down
there under. Ther faure to so w not mmune the
educatona nsttuton from sut as a corporaton.
(Chang Ka Sek Case)
- Favorabe recommendaton of government
agency nvoved
Two types of educatona corporatons
- Certfcate of competon n the academc fed
- Vocatona and technca ones
o Recommendaton of DECS f certfcate of
competon n the academc fed
How s the governng board of an educatona
nsttuton nsttuted?
- Non-stock- mutpes of 5 ony (exampe:
5,10,15)
- Stock- can be anywhere between 5 to 15
Can they consst of 7 or 9 members?
- Yes, f stock
Can they be ncorporated aso as non-stock?
- Yes
- B.P. 232 aows the organzaton of an
educatona nsttuton that s stock corporaton, ony f
they do not ssue a certfcate of competon n the
academc fed
Ouafcatons and dsquafcatons of the
membershp n the board of an educatona corporaton
- Educatona corporatons are governed by
speca aws and genera provsons, hence f there s no
provson n the speca aw, you go back to secton 25
and 27 of the genera provsons
- Stock- must be a stockhoder
- Non-stock- must be a member
- By-aws may provde for addtona
quafcatons and dsquafcatons
Section 2#. Corporate offcers, quorum. -
Immedatey after ther eecton, the drectors of a
corporaton must formay organze by the eecton of a
presdent, who sha be a drector, a treasurer who may
or may not be a drector, a secretary who sha be a
resdent and ctzen of the Phppnes, and such other
offcers as may be provded for n the by-aws. Any two
(2) or more postons may be hed concurrenty by the
same person, except that no one sha act as presdent
and secretary or as presdent and treasurer at the same
tme.
The drectors or trustees and offcers to be
eected sha perform the dutes en|oned on them by aw
and the by-aws of the corporaton. Uness the artces of
ncorporaton or the by-aws provde for a greater
ma|orty, a ma|orty of the number of drectors or
trustees as fxed n the artces of ncorporaton sha
consttute a quorum for the transacton of corporate
busness, and every decson of at east a ma|orty of the
drectors or trustees present at a meetng at whch there
s a quorum sha be vad as a corporate act, except for
the eecton of offcers whch sha requre the vote of a
ma|orty of a the members of the board.
Drectors or trustees cannot attend or vote by proxy at
board meetngs. (33a)
Artce 14 secton 4 par. 2 of the Consttutons
Educatona nsttutons, other than those
estabshed by regous groups and msson boards, sha
be owned soey by ctzens of the Phppnes or
corporatons or assocatons at east sxty per centum of
the capta of whch s owned by such ctzens. The
Congress may, however, requre ncreased Fpno
equty partcpaton n a educatona nsttutons. The
contro and admnstraton of educatona nsttutons
sha be vested n ctzens of the Phppnes.
No educatona nsttuton sha be estabshed
excusvey for aens and no group of aens sha
comprse more than one-thrd of the enroment n any
schoo. The provsons of ths sub secton sha not appy
to schoos estabshed for foregn dpomatc personne
and ther dependents and, uness otherwse provded by
aw, for other foregn temporary resdents.
- Management s eft soey to ctzens of the
Phppnes
- Board of Drectors manages the corporate
affars, foregners cannot therefore be eected n the
board
- Exceptons are, msson boards and regous
orders, whch may have a governng board consstng of
foregners
Term of offce of governng board n an
educatona nsttutons
- Can serve a term of 5 years. If that be the case,
1/5 of ther number sha expre every year
Non-stock or stock, can they serve for a 1 year
term ony?
- Yes, the artces of ncorporaton may provde
that t be 1 year ony
What are these regous corporatons spoken
off?
- Corporaton soe and regous socetes
What s a corporaton soe?
- Conssts of one person ony and hs successor
n some partcuar staton, who are ncorporated by aw
n order to gve them some ega capactes and
advantages, partcuary that of perpetuty, whch n
ther natura persons they coud not have had
May a corporaton be organzed by ess than 5
natura persons?
- Genera rue, 5 to 15 natura persons(except
cooperatves and corporatons prmary organzed to
hod equtes n rura banks and may rghtfuy become
ncorporators thereof)
- Excepton, corporaton soe, consst of ony one
person
May any person form or organze a corporaton
soe?
- No, not any person can form a corporaton soe,
secton 110 provdes:
Section 11&. Corporaton soe. - For the
purpose of admnsterng and managng, as trustee, the
affars, property and temporates of any regous
denomnaton, sect or church, a corporaton soe may be
formed by the chef archbshop, bshop, prest, mnster,
rabb or other presdng eder of such regous
denomnaton, sect or church. (154a)
Is t requred to fe the artces of ncorporaton
n the SEC?
- Yes
What shoud be contaned n the artces of
ncorporaton?
- Secton 111 and secton 112 provdes for the
contents and procedures
Section 111. Artces of ncorporaton. - In
order to become a corporaton soe, the chef
archbshop, bshop, prest, mnster, rabb or presdng
eder of any regous denomnaton, sect or church must
fe wth the Securtes and Exchange Commsson
artces of ncorporaton settng forth the foowng:
1. That he s the chef archbshop, bshop, prest,
mnster, rabb or presdng eder of hs regous
denomnaton, sect or church and that he desres to
become a corporaton soe;
2. That the rues, reguatons and dscpne of hs
regous denomnaton, sect or church are not
nconsstent wth hs becomng a corporaton soe and do
not forbd t;
3. That as such chef archbshop, bshop, prest, mnster,
rabb or presdng eder, he s charged wth the
admnstraton of the temporates and the management
of the affars, estate and propertes of hs regous
denomnaton, sect or church wthn hs terrtora
|ursdcton, descrbng such terrtora |ursdcton;
4. The manner n whch any vacancy occurrng n the
offce of chef archbshop, bshop, prest, mnster, rabb
of presdng eder s requred to be fed, accordng to
the rues, reguatons or dscpne of the regous
denomnaton, sect or church to whch he beongs; and
5. The pace where the prncpa offce of the corporaton
soe s to be estabshed and ocated, whch pace must
be wthn the Phppnes.
The artces of ncorporaton may ncude any
other provson not contrary to aw for the reguaton of
the affars of the corporaton. (n)
Section 112. Submsson of the artces of
ncorporaton. - The artces of ncorporaton must be
verfed, before fng, by affdavt or affrmaton of the
presdng eder, as the case may be, and accompaned
by a copy of the commsson, certfcate of eecton or
etter of appontment of such chef archbshop, bshop,
prest, mnster, rabb or presdng eder, duy certfed to
be correct by any notary pubc.
From and after the fng wth the Securtes and
Exchange Commsson of the sad artces of
ncorporaton, verfed by affdavt or affrmaton, and
accompaned by the documents mentoned n the
precedng paragraph, such chef archbshop, bshop,
prest, mnster, rabb or presdng eder sha become a
corporaton soe and a temporates, estate and
propertes of the regous denomnaton, sect or church
theretofore admnstered or managed by hm as such
presdng eder sha be hed n trust by hm as a
corporaton soe, for the use, purpose, behaf and soe
beneft of hs regous denomnaton, sect or church,
ncudng hosptas, schoos, coeges, orphan asyums,
parsonages and cemeteres thereof. (n)
Is t requred to ndcate ts terms of executon?
Why not?
- Not requred because they are supposed to
exst n perpetuty
- However, t does not mean that t sha contnue
to exst forever, t merey means that t has the capacty
of contnuous exstence durng a partcuar perod unt
dssoved n accordance wth aw
When w t acqure |udca personaty? How
do you compare ths to other types of corporaton?
- After the fng the verfed artces of
ncorporaton aong wth the documents requred n
Secton 112 wth the SEC, mmedatey becomes
endowed wth corporate personaty, ths serves as an
excepton to the rue that a corporaton acqures |urdca
personaty ony upon the ssuance of a certfcate of
ncorporaton by the sad government agency.
- Upon fng of verfed artces of ncorporaton
wth the SEC, w not requre the approva of SEC
A corporaton soe s possessed wth the same
power, rghts and prveges, to own, acqure and hod or
convey propertes ke any other corporaton? True or
Fase
- Fase, they have the same power rghts and
prveges, but when t comes to aenaton and
acquston, t must possess a court order, however when
there s a reguated method, a court order may be
dspensed wth <sec. 113>
Section 113. Acquston and aenaton of
property. - Any corporaton soe may purchase and hod
rea estate and persona property for ts church,
chartabe, benevoent or educatona purposes, and
may receve bequests or gfts for such purposes. Such
corporaton may se or mortgage rea property hed by t
by obtanng an order for that purpose from the Court of
Frst Instance of the provnce where the property s
stuated upon proof made to the satsfacton of the court
that notce of the appcaton for eave to se or
mortgage has been gven by pubcaton or otherwse n
such manner and for such tme as sad court may have
drected, and that t s to the nterest of the corporaton
that eave to se or mortgage shoud be granted. The
appcaton for eave to se or mortgage must be made
by petton, duy verfed, by the chef archbshop,
bshop, prest, mnster, rabb or presdng eder actng
as corporaton soe, and may be opposed by any
member of the regous denomnaton, sect or church
represented by the corporaton soe: Provded, That n
cases where the rues, reguatons and dscpne of the
regous denomnaton, sect or church, regous socety
or order concerned represented by such corporaton soe
reguate the method of acqurng, hodng, seng and
mortgagng rea estate and persona property, such
rues, reguatons and dscpne sha contro, and the
nterventon of the courts sha not be necessary. (159a)
Snce a corporaton soe s conssts ony of one
person, w the regstraton of the property n the name
of the corporaton soe vest unto the head thereof the
ownershp of the property?
- No, t w not vest unto the head, the head s
actng merey as a guardan
Roman Cathoc Apostoc Adm. Of Davao, nc.
vs. Land Reg. Comm, et a.
- Act ony as a guardan
- Ownershp devoves upon the congregaton or
regous denomnaton
- A corporaton conssts of one person ony and
hs successors (who w aways be one at a tme, n
some partcuar staton), who are ncorporated by aw n
order to gve them some ega capactes and
advantages, partcuary that of perpetuty, whch n
ther natura persons they coud not have had
- Roman Cathoc Church has no natonaty and
that the framers of the Consttuton, as w be hereunder
expaned, dd not have n mnd the regous
corporatons soe when they provded that 60 percent of
the capta thereof be owned by Fpno ctzens.
Drector of Lands vs. CA
- Aenabe pubc and s converted nto prvate
and when the same has been openy, contnuousy and
excusvey n possesson of the property as concept of
an owner for 30 years, automatcay that s
Repubc of the Phppnes vs. IAC
- Determnaton of the character of the and
shoud be n mnd
- If they st form part of pubc doman they
cannot be owned, but f they are converted nto prvate
and, the consttutona prohbton w not appy
If there s vacancy who w f up the same?
What f there s none, what must the successor do?
- Accordng to secton 114:
Section 114. Fng of vacances. - The
successors n offce of any chef archbshop, bshop,
prest, mnster, rabb or presdng eder n a corporaton
soe sha become the corporaton soe on ther
accesson to offce and sha be permtted to transact
busness as such on the fng wth the Securtes and
Exchange Commsson of a copy of ther commsson,
certfcate of eecton, or etters of appontment, duy
certfed by any notary pubc.
Durng any vacancy n the offce of chef
archbshop, bshop, prest, mnster, rabb or presdng
eder of any regous denomnaton, sect or church
ncorporated as a corporaton soe, the person or
persons authorzed and empowered by the rues,
reguatons or dscpne of the regous denomnaton,
sect or church represented by the corporaton soe to
admnster the temporates and manage the affars,
estate and propertes of the corporaton soe durng the
vacancy sha exercse a the powers and authorty of
the corporaton soe durng such vacancy. (158a)
If a corporaton exsts n equty may t not be
dssoved?
Section 11#. Dssouton. - A corporaton soe
may be dssoved and ts affars setted vountary by
submttng to the Securtes and Exchange Commsson a
verfed decaraton of dssouton.
The decaraton of dssouton sha set forth:
1. The name of the corporaton;
2. The reason for dssouton and wndng up;
3. The authorzaton for the dssouton of the
corporaton by the partcuar regous denomnaton,
sect or church;
4. The names and addresses of the persons who are to
supervse the wndng up of the affars of the
corporaton.
Upon approva of such decaraton of dssouton
by the Securtes and Exchange Commsson, the
corporaton sha cease to carry on ts operatons except
for the purpose of wndng up ts affars. (n)
- Whe secton 115 of the code provdes for the
process and procedure for the dssouton of a corporate
soe, there s nothng n the aw tsef whch woud
prohbt t from amendng ts artces of ncorporaton
- It s beeved that authorzaton for the
dssouton by the partcuar regous denomnaton, sect
or church, as requred n sub-paragraph 3 of secton 115
woud st be necessary n the case of amendng the
artces of ncorporaton to affect dssouton.
o Expraton of a corporate term w not appy to
a regous corporaton
May a corporaton soe be dssoved by |udca
decree?
- Genera rue: No, because a corporaton soe, s
by ts very nature eccesastca and regous (doctrne
of separaton of church and state)
- Excepton: poce power of the state, f ts
purpose s beng carred out and s nstead beng used
for ega purpose, t may be so dssoved
What are regous socetes?
- Under common aw, a regous socety s a
body of persons assocated together for the purpose of
mantanng regous worshp.
Is t aso requred to fe ts artces of
ncorporaton to the SEC?
- No <sec. 116> "may"
What shoud be contaned n the artces of
ncorporaton?
Section 11$. Regous socetes. - Any
regous socety or regous order, or any docese,
synod, or dstrct organzaton of any regous
denomnaton, sect or church, uness forbdden by the
consttuton, rues, reguatons, or dscpne of the
regous denomnaton, sect or church of whch t s a
part, or by competent authorty, may, upon wrtten
consent and/or by an affrmatve vote at a meetng
caed for the purpose of at east two-thrds (2/3) of ts
membershp, ncorporate for the admnstraton of ts
temporates or for the management of ts affars,
propertes and estate by fng wth the Securtes and
Exchange Commsson, artces of ncorporaton verfed
by the affdavt of the presdng eder, secretary, or cerk
or other member of such regous socety or regous
order, or docese, synod, or dstrct organzaton of the
regous denomnaton, sect or church, settng forth the
foowng:
1. That the regous socety or regous order, or
docese, synod, or dstrct organzaton s a regous
organzaton of a regous denomnaton, sect or church;
2. That at east two-thrds (2/3) of ts membershp have
gven ther wrtten consent or have voted to ncorporate,
at a duy convened meetng of the body;
3. That the ncorporaton of the regous socety or
regous order, or docese, synod, or dstrct organzaton
desrng to ncorporate s not forbdden by competent
authorty or by the consttuton, rues, reguatons or
dscpne of the regous denomnaton, sect, or church
of whch t forms a part;
4. That the regous socety or regous order, or
docese, synod, or dstrct organzaton desres to
ncorporate for the admnstraton of ts affars,
propertes and estate;
5. The pace where the prncpa offce of the corporaton
s to be estabshed and ocated, whch pace must be
wthn the Phppnes; and
6. The names, natonates, and resdences of the
trustees eected by the regous socety or regous
order, or the docese, synod, or dstrct organzaton to
serve for the frst year or such other perod as may be
prescrbed by the aws of the regous socety or
regous order, or of the docese, synod, or dstrct
organzaton, the board of trustees to be not ess than
fve (5) nor more than ffteen (15). (160a)
Is t requred to ndcate ts term of exstence?
- Lkewse to exst n perpetuty, the aw does not
requre to ndcate ts term of exstence
When w t acqure |urdca personaty?
- Ony a corporaton soe may come nto
exstence wthout SEC approva, secton 19 w thus
govern, Vested wth |udca capacty upon ssuance of
the certfcate by the SEC
o However t s not accurate accordng to atty.
Lada because there are those that can ssue for
exampe cooperatves- BUREAU OF COOPERATI'ES
whch regster, home nsurance guaranty corporaton-
(OME OWNERS
How may regous socetes be dssoved?
- Go to the genera rues governng dssouton,
because the rues under speca corporatons do not
provde for such rue
DISSOLUTION
What s dssouton?
- Extngushment of the corporate franchse and
the termnaton of corporate exstence
3 modes of dssouton
1. By expraton of ts term;
2. By vountary surrender of ts prmary franchse
(vountary dssouton);
3. By revocaton of ts corporate franchse
(nvountary dssouton)
Phppne Natona Bank vs. CFI
- When the perod of corporate fe expres, the
corporaton ceases to be a body corporate for purposes
of contnung the busness for whch t s organzed. But
t sha nevertheess be contnued as a body corporate
for three years after the tme when t woud have be
dssoved, for the purpose of prosecutng and defendng
suts by or aganst t and for enabng t graduay to
sette and cose ts affars to dspose of and convey ts
property and to dvde ts assets. There s no need for
the nsttuton of a proceedng for quo warranto to
determne the tme and date of the dssouton of a
corporaton because the perod of corporate exstence s
provded n the artces of ncorporaton. When such
perod expres and wthout any extenson havng been
made pursuant to aw, the corporaton s dssoved
automatcay nsofar as the contnuaton of ts busness
s concerned.
- The rghts of the essor and the essee over the
mprovements whch the atter constructed on the
eased premses are governed by Artce 1678 of the
Cv Code. The provson gves the essee the rght to
remove the mprovements f the essor chooses not to
pay one haf of the vaue thereof. However, n the case
at bar the aw w not appy because the partes heren
have stpuated n the contract ther own terms and
condtons concernng the mprovements before the
termnaton of the ease. Pettoner PNB as assgnee of
PBM succeeded to the obgaton of the atter under the
contract of ease. It coud not possess rghts more than
what PBM had as essee under the contract. Hence,
pettoner was duy bound to remove the mprovements
before the expraton of the perod of ease. Its faure to
do so when the ease was termnated was tantamount to
a waver of ts rghts and nterest over the mprovements
on the eased premse.
o 3 modes of dssouton, 3 modes of vountary
dssouton and 3 modes of qudaton and wndng up-
FREOUENTLY ASKED IN THE FINALS
What are the 3 modes of vountary dssouton?
1. Vountary dssouton where no credtors are
affected; <sec.118>
2. Vountary dssouton where credtors are
affected; <sec. 119>
3. Shortenng of corporate term. <sec. 120>
Vountary dssouton where no credtors are
affected <sec.118>
- The forma and procedura requrements
necessary are the foowng:
1. Ma|orty vote of the board of drectors or
trustees;
2. Sendng of notce of each stockhoders or
member ether by regstered ma or persona devery at
east thrty (30) days pror to the meetng (schedued by
the board for the purpose of submttng the board acton
to dssove the corporaton for approva of the
stockhoder or members.);
3. Pubcaton of the notce of tme, pace and
sub|ect of the meetng for three (3) consecutve weeks
n a newspaper pubshed n the pace where the
prncpa offce of sad corporaton s ocated or n a
newspaper of genera crcuaton n the Phppnes;
4. Resouton adopted by the affrmatve vote of
the stockhoders ownng at east 2/3 of the outstandng
capta stock or 2/3 of the members at the meetng duy
caed for the purpose;
5. A copy of the resouton authorzng the
dssouton must be certfed by a ma|orty of the board
of drectors or trustees and countersgned by the
corporate secretary;
6. Issuance of a certfcate of dssouton by the
SEC.
Shoud ths be strcty comped wth?
- Yes, compance wth the requrements and
formates prescrbed above s mandatory such that
faure to compy therewth w have no effect on the
ega exstence of the corporaton.
W dssouton be effectve and vad by a mere
resouton of the BOD and stockhoders?
- No, a mere resouton by the stockhoders or
the BOD of a corporaton to dssove the same does not
affect the dssouton but that some other steps,
admnstratve or |udca s necessary. (Daguhoy
Enterprses vs. Ponce)
- Snce t s the State whch grants ts rght to
exst, t s ony through the State whch can aow the
termnaton of ts exstence; wthout consent of the
State, t w not be dssoved.
Vountary dssouton where credtors are
affected <sec.119>
- By vrtue of a petton, when there are credtors
affected
- The foowng formates woud thus be
requred:
1. Affrmatve vote of the stockhoders
representng at east 2/3 of the outstandng capta stock
or at east 2/3 of the members at a meetng duy caed
for that purpose;
2. Petton for dssouton sha be fed wth the
SEC sgned by a ma|orty of ts board of drectors or
trustees or other offcers havng the management of ts
affars, verfed by the presdent or secretary or one of
ts drectors or trustees, settng forth a cams and
demands aganst t.
3. Issuance of an order by the SEC rectng the
purpose of the petton and fxng the date on or before
whch ob|ectons thereto may be fed by any person,
whch date sha not be ess than thrty days nor more
than sxty days after entry of the order.
4. Before such date, a copy of the order must be
pubshed once a week for three (3) consecutve weeks
n a newspaper of genera crcuaton pubshed n the
cty or muncpaty where the prncpa offce s stuated
or n a newspaper of genera crcuaton n the
Phppnes.
5. Postng of the same order for three (3)
consecutve weeks n three (3) pubc paces n such cty
or muncpaty.
6. Upon fve (5) days notce, gven after the date
on whch the rght to fe ob|ectons has expred, the SEC
sha hear the petton and try any ssue made by the
ob|ectons fed.
7. |udgment dssovng the corporaton and
drectng of ts assets as |ustce requres and the
appontment of a recever (f necessary n ts dscreton)
to coect such assets and pay the debts of the
corporaton.
o The foregong are aso mandatory requrements
Is the appontment of a recever mandatory?
- No, t s merey permssve or dscretonary on
the part of the court. The code uses the word "may"; the
aw ntended to et the sharehoders have the contro of
the assets of the corporaton upon dssouton and
wndng up.
- The drectors may aso undertake qudaton
and wndng up of ts corporate affars, and sound
busness |udgment, on how they w wnd up
Dssouton by shortenng of corporate term
<sec.120>
- W be vad upon approva of the SEC, unke
genera amendments, whch w be deemed approved f
not acted upon by the SEC wthn 6 months from the
date of fng for a cause not attrbutabe to the
corporaton.
- Shortenng of the corporate term partakes the
nature of an amendment of the artces of ncorporaton.
Secton 16 under genera amendments aows "wrtten
assent" secton 37 mandates that the vote must be cast
at a duy consttuted meetng.
Section 12&. Dssouton by shortenng
corporate term. - A vountary dssouton may be
effected by amendng the artces of ncorporaton to
shorten the corporate term pursuant to the provsons of
ths Code. A copy of the amended artces of
ncorporaton sha be submtted to the Securtes and
Exchange Commsson n accordance wth ths Code.
Upon approva of the amended artces of ncorporaton
of the expraton of the shortened term, as the case may
be, the corporaton sha be deemed dssoved wthout
any further proceedngs, sub|ect to the provsons of ths
Code on qudaton. (n)
o Intra-corporate- speca commerca courts
Another way of dssovng a corporaton s
through nvountary dssouton
Section 121. Invountary dssouton. - A
corporaton may be dssoved by the Securtes and
Exchange Commsson upon fng of a verfed compant
and after proper notce and hearng on the grounds
provded by exstng aws, rues and reguatons. (n)
- Dssouton s tantamount to the mposton of
death penaty
- Instead of dssovng the corporaton, courts
normay en|on the further commsson of the
questoned act
- The reef of dssouton w be awarded ony
where no other remedy s avaabe and t w not be
aowed where the rghts of the stockhoders can be, or
are, protected n some other way (Repubc vs. Bsaya
Land Trans. Co. Inc.)
What are the grounds for nvountary
dssouton?
- It s commenced through a verfed compant or
motu propro by the proper courts
- Secton 6 of PD 902-A provdes for the grounds
for nvountary dssouton as foows:
1. Fraud n procurng ts certfcate of regstraton;
2. Serous msrepresentaton as to what the
corporaton can do or s dong to the great pre|udce of
or damage to the genera pubc;
3. Refusa to compy or defance of any awfu
order of the Commsson restranng commsson of acts
whch woud amount to a grave voaton of ts franchse;
4. Contnuous noperaton for a perod of at east
fve (5) years;
5. Faure to fe by-aws wthn the requred
perod;
6. Faure to fe requred reports n approprate
forms as determned by the Commsson wthn the
prescrbed perod.
- Other grounds are provded for n the
corporaton code tsef: among them are:
1. Voaton of any provson of the Code under
secton 144;
2. In case of deadock n a cose corporaton as
provded for n secton 105;
3. In a cose corporaton, any acts of drectors,
offcers or those n contro of the corporaton whch s
ega or frauduent or dshonest or oppressve or
unfary pre|udca to the corporaton or any stockhoder
or whenever corporate assets are beng msapped or
wasted under secton 105.
- Mere dshonesty s aso a ground n a cose
corporaton
- Other grounds can be found n other speca
aws ke the Securtes Reguaton Code and the Genera
Bankng Act as we as the Insurance Code.
Government vs. Phppne Sugar Estate
- It s necessary n order to secure |udca
forecosure of respondents charter to show a ms-user
of ts franchse |ustfyng such a forfeture
- Ob|ect s to protect the pubc, and not to
redress prvate grevances, the ms-user must be such
as to work or threaten a substanta n|ury to the pubc,
or such as to amount to a voaton of the fundamenta
condton of the contract by whch the franchse was
granted and thus defeat the purpose of the grant
- Courts proceed wth extreme cauton whch has
for ther ob|ect the forfeture of corporate franchse, and
forfeture w not be aowed, except under express
mtaton, or for pan abuse of power by whch the
corporaton fas to fuf the desgn and purpose of ts
organzaton. But when the abuse or voaton consttutes
or threatens a substanta n|ury to the pubc or such as
to amount to a voaton of the fundamenta condtons
of ts charter, or ts conduct s characterzed by
obduracy or pertnacty n contempt of aw, dssouton
w be granted
- Dd the court dssove the corporaton? No, t
dd not, t granted the corporaton 6 months to cease
and desst the performance of the questoned act
otherwse t w be dssoved
Government vs. E Hogar
- 3 causes of acton, the frst s that the
corporaton voated the aw by hodng on the property
beyond that provde for by aw, the second s that the
corporaton undertook the management f pettoners
beongng to denquent sharehoders of the assocaton,
and asty that the by-aw provson, whch empowers the
BD to cance shares and to return to the owners thereof
the baance returnng from the qudaton
Compare to Phppne Sugar Estate, wheren
the court rued condtona dssouton. Why decree
condtona dssouton n one and not n the other case?
- Because n E Hogar the government was at
faut, the government wasnt abe to ssue the certfcate
of tte on tme
- When the case was nsttuted, E Hogar was
aready abe to dspose the propertes n queston, n
Phppne Sugar Estate t was st the hodng the
propertes n order to enrch tsef at the expense of the
taxpayers
Repubc vs. Securty Credt and Acceptance
Corp. et a.
- The corporaton here s a endng nsttuton and
not a bankng nsttuton
- Defendant corporaton voated the aw because
before a corporaton may engage nto a bankng actvty
t must frst obtan a secondary franchse from the
Centra Bank
- Defendant corporaton threatens substanta
n|ury to the genera pubc, dssouton s warrant
- If there s a bank run kawawa naman yung
depostors
Repubc vs. Bsaya Land Transportaton Co. Inc
- The reef of dssouton w be awarded ony
where no other remedy s avaabe and t w not be
aowed where the rghts of the stockhoders can be, or
are, protected n some other way
- Msuse and msappcaton of the funds and
assets of the respondent were commtted partcuary by
the corporate offcers, where they can nstead be hed
personay abe
- Snce there s another remedy avaabe
dssouton s not warranted
Assumng the above stated corporaton s a
cose corporaton, woud the court decree otherwse?
- Yes, because n a cose corporaton, mere
dshonesty s a ground for the dssouton
- Can even be dssoved by petton of ony one
stockhoder on the grounds stated n the code < sec.
105>
Fnancng Corporaton of the Phppnes vs.
Teodoro
- Mnorty stockhoders may not ask for the
dssouton of a corporaton n prvate suts and that such
actons shoud be brought by the Government through
ts ega offcers, e;ce6t in c*2e2 @,e7e t,e
inte78ention o9 t,e St*te: 9o7 one 7e*2on o7
*not,e7: c*nnot 4e o4t*ine+: *2 @,en t,e St*te i2
not inte7e2te+ 4ec*32e t,e co-6?*int i2 2t7ict?> *
-*tte7 4et@een t,e 2tocB,o?+e72 *n+ +oe2 not
in8o?8e: in t,e o6inion o9 t,e ?e.*? o99ice7 o9 t,e
Go8e7n-ent: *n> o9 t,e *ct2 o7 o-i22ion2
@*77*ntin. G3o @*77*nto 67ocee+in. : in @,ic,
-ino7it> 2tocB,o?+e72 *7e entit?e+ to ,*8e 23c,
+i22o?3tion. It shoud be exercsed f necessary n order
not to entrey gnore and dsregard the rghts of sad
mnorty stockhoders, especay when sad mnorty
stockhoders are unabe to obtan redress and protecton
of ther rghts wthn the corporaton tsef. Stockhoders
shoud not be eft wthout recourse
P7e2ent 2et 36
- Any stockhoder or member of a corporaton
can nsttute a dssouton proceedng aganst hs own
corporaton before the proper forum
- Speca Commerca Courts, sha hear and
decde ntra-corporate dsputes
May a corporaton ask for dssouton of the
corporaton when there s no pre|udce to the genera
pubc?
- Yes, n a cose corporaton, a petton for the
dssouton of the corporaton may be nsttuted by any
one ndvdua sharehoder on the ground, even by mere
dshonesty
Effects of dssouton
- The dssouton of a corporaton not ony
termnates ts prmary franchse to be a corporaton, but
generay prevents t from further exercsng other or
secondary franchses whch have been conferred to ts.
It termnates ts power to enter nto contracts or t o
contnue the busness as a gong concern.
- Based on ths genera rue, the Supreme Court
hed that a corporaton, whose corporate fe expred,
cannot awfuy pursue the busness for whch t was
organzed. It cannot appy for a new certfcate or a
secondary franchse for t s ncapabe of recevng a
grant. Nether can t enforce a contract executed pror
ts dssouton for the purpose of contnung the busness
of ts organzaton.
- In genera the rghts and abtes of the
corporaton are not extngushed by ts dssouton.
Section 14#. Amendment or repea. - No rght
or remedy n favor of or aganst any corporaton, ts
stockhoders, members, drectors, trustees, or offcers,
nor any abty ncurred by any such corporaton,
stockhoders, members, drectors, trustees, or offcers,
sha be removed or mpared ether by the subsequent
dssouton of sad corporaton or by any subsequent
amendment or repea of ths Code or of any part thereof.
(n)
Buenafor vs. Camarnes Sur Industry Corp.
- From that tme on Camarnes Sur was pyng n
an actvty that was ega
- A corporaton where the corporate fe has
expred t cannot awfuy pursue the busness for whch
t was organzed.
- the Supreme Court hed that a corporaton,
whose corporate fe expred, cannot awfuy pursue the
busness for whch t was organzed. It cannot appy for a
new certfcate or a secondary franchse for t s
ncapabe of recevng a grant.
- Awardng t to Camarnes Sur s tantamount to
a meda for ts ega acts
- It cannot appy for a new certfcate or a
secondary franchse for t s ncapabe of recevng a
grant. It was not even a corporaton de facto. And then,
there s no appcaton subscrbed by the new
corporaton
- And yet as stated, the new corporaton has not
fed any appcaton for certfcate of pubc convenence
n Sabang, and has not pubshed such appcaton.
Cebu Port Labor Unon vs. State Marne Co
- Even a cursory readng of the provson woud
convey the dea ceary manfested n the mtaton "but
not for the purpose of contnung the busness for whch
t was estabshed," that the 3-year perod aowed by
the aw s ony for the purpose of wndng up ts affars.
Gonzaes vs. Sugar Reguatory Admnstraton
- Instead of appyng the corporaton code, the
court apped the consttutona provson
- Cannot be read as permttng to destroy the
substantve rghts
- Such woud code wth the non-mparment of
contracts cause of the consttuton
- Companants w have the rght to foow the
assets of the corporaton n the hands of SRA or any
other agency for that matter
After dssouton what next?
- Lqudaton and wndng up shoud foow
What s the defnton of qudaton and wndng
up?
- Coecton of a corporate assets, the payments
of a ts debts and settement of ts obgatons and the
utmate dstrbuton of the corporate assets, f any of t
remans, to a stockhoders n accordance wth ther
proportonate stockhodngs n the corporaton or n
accordance wth ther respectve contracts of
subscrpton.
Preference upon qudaton
- If there are preferred shares, the preference
granted to such shoud be comped wth
- Preferred shares may gve the hoder thereof,
preference ony n the dvdends but aso n the
dstrbuton of corporate assets upon qudaton or
termnaton of the corporate exstence. If such s the
ntent, the contract of subscrpton must so ndcate est
they are paced on equa footng wth common
sharehoders
- Preference may be partcpatng or non-
partcpatng
Dssoved corporatons are granted a perod of
3 years to qudate
Section 122. Corporate qudaton. - Every
corporaton whose charter expres by ts own mtaton
or s annued by forfeture or otherwse, or whose
corporate exstence for other purposes s termnated n
any other manner, sha nevertheess be contnued as a
body corporate for three (3) years after the tme when t
woud have been so dssoved, for the purpose of
prosecutng and defendng suts by or aganst t and
enabng t to sette and cose ts affars, to dspose of
and convey ts property and to dstrbute ts assets, but
t was estabshed.
At any tme durng sad three (3) years, the
corporaton s authorzed and empowered to convey a
of ts property to trustees for the beneft of stockhoders,
members, credtors, and other persons n nterest. From
and after any such conveyance by the corporaton of ts
property n trust for the beneft of ts stockhoders,
members, credtors and others n nterest, a nterest
whch the corporaton had n the property termnates,
the ega nterest vests n the trustees, and the
benefca nterest n the stockhoders, members,
credtors or other persons n nterest.
Upon the wndng up of the corporate affars,
any asset dstrbutabe to any credtor or stockhoder or
member who s unknown or cannot be found sha be
escheated to the cty or muncpaty where such assets
are ocated.
Except by decrease of capta stock and as
otherwse aowed by ths Code, no corporaton sha
dstrbute any of ts assets or property except upon
awfu dssouton and after payment of a ts debts and
abtes. (77a, 89a, 16a)
However the 3 year perod s not absoute
Lqudaton may be undertaken n ether of the
3 ways
1. By the corporaton tsef through the BOD
- Usua method or procedure of qudatng a
corporaton and athough there s no aw authorzng t,
nether s there anythng that prohbts the BOD from
undertakng the same
- If ths method s resorted to, the board w ony
have a perod of 3 years to fnsh ts task of qudaton
- Cams for or aganst the corporate entty not
fed wthn the perod w become unenforceabe as
there exst no corporate entty aganst whch they can
be enforced
- Actons pendng for or aganst the corporaton
when the 3 year perod expres, are abated snce after
the perod, the corporaton ceases for a ntents and
purposes and s no onger capabe of sung or beng
sued
2. By a trustee apponted by the corporaton
- The corporaton may opt to convey a
corporate assets to a trustees who w take charge of
qudaton
- If ths method s used, the three year perod
mtaton mposed by secton 122 w not appy
provded the desgnaton of the trustee s made wthn
that perod
3. By appontment of a recever
- A recever may be apponted by the proper
forum on petton or motu propro upon the dssouton of
the corporaton
- The appontment of a recever s, however,
permssve rather than mandatory and the aw tends to
recognze that n cases of vountary dssouton there s
no occason for the appontment of a recever except
under speca crcumstances and upon proper showng
- If a recever s apponted, the 3 year perod
fxed by aw wthn whch to compete the task of
qudaton w not kewse appy because the dssoved
corporaton s substtuted by the recever who may sue
or be sued even after that perod
o Mere appontment of a recever wthout
anythng more does mpy n the dssouton of a
corporaton
Natona Abaca other Fbers Co. vs. Pore
- Actons pendng for or aganst the corporaton
when the 3 year perod expres, are abated snce after
that perod, the corporaton ceases for a ntents and
purposes and s no onger capabe of sung or beng
sued
- May be contnued by the trustee provded done
wthn the 3 year perod
- Shoud the corporaton, therefore, fnds t
dffcut to fnsh ts qudaton, t may, at any tme
durng the three year perod, convey a ts assets and
recevabes to a trustee to prosecute and defend suts by
or aganst the corporaton begun before the expraton of
sad perod
- The effect of the conveyance s to make the
trustees the ega owners of the property conveyed,
sub|ect to the benefca nterest theren of credtors and
stockhoders
Sumera vs. Vaenca
- Thus t was hed that when a corporaton s
dssoved and the qudaton of the assets s paced n
the hands of recever or assgnee, the perod of 3 years
prescrbed by aw s not appcabe and the assgnee
may nsttute a actons eadng to the qudaton of the
corporaton even after the expraton of 3 years.
- If the corporaton carres out the qudaton of
ts assets through ts own offcers and contnues and
defends the actons brought by or aganst t, ts
exstence sha termnate at the end of three years from
the tme of dssouton; but f a recever or assgnee s
apponted, wth or wthout a transfer of ts propertes
wthn 3 years, the ega nterest passes to the assgnee,
the benefca nterest remanng n the members,
stockhoders, credtors and other nterested persons and
sad assgnee may brng an acton, prosecute that whch
has aready been commenced for the beneft of the
corporaton, or defend the atter aganst any other
acton aready nsttuted or whch may be nsttuted
even outsde of the perod of three years fxed for the
offces of the corporaton.
Board of Lqudators vs. Kaaw
- If there s a trustee, assgnee or qudator, t
can contnue prosecutng sut even beyond the 3 year
perod fxed by aw because he becomes the ega owner
of the rghts, assets and propertes conveyed to hm
Geano vs. CA
- "Trustee" as used n the corporaton statute
must be understood n ts genera concept whch coud
ncude the counse to whom was entrusted n the
nstant case, the prosecuton of the sut fed by the
corporaton. The purpose n the transfer of the assets of
the corporaton to a trustee upon ts dssouton s more
for the protecton of ts credtors and stockhoders.
Debtors ke the pettoners heren may not take
advantage of the faure of the corporaton to transfer ts
assets to a trustee, assumng t has any to transfer
whch pettoner has faed to show, n the frst pace. To
sustan pettoners contenton woud be to aow them to
enrch themseves at the expense of another, whch a
enghtened ega systems condemn.
- The counse who prosecuted and defended the
nterest of the corporaton may be consdered as a
"trustee" at east wth respect to the matter n tgaton
ony
May a corporaton that s aready dssoved,
transfer and assgn ts assets and propertes to a new
corporaton whch w contnue the busness of the
dssoved one?
- Yes, provded a the stockhoders gave ther
consent (Chung Ka Bo vs. IAC)
Repubc vs. Marsman Deveopment Company
& Chung Ka Bo vs. IAC
- Durng the three year perod granted to a
corporaton to qudate or wnd up ts affars, the BOD s
not normay permtted to undertake any actvty outsde
the usua qudaton of the corporaton. There s,
however, nothng to prevent the stockhoders from
conveyng ther respectve sharehodngs toward the
creaton of a new corporaton to contnue the busness of
the od. Ths s because wndng up s the soe actvty of
the dssoved corporaton that does not ntend to
ncorporate a new. If t does, however, t s not unawfu
for the od board of drectors to negotate and transfer
the assets of the dssoved corporaton to the new
corporaton ntended to be created as ong as the
stockhoders have gven ther consent (Repubc vs.
Marsman Deveopment Company)
- Wndng up s the soe actvty of a dssoved
corporaton that does not ntend to ncorporate anew. If
t does, however, t s not unawfu for the od board of
drectors to negotate and transfer the assets of the
dssoved corporaton to the new corporaton ntended to
be created as ong as the stockhoders have gven ther
consent (Chung Ka Bo vs. IAC)
What happens to the remanng assets and
propertes of the dssoved corporaton f qudaton and
wndng up as provded n secton 122 s not comped
wth, as a resut of whch the 3 year perod has eapsed
- If the three year extended fe has expred
wthout a trustee or recever havng been expressy
desgnated by the corporaton wthn that perod, the
board of drectors o trustees tsef, foowng the
ratonae of the Supreme Courts decson n Geano vs.
CA may be permtted to do so contnue as" trustees" by
ega mpcaton to compete the qudaton. St n the
absence of a BOD or BOT, those havng any pecunary
nterest n the assets, ncudng not ony the
sharehoders but kewse the credtors of the
corporaton, actng for and n ts behaf, mght make
proper representatons wth the SEC, whch has prmary
and suffcenty broad |ursdcton n matters of ths
nature, for workng out a fna settement of the
corporate concerns (Cemente vs. CA)
o Accordng to atty. Lada the rung of the
Supreme Court n the case of Cemente vs. CA s wrong,
opnon s further dscussed after the Cemente Case
Cemente vs. CA
- Who owns the propertes? SOCIEDAD ANONIMA
- The termnaton of the fe of a |urdca entty
does not by tsef cause the extncton or dmnuton of
the rghts and abtes of such entty or those of ts
owners and credtors. If the three year extended fe has
expred wthout a trustee or recever havng been
expressy desgnated by the corporaton wthn that
perod, the board of drectors o trustees tsef, foowng
the ratonae of the Supreme Courts decson n Geano
vs. CA may be permtted to do so contnue as" trustees"
by ega mpcaton to compete the qudaton. St n
the absence of a BOD or BOT, those havng any
pecunary nterest n the assets, ncudng not ony the
sharehoders but kewse the credtors of the
corporaton, actng for and n ts behaf, mght make
proper representatons wth the SEC, whch has prmary
and suffcenty broad |ursdcton n matters of ths
nature, for workng out a fna settement of the
corporate concerns
o t,e 73?in. i2 @7on. *cco7+in. to *tt>.
L*+i*
Accordng to atty Lada: What happens to a
corporaton that s aready dssoved, that has not been
abe to appont a trustee wth n the 3 year perod?
- a corporaton dssoved whch faed to exercse
ts rghts granted n secton 122 after the 3 year perod
has eapsed, ceases to exst for a ntents and purposes,
t can no onger sue or be sued
- accordng to 122 of the code, the property
shoud be escheated, accordngy:
Section 122. Corporate qudaton. - Every
corporaton whose charter expres by ts own mtaton
or s annued by forfeture or otherwse, or whose
corporate exstence for other purposes s termnated n
any other manner, sha nevertheess be contnued as a
body corporate for three (3) years after the tme when t
woud have been so dssoved, for the purpose of
prosecutng and defendng suts by or aganst t and
enabng t to sette and cose ts affars, to dspose of
and convey ts property and to dstrbute ts assets, but
t was estabshed.
At any tme durng sad three (3) years, the
corporaton s authorzed and empowered to convey a
of ts property to trustees for the beneft of stockhoders,
members, credtors, and other persons n nterest. From
and after any such conveyance by the corporaton of ts
property n trust for the beneft of ts stockhoders,
members, credtors and others n nterest, a nterest
whch the corporaton had n the property termnates,
the ega nterest vests n the trustees, and the
benefca nterest n the stockhoders, members,
credtors or other persons n nterest.
Upon the wndng up of the corporate affars,
*n> *22et +i2t7i43t*4?e to *n> c7e+ito7 o7
2tocB,o?+e7 o7 -e-4e7 @,o i2 3nBno@n o7 c*nnot
4e 9o3n+ 2,*?? 4e e2c,e*te+ to t,e cit> o7
-3nici6*?it> @,e7e 23c, *22et2 *7e ?oc*te+.
Except by decrease of capta stock and as
otherwse aowed by ths Code, no corporaton sha
dstrbute any of ts assets or property except upon
awfu dssouton and after payment of a ts debts and
abtes. (77a, 89a, 16a)
FOREIGN CORPORATIONS
Defnton
- Section 123. Defnton and rghts of foregn
corporatons. - For the purposes of ths Code, a foregn
corporaton s one formed, organzed or exstng under
any aws other than those of the Phppnes and whose
aws aow Fpno ctzens and corporatons to do
busness n ts own country or state. It sha have the
rght to transact busness n the Phppnes after t sha
have obtaned a cense to transact busness n ths
country n accordance wth ths Code and a certfcate of
authorty from the approprate government agency. (n)
What f the aw of the state of the foregn
corporaton does not aow Fpno ctzens to do
busness n ther country?
- The phrase "and whose aws aow Fpno
ctzens and corporatons to do busness n ts own
country or state" s not, however, an accurate ncuson
n the defnton as ay corporaton regstered or
organzed under the aws of another state s necessary
a foregn corporaton whether or not the state of ts
ncorporaton aow Fpno ctzens or corporatons to do
busness n that forum.
- The sad phrase was nserted by the framers of
the aw ony as a condton precedent to the grant of a
cense of a foregn corporaton to do busness n the
Phppnes.
Composed of 100% Amercans; organzed
under the aws other than the Phppnes
- The test s the "ncorporaton test"
- Genera rue: the pace of ts ncorporaton
rrespectve of the natonaty
- Excepton: contro test woud appy n
determnng the corporate natonaty, .e., the
ctzenshp of the controng stockhoders determnes
the natonaty of the corporaton
If a foregn corporaton wants to transact
busness n the Phppnes, what must t do?
- Obtan a cense
How may t do so?
- Accordng to sec. 125:
Section 12#. Appcaton for a cense. - A
foregn corporaton appyng for a cense to transact
busness n the Phppnes sha submt to the Securtes
and Exchange Commsson a copy of ts artces of
ncorporaton and by-aws, certfed n accordance wth
aw, and ther transaton to an offca anguage of the
Phppnes, f necessary. The appcaton sha be under
oath and, uness aready stated n ts artces of
ncorporaton, sha specfcay set forth the foowng:
1. The date and term of ncorporaton;
2. The address, ncudng the street number, of the
prncpa offce of the corporaton n the country or state
of ncorporaton;
3. The name and address of ts resdent agent
authorzed to accept summons and process n a ega
proceedngs and, pendng the estabshment of a oca
offce, a notces affectng the corporaton;
4. The pace n the Phppnes where the corporaton
ntends to operate;
5. The specfc purpose or purposes whch the
corporaton ntends to pursue n the transacton of ts
busness n the Phppnes: Provded, That sad purpose
or purposes are those specfcay stated n the
certfcate of authorty ssued by the approprate
government agency;
6. The names and addresses of the present drectors and
offcers of the corporaton;
7. A statement of ts authorzed capta stock and the
aggregate number of shares whch the corporaton has
authorty to ssue, temzed by casses, par vaue of
shares, shares wthout par vaue, and seres, f any;
8. A statement of ts outstandng capta stock and the
aggregate number of shares whch the corporaton has
ssued, temzed by casses, par vaue of shares, shares
wthout par vaue, and seres, f any;
9. A statement of the amount actuay pad n; and
10. Such addtona nformaton as may be necessary or
approprate n order to enabe the Securtes and
Exchange Commsson to determne whether such
corporaton s entted to a cense to transact busness
n the Phppnes, and to determne and assess the fees
payabe.
Attached to the appcaton for cense sha be
a duy executed certfcate under oath by the authorzed
offca or offcas of the |ursdcton of ts ncorporaton,
attestng to the fact that the aws of the country or state
of the appcant aow Fpno ctzens and corporatons
to do busness theren, and that the appcant s an
exstng corporaton n good standng. If such certfcate
s n a foregn anguage, a transaton thereof n Engsh
under oath of the transator sha be attached thereto.
The appcaton for a cense to transact
busness n the Phppnes sha kewse be
accompaned by a statement under oath of the
presdent or any other person authorzed by the
corporaton, showng to the satsfacton of the Securtes
and Exchange Commsson and other governmenta
agency n the proper cases that the appcant s sovent
and n sound fnanca condton, and settng forth the
assets and abtes of the corporaton as of the date not
exceedng one (1) year mmedatey pror to the fng of
the appcaton.
Foregn bankng, fnanca and nsurance
corporatons sha, n addton to the above
requrements, compy wth the provsons of exstng
aws appcabe to them. In the case of a other foregn
corporatons, no appcaton for cense to transact
busness n the Phppnes sha be accepted by the
Securtes and Exchange Commsson wthout prevous
authorty from the approprate government agency,
whenever requred by aw. (68a)
Is there any depost or securty requrement?
- Yes, wthn 60 days after the ssuance of the
cense, a foregn corporaton, except those engaged n
foregn bankng or nsurance, sha depost wth the SEC,
for the beneft of credtors, securtes consstng of bonds
or other evdence of ndebtedness of the Phppne
government or ts potca subdvson, or of government
owned or controed corporaton, shares of stock n
"regstered enterprses" as ths term s defned n R.A.
5186, shares of stock n domestc nsurance companes
and banks or any combnaton thereof wth an actua
market vaue of 100,000
- Addtona securtes may be requred by the
SEC f the actua market vaue of the securtes on
depost has decreased by at east 10%. Secton 126 of
the code provdes:
Section 12$. Issuance of a cense. - If the
Securtes and Exchange Commsson s satsfed that
the appcant has comped wth a the requrements of
ths Code and other speca aws, rues and reguatons,
the Commsson sha ssue a cense to the appcant to
transact busness n the Phppnes for the purpose or
purposes specfed n such cense. Upon ssuance of the
cense, such foregn corporaton may commence to
transact busness n the Phppnes and contnue to do
so for as ong as t retans ts authorty to act as a
corporaton under the aws of the country or state of ts
ncorporaton, uness such cense s sooner surrendered,
revoked, suspended or annued n accordance wth ths
Code or other speca aws.
Wthn sxty (60) days after the ssuance of the
cense to transact busness n the Phppnes, the
cense, except foregn bankng or nsurance corporaton,
sha depost wth the Securtes and Exchange
Commsson for the beneft of present and future
credtors of the censee n the Phppnes, securtes
satsfactory to the Securtes and Exchange Commsson,
consstng of bonds or other evdence of ndebtedness of
the Government of the Phppnes, ts potca
subdvsons and nstrumentates, or of government-
owned or controed corporatons and enttes, shares of
stock n "regstered enterprses" as ths term s defned
n Repubc Act No. 5186, shares of stock n domestc
corporatons regstered n the stock exchange, or shares
of stock n domestc nsurance companes and banks, or
any combnaton of these knds of securtes, wth an
actua market vaue of at east one hundred thousand
(P100,000.) pesos; Provded, however, That wthn sx (6)
months after each fsca year of the censee, the
Securtes and Exchange Commsson sha requre the
censee to depost addtona securtes equvaent n
actua market vaue to two (2%) percent of the amount
by whch the censee's gross ncome for that fsca year
exceeds fve mon (P5,000,000.00) pesos. The
Securtes and Exchange Commsson sha aso requre
depost of addtona securtes f the actua market vaue
of the securtes on depost has decreased by at east
ten (10%) percent of ther actua market vaue at the
tme they were deposted. The Securtes and Exchange
Commsson may at ts dscreton reease part of the
addtona securtes deposted wth t f the gross ncome
of the censee has decreased, or f the actua market
vaue of the tota securtes on depost has ncreased, by
more than ten (10%) percent of the actua market vaue
of the securtes at the tme they were deposted. The
Securtes and Exchange Commsson may, from tme to
tme, aow the censee to substtute other securtes for
those aready on depost as ong as the censee s
sovent. Such censee sha be entted to coect the
nterest or dvdends on the securtes deposted. In the
event the censee ceases to do busness n the
Phppnes, the securtes deposted as aforesad sha be
returned, upon the censee's appcaton therefor and
upon proof to the satsfacton of the Securtes and
Exchange Commsson that the censee has no abty
to Phppne resdents, ncudng the Government of the
Repubc of the Phppnes. (n)
Other than secton 125 and 126. What other
requrements are set under Phppne Law before a
foregn corporaton may transact busness n the
Phppnes
- Yes. A Resdent agent s requred. As a condton
precedent to the grant of a cense to do or transact
busness n the Phppnes, the foregn corporaton s
requred to desgnate ts resdent agent on whom
summons and other ega processes may be served n a
actons or ega proceedngs aganst such corporaton
Section 12". Resdent agent; servce of
process. - The Securtes and Exchange Commsson
sha requre as a condton precedent to the ssuance of
the cense to transact busness n the Phppnes by any
foregn corporaton that such corporaton fe wth the
Securtes and Exchange Commsson a wrtten power of
attorney desgnatng some person who must be a
resdent of the Phppnes, on whom any summons and
other ega processes may be served n a actons or
other ega proceedngs aganst such corporaton, and
consentng that servce upon such resdent agent sha
be admtted and hed as vad as f served upon the duy
authorzed offcers of the foregn corporaton at ts home
offce. Any such foregn corporaton sha kewse
execute and fe wth the Securtes and Exchange
Commsson an agreement or stpuaton, executed by
the proper authortes of sad corporaton, n form and
substance as foows:
"The (name of foregn corporaton) does hereby
stpuate and agree, n consderaton of ts beng granted
by the Securtes and Exchange Commsson a cense to
transact busness n the Phppnes, that f at any tme
sad corporaton sha cease to transact busness n the
Phppnes, or sha be wthout any resdent agent n the
Phppnes on whom any summons or other ega
processes may be served, then n any acton or
proceedng arsng out of any busness or transacton
whch occurred n the Phppnes, servce of any
summons or other ega process may be made upon the
Securtes and Exchange Commsson and that such
servce sha have the same force and effect as f made
upon the duy-authorzed offcers of the corporaton at
ts home offce."
Whenever such servce of summons or other
process sha be made upon the Securtes and Exchange
Commsson, the Commsson sha, wthn ten (10) days
thereafter, transmt by ma a copy of such summons or
other ega process to the corporaton at ts home or
prncpa offce. The sendng of such copy by the
Commsson sha be necessary part of and sha
compete such servce. A expenses ncurred by the
Commsson for such servce sha be pad n advance by
the party at whose nstance the servce s made.
In case of a change of address of the resdent
agent, t sha be hs or ts duty to mmedatey notfy n
wrtng the Securtes and Exchange Commsson of the
new address. (72a; and n)
- The necessty of the appontment of a resdent
agent s ony for the purpose of recevng summons and
other ega processes n any ega acton or proceedng
aganst the foregn corporaton
Who may be apponted as a resdent agent?
- Secton 127 provdes that:
Section 12%. Who may be a resdent agent. - A
resdent agent may be ether an ndvdua resdng n
the Phppnes or a domestc corporaton awfuy
transactng busness n the Phppnes: Provded, That n
the case of an ndvdua, he must be of good mora
character and of sound fnanca standng. (n)
May a partnershp be apponted as a resdent
agent?
- Yes, domestc corporaton taken n ts genera
sense not ega sense
If there s a resdent agent apponted. May
summons be served to any offcers of the corporaton?
- No, f there s a resdent agent, the desgnaton
s excusve and servce must be made ony to the
resdent agent or ese the servce s wthout force and
effect uness made to hm
- Thus, whe the aw aows servce upon the SEC
or any of ts offcers or agents wthn the Phppnes
- The two modes may become effectve ony f
the foregn corporaton faed or negected to desgnate
such a person or an agent
- Summons must be made ony to resdent agent
except when there s no resdent agent apponted
- Where such foregn corporaton actuay dong
busness here has not apped for a cense to do and has
not desgnated an agent to receve summons, then
servce of summons on t w be made pursuant to the
provsons of the rues of court. If such foregn
corporaton has a cense to do busness, then summons
to t w be served on the agent desgnated by t for the
purpose, or otherwse n accordance wth the
Corporaton Law (Genera Corporaton of the Phppnes
vs. Unon Insurance Soc. Of Canton Ltd.)
If the foregn corporaton conducts busness n
the Phppnes wthout the cense requrement. What s
the effect?
Section 133. Dong busness wthout a cense.
- No foregn corporaton transactng busness n the
Phppnes wthout a cense, or ts successors or
assgns, sha be permtted to mantan or ntervene n
any acton, sut or proceedng n any court or
admnstratve agency of the Phppnes; but such
corporaton may be sued or proceeded aganst before
Phppne courts or admnstratve trbunas on any vad
cause of acton recognzed under Phppne aws. (69a)
- f they do so, the responsbe offcers may be
sub|ected to the pena sanctons provded for n secton
144 of the code, whch may ether be fne or
mprsonment
What f t s not dong busness wthout a
cense?
- If t s not transactng busness n the
Phppnes, even wthout a cense, t can sue before the
Phppne Courts
The genera rue s that "t s not the ack of
requred cense but dong busness wthout a cense
whch bars a foregn corporaton form access to our
courts."
Excepton:
1. Foregn corporatons can sue before the
Phppne Courts f the act or transacton nvoved s an
"soated transacton" or the corporaton s not seekng
to enforce any ega or contractua rghts arsng from, or
growng out of, any busness whch t has transacted n
the Phppnes
2. Nether s a cense requred before a foregn
corporaton may sue before the forum f the purpose of
the sut s to protect ts trademark, trade name,
corporate name, reputaton or goodw;
3. Or where t s based on a voaton of the
Revsed Pena Code;
4. Or merey defendng a sut fed aganst t
5. Or where a party s stopped to chaenge the
personaty of the corporaton by enterng nto a contract
wth t.
Rues ad down by the SC
A. As to whether
or not t can sue
B. As to whether
or not t can be sued
A foregn corporaton
transactng or dong
busness n the
Phppnes wth a
cense can sue before
Phppne Courts
A foregn corporaton
transactng busness n
the Phppnes wth the
requste cense can be
sued n the Phppne
Courts
Sub|ect to certan
exceptons, a foregn
corporaton dong
busness n the country
wthout a cense cannot
sue n Phppne Courts
A foregn corporaton
transactng busness n
the Phppnes wthout
a cense can be sued n
Phppne Courts
If t s not transactng
busness n the
Phppnes, even
wthout a cense, t can
sue before the
Phppne Courts
f t s not dong
busness n the
Phppnes, t cannot be
sued n Phppne
Courts for ack of
|ursdcton
A foregn corporaton not dong busness n the

Phppnes, may t be sued?
- If t s not transactng busness n the country t
cannot be sued for ack of |ursdcton
Is there any sancton that can be enforced to
foregn corporatons whch are dong busness wthout
the requred cense?
- Pena sanctons under secton 144
- Any voaton of the code s sub|ect to such
pena sanctons
What woud consttute dong busness?
- The true test, however, seems to be whether
the foregn corporaton s contnung the body or
substance of the busness or enterprse for whch t was
organzed or whether t has substantay retred from t
and turned t over to another. The term mpes a
contnuty of commerca deangs and arrangements,
and contempates, to that extent, the performance of
acts or works or the exercse of some of the functons
normay ncdent to, and n progressve prosecuton of,
the purpose and ob|ect of ts organzaton (Menthoatum
Co. Inc. vs. Mangaman)
Menthoatum vs. Mangaman
- The true test, however, seems to be whether
the foregn corporaton s contnung the body or
substance of the busness or enterprse for whch t was
organzed or whether t has substantay retred from t
and turned t over to another. The term mpes a
contnuty of commerca deangs and arrangements,
and contempates, to that extent, the performance of
acts or works or the exercse of some of the functons
normay ncdent to, and n progressve prosecuton of,
the purpose and ob|ect of ts organzaton
- Whatever transacton the Phppne-Amercan
Drug Co. had executed n vew of the aw, the
Menthoatum Co. dd t tsef. And the Menthoatum Co.
beng a foregn corporaton dong busness n the
Phppnes wthout the cense requred by secton 68 of
the Corporaton Law, t may not prosecute ths acton for
voaton of trade mark and unfar competton
Why s foregn corporatons barred access from
our courts f they do busness wthout a cense?
- Marsha-Wes Co. vs. Henry W. Eser and Co.
Marsha-Wes Co. vs. Henry W. Eser and Co.
- The ob|ect of the statute was to sub|ect the
foregn corporaton dong busness n the Phppnes to
the |ursdcton of ts courts. The ob|ect of the statute
was not to prevent the foregn corporaton from
performng snge acts, but to prevent t from acqurng a
domce for the purpose of busness wthout takng the
steps necessary to render t amenabe to sut n oca
courts.
Buakhdas vs. Navarro
- It s setted that f a foregn corporaton s not
engaged n busness n the Phppnes, t may not be
dened the rght to fe an acton n Phppne courts for
soated transactons
- The ob|ect of secton 68 and 69 of the
Corporaton aw was not to prevent the foregn
corporaton from performng snge acts, but to prevent
t from acqurng a domce for the purpose of busness
wthout takng the steps necessary to render t
amenabe to sut n the oca courts. It was never the
purpose of the Legsature to excude a foregn
corporaton whch happens to obtan an soated order
for busness from the Phppnes, from securng redress
n the Phppne courts
The Swedsh East Asa Co., Ltd. Vs. Mana Port
Servce
- It must stated that the secton s not appcabe
to a foregn corporaton performng snge acts or
"soated transactons." There s nothng to show that
the pettoner has been n the Phppnes engaged n
contnung busness or enterprse for whch t was
organzed, when the sxteen bundes were erroneousy
dscharged n mana, for t to be consdered as
transactng busness n the Phppnes. The fact s that
the bundes, the vaue of whch s sought to be
recovered, were anded not as a resut of a busness
transacton, soated or otherwse, but due to a mstaken
beef that they were part of the shpment of forty smar
bundes consgned to persons or enttes n the
Phppnes, there s no |ustfcaton therefore, for
nvokng the secton
There were 3 contracts entered nto, how come
they were st not consdered as dong busness? (Antam
Consodted, Inc. vs. CA)
- Every case sha be |udged n the ght of ts
pecuar crcumstances, where a snge act or transacton
however, s not merey ncdenta or casua but ndcates
the foregn corporatons ntenton to do other busness
n the Phppnes, sad snge act or transacton
consttutes "dong" or "engagng n" or "transactng"
busness n the Phppnes
- In the case at bar, the transacton entered nto
by the respondent wth the pettoners are not a seres of
commerca deangs whch sgnfy an ntent on the part
of the respondent to do busness n the Phppnes but
consttute an soated one whch does not fa under the
category of "dong busness."
- The records show that the ony reason why the
respondent entered nto the second and thrd
transactons wth the pettoner was because t wanted
to recover the oss t sustaned from the faure of the
pettoners to dever the crude coconut o under the
frst transacton and n order to gve the atter a chance
to make good on ther obgaton. From these facts
aone, t can be deducted that n reaty there was ony
one agreement between the pettoners and the
respondent.
- The three seemngy dfferent transactons were
entered nto by the partes ony n an effort to fuf the
basc agreement and n no way ndcate an ntent on the
part of the respondent to engage n a contnuty of
transactons wth pettoners whch w categorze t as a
foregn corporaton dong busness n the Phppnes
- 3 contracts, but accordng to the court was not
dong busness n the Phppnes
Far East Int mport vs. Nanka Kogyo Co. Ltd.
- Ony one contract , but accordng to the
Supreme Court was dong busness n the Phppnes
- Every case sha be |udged n the ght of ts
pecuar crcumstances, where a snge act or transacton
however, s not merey ncdenta or casua but ndcates
the foregn corporatons ntenton to do other busness
n the Phppnes, sad snge act or transacton
consttutes "dong" or "engagng n" or "transactng"
busness n the Phppnes
- In the nstant case, the testmony of Atty. Pabo
Ocampo, that appeant was dong busness n the
Phppnes corroborated by no ess than Nabuo Toshda,
one of appeants offcers, that he was sent to the
Phppnes to ook nto the operaton of mnes, thereby
reveang the defendants desre to contnue engagng n
busness here, after recevng the shpment of the scrap
ron under consderaton, makng the Phppnes a base
thereof.
- In such a case, the snge act of transacton s
not merey ncdenta or casua, but s of such character
as dstncty to ndcate a purpose on the part of the
operatons for the conduct of a part of corporatons
ordnary busness
If a corporaton apponts a dstrbutor or a
representatve, w t necessary mpy dong busness n
the country?
- If the foregn corporaton mantaned an
ndependent status durng the exstence of the dsputed
contract.
- Appontment of a dstrbutor or representatve
n the Phppnes, uness t has an ndependent status
(transacts and does busness n ts own name and for ts
account and not of the foregn corporaton)
- f that be the case the mere appontment of a
dstrbutor w not consttute dong busness
How do you know f t has an ndependent
status?
- Communcatons Materas and Desgn vs. CA
Communcatons Materas and Desgn vs. CA
- A perusa of the agreements between pettoner
ASPAC and the respondents show that there are
provsons whch are hghy restrctve n nature, such as
to reduce pettoner ASPAC to a mere extenson or
nstrument of the prvate respondents
- ITEC was dong busness wthout a cense,
however ASPAC s estopped
- by enterng nto the Representatve
Agreement" wth ITEC, pettoner s charge wth
knowedge that ITEC was not censed to engage n
busness actvtes n the country, and s thus stopped
from rasng n defense such ncapacty of ITEC, havng
chosen to gnore or even presumptvey take advantage
of the same
- In top-wed we rued that a foregn corporaton
may be exempted from the cense requrements n
order to nsttute an acton n our courts f ts
representatve n the country mantaned an
ndependent status durng the exstence of the dsputed
contract. Pettoner s deemed to have acceded to such
ndependent character when t entered nto the
Representatve Agreement wth ITEC
Western Equpment and Suppy Co. vs. Reyes
- The company s not here seekng to enforce any
ega or contract rghts arsng from, or growng out of
any busness whch t has transacted n the Phppne
Isands. The soe purpose of the acton s to protect ts
reputaton, ts corporate name, ts goodw, whenever
that reputaton, corporate name or goodw have
through the natura deveopment of ts trade,
estabshed themseves
- And t contends that ts rghts to the use of ts
corporate and trade name, s a property rght, a rght n
rem, whch may assert and protect aganst a the word,
n any of the courts of the word even n |ursdctons
where t does not transact busness |ust the same as t
may protect ts tangbe property, rea or persona,
aganst trespass, or converson
- Snce t s the trade and not the mark that s to
be protected a trademark acknowedges no terrtora
boundares or muncpates or states or natons, but
extends to every market where the traders goods have
become known and dentfed by the use of the mark
Genera Garments Corporaton vs. Drector of
Patents
- A foregn corporaton whch has never done
busness n the Phppne Isands and whch s
uncensed and unregstered to do busness here, but s
wdey and favoraby known n the Isands through the
use theren of ts products bearng ts corporate and
trade name has a ega rght to mantan an acton n the
Isands
- Menthoatum case was subsequenty derogated
when Congress, purposey to "counteract the effects" of
sad case, enacted R.A. 638, nsertng Secton 21-A n
the Trademark Law, whch aows a foregn corporaton
or |urstc person to brng an acton n Phppne Courts
for nfrngement of a mark or trade-name, for unfar
competton, or fase desgnaton of orgn and fase
descrpton, "whether or not t has been censed to do
busness n the Phppnes under Act Numbered
Fourteen hundred and ffty-nne, as amended, otherwse
known as Corporaton Law, at the tme t brngs
compant.
Puma Sporschufabrken Rudof Dasser, K.G. vs.
IAC and MIL-ORO MFG. Corp.
- Treates for part of the aw of the and
- Ouotng the Pars Conventon and the case of
Vanty Far Ms Inc. vs. T. Eaton Co. ths court further
sad:
"By the same token, the pettoner shoud be gven the
same treatment n the Phppnes as we make avaabe
to our own ctzens. We are obged to assure to
natonas of countres of the Unon an effectve
protecton aganst unfar competton on the same way
that they are obgated to smary protect Fpno
Ctzen and frms
- The rung n the aforected case s n
consonance wth the Conventon of the Unon of Pars for
the protecton of Industra Property to whch the
Phppnes became a party. Artce 8 thereof provdes
that a trade name sha be protected n a the countres
of the Unon wthout the obgaton of fng or
regstraton, whether or not t forms part of the
trademark
Le Chemste Lacoste vs. Fernandez
- The French company may gan access to our
courts, n the frst pace t was not dong busness n the
Phppnes
- The marketng of ts products n the Phppnes
s done through an excusve dstrbutor, Rustan
Commerca Corporaton. The atter s an ndependent
entty whch buys and then markets not ony products of
the pettoner but aso many other products bearng
equay we-known and estabshed trademarks and
trade-names
Assumng Rustans had no ndependent status
woud the SC grant Lacoste access to our courts?
- Even f Lacoste dd busness n the Phppnes t
can brng acton because the case nvoves a voaton of
our pena code
- Such was a voaton of artce 189 of the RPC, f
prosecuton foows after the competon of the
premnary nvestgaton beng conducted by the Speca
Prosecutor the nformaton sha be n the name of the
Peope of the Phppnes and no onger the pettoner
whch s ony an aggreved party snce a crmna offense
s essentay an act aganst the State. It s the atter
whch s prncpay the n|ured party athough there s a
prvate rght voated
- The records show that the goodw and
reputaton of the pettoners products bearng the
trademark Lacoste date back even before 1964 when
Lacoste cothng appares were forst marketed n the
Phppnes. To aow Hemandas to contnue usng the
trademark Lacoste for the smpe reason that he was the
frst regstrant n the Suppementa Regster of a
trademark used n nternatona commerce and not
beongng to hm s to render nugatory the very essence
of the aw on trademarks and trade names
Atantc Mutua Insurance Co. vs. Cebu
Stevedorng Co.
- The aw denes to a foregn corporaton the
rght to mantan sut uness t has prevousy comped
wth a certan requrement, then such compance, or the
fact that the sung corporaton s exempt there from,
becomes a necessary averment n the compant
- These are matters pecuary wthn the
knowedge of appeants aone, and t woud be unfar to
mpose upon appeee the burden of assertng and
provng the contrary. It s enough that foregn
corporatons are aowed by aw to seek redress n our
courts under certan condtons: the nterpretaton of the
aw shoud not go so far as to ncude, n effect, an
nference than those condtons have been met from the
mere fact that the party sung s a foregn corporaton
Oympa Busness Machnes Co. vs. E. Razon
- How do you dstngush ths case wth Atantc?
- In Atantc t dsmssed the case, whe n
Oympa t dd not
Tme Inc. vs. Reyes
- We fa to see how these doctrnes can be a
propos n the case at bar, snce the pettoner s not
"mantanng any sut" but s merey defendng one
aganst tsef; t dd not fe any compant but ony a
coroary defensve petton to prohbt the ower court
from further proceedng wth a sut that t had no
|ursdcton to entertan
What aw govern foregn corporaton dong and
transactng busness n the Phppnes wth a cense
- Laws of the Repubc of the Phppnes save and
except that woud normay be those matters whch
concern ts formaton, organzaton or dssouton, or
those fxng the reatonshp, abtes, responsbtes,
or dutes of the stockhoders, members or offcers of the
foregn corporaton or ther reatons to each other.
- In effect, ntra-corporate or nterna matters not
affectng credtors or the pubc n genera are governed
not by Phppne aws but the aw under whch the
foregn corporaton was formed or organzed
Section 12!. Law appcabe. - Any foregn
corporaton awfuy dong busness n the Phppnes
sha be bound by a aws, rues and reguatons
appcabe to domestc corporatons of the same cass,
except such ony as provde for the creaton, formaton,
organzaton or dssouton of corporatons or those
whch fx the reatons, abtes, responsbtes, or
dutes of stockhoders, members, or offcers of
corporatons to each other or to the corporaton. (73a)
W the pre-emptve rghts of a foregn
corporaton be governed by the same secton of the
code? Is the pre-emptve rghts of a stockhoder n a
domestc corporaton same as the pre-emptve of a
stockhoder of a foregn corporaton.
- No
M.E. Grey vs. Insuar Lumber Company
- PNB vs. Gonzaes, w ths appy to a foregn
corporaton? How do you dstngush ths case from a
Phppne aw?
- Snce t concerns the rghts of stockhoders t s
the aw of New York that shoud govern
Is the cense to do busness of a foregn
corporaton sub|ect to suspenson or revocaton? What
are the grounds?
Section 134. Revocaton of cense. - Wthout
pre|udce to other grounds provded by speca aws, the
cense of a foregn corporaton to transact busness n
the Phppnes may be revoked or suspended by the
Securtes and Exchange Commsson upon any of the
foowng grounds:
1. Faure to fe ts annua report or pay any fees as
requred by ths Code;
2. Faure to appont and mantan a resdent agent n the
Phppnes as requred by ths Tte;
3. Faure, after change of ts resdent agent or of hs
address, to submt to the Securtes and Exchange
Commsson a statement of such change as requred by
ths Tte;
4. Faure to submt to the Securtes and Exchange
Commsson an authentcated copy of any amendment
to ts artces of ncorporaton or by-aws or of any
artces of merger or consodaton wthn the tme
prescrbed by ths Tte;
5. A msrepresentaton of any matera matter n any
appcaton, report, affdavt or other document
submtted by such corporaton pursuant to ths Tte;
6. Faure to pay any and a taxes, mposts, assessments
or penates, f any, awfuy due to the Phppne
Government or any of ts agences or potca
subdvsons;
7. Transactng busness n the Phppnes outsde of the
purpose or purposes for whch such corporaton s
authorzed under ts cense;
8. Transactng busness n the Phppnes as agent of or
actng for and n behaf of any foregn corporaton or
entty not duy censed to do busness n the Phppnes;
or
9. Any other ground as woud render t unft to transact
busness n the Phppnes. (n)
SEC does not have the soe authorty to
suspend or revoke the cense of a foregn corporaton
dong busness n the Phppnes, other government
agences ke the Centra Bank , the Insurance
Commsson may aso do so wthn ther respectve
domnon, despte the provson of secton 134
If the SEC beeves that revocaton s warranted,
secton 135 provdes that:
Section 13#. Issuance of certfcate of
revocaton. - Upon the revocaton of any such cense to
transact busness n the Phppnes, the Securtes and
Exchange Commsson sha ssue a correspondng
certfcate of revocaton, furnshng a copy thereof to the
approprate government agency n the proper cases.
The Securtes and Exchange Commsson sha
aso ma to the corporaton at ts regstered offce n the
Phppnes a notce of such revocaton accompaned by
a copy of the certfcate of revocaton. (n)
Vountary wthdrawa of cense
- A 3 condtons must be comped wth
Section 13$. Wthdrawa of foregn
corporatons. - Sub|ect to exstng aws and reguatons,
a foregn corporaton censed to transact busness n the
Phppnes may be aowed to wthdraw from the
Phppnes by fng a petton for wthdrawa of cense.
No certfcate of wthdrawa sha be ssued by the
Securtes and Exchange Commsson uness a the
foowng requrements are met;
1. A cams whch have accrued n the Phppnes have
been pad, compromsed or setted;
2. A taxes, mposts, assessments, and penates, f any,
awfuy due to the Phppne Government or any of ts
agences or potca subdvsons have been pad; and
3. The petton for wthdrawa of cense has been
pubshed once a week for three (3) consecutve weeks
n a newspaper of genera crcuaton n the Phppnes.
P.D. !&20A
P.D. 902-A was amended by R.A. 8799 or the
SECURITIES REGULATION CODE n the year 2000
The |ursdcton of SEC for cases fang under
secton 5 thereof was transferred to the courts of
genera |ursdcton desgnated by the SC, they were
caed speca commerca courts, the ony exceptons
were revocaton of corporate franchse and cang of
eectons
However the SEC retaned recevershp or
suspenson payments wthn |une 20,2000
|ursdcton of speca commerca courts are
excusve and orgna, |ursdcton s conferred by aw; 1
Speca Commerca Court per regon except MAKATI and
OUEZON CITY whch has two
Devces or Schemes
- Pyramd scheme (msrepresentaton)-Speca
Commerca Courts
- Syndcated estafa- not baabe
Ae|e case
- Fas squarey under sec. 5 (a) Speca
Commerca Courts
- Aegaton corporate offcers empoyng
schemes n dvertng
- Not ony detrmenta to corporaton, but genera
membershp
- Fraud must be stated wth partcuarty
Abad vs. CFI of Pangasnan
- Fraud must be stated wth partcuarty
otherwse t may be fed to any court
Intra-corporate
- Excusve and orgna |ursdcton of speca
commerca courts
- Soe crtera s there must be an ntra-corporate
reatonshp
- Pertanng to a controversy (speaks aso of
ntra-partnershp controversy, that partnershp must be
regstered wth the SEC)
Rue now
1. Necessary be an ntra-corporate reatonshp;
and,
2. The controversy must arse out of sad
reatonshp
Intra-corporate reatonshp aone w not
suffce to put t n the ambt of speca commerca courts
and courts of genera |ursdcton may take cognzance
Case of a transferee of shares of stock to
compe the corporaton to recognze hm as a
stockhoder
How can t be ntra-corporate when he s not
yet fuy pad
- When the transferee has done a he can be
requred to do to render the transfer effectua and the
corporaton refuses to regster the transfer, the
requrement of the regstraton s waved and the
transferee s consdered techncay a stockhoder who
may sue to enforce the rght to have the transfer
regstered
Forendo vs. rvera, Embassy Farms
- The transferor wthhed the devery, they are
not yet prma face; t w not be consdered ntra-
corporate
Controverses n the appontment (asked n the
bar)
- Cases nvovng eecton, appontment and
remova
In Andaya the court sad that a corporate
offcer eected or apponted by the BOD s aways a
corporate act
- The fact that pettoner sought payment of hs
back wages, other benefts as we as mora and
exempary damages and attorneys fees n hs compant
w not operate to prevent the SEC from exercsng ts
|ursdcton under P.D. 902-A. The |ursdcton w not
wrest on the NLRC |ust because of that
Tabang vs. NLRC
- |ursdcton es orgnay and excusvey to
speca commerca courts and not n the NLRC
- SEC has |ursdcton over cases of remova from
empoyment of corporate offcers
- The reatonshp of a person to a corporaton,
whether as offcer or as agent or empoyee or not
determned by the nature of the servdes performed, but
by the ncdents of the reatonshp on they actuay exst
- Corporate offcers dsmssa s aways a
corporate act or ntra-corporate controversy
Mdand constructon vs. Mova
- NLRC w be possessed of |ursdcton excepton
w not appy to mere recovery
Man consderaton
- Asserts hs rght to the offce or questons the
proprety or vadty of hs ouster or remova, t w be
the speca commerca courts and not the NLRC
Securtes Reguaton Code
- Transferred |ursdcton of the SEC to Speca
Commerca Courts
- Suspenson of payment, appontment of
management recevershp
What s the reason for suspenson of a cams?
- The reason for suspendng actons for cams
aganst the corporaton s not reay to enabe the
management commttee or the rehabtaton recever to
substtute the defendant n any pendng acton aganst t
before any court, trbuna or body. The rea |ustfcaton
s to enabe the management commttee or
rehabtaton recever to effectvey exercse hs powers
free from any |udca or extra-|udca nterference that
mght unduy hnder or prevent the "rescue" of the
debtor company. To aow such other actons to contnue
woud ony add to the burden of the management
commttee pr rehabtaton recever, whose tme, effort
and resources woud be wasted n defendng cams
aganst the corporaton nstead of beng drected
towards restructurng and rehabtaton.(PAL vs. Spouses
Sadc and Kurangkng)
- To enabe the recever to effectvey exercse hs
or her power free form any |udca or extra-|udca that
may dsturb
3 types of suspenson of payments
1. Smpe suspenson of payments
- where deferment of payment of cams aganst
a dstress company; ask the court to be gven tme to
the payment of abty by postponng the payment
- When t has suffcent assets and abtes but
forces the mpossbty of meetng them when they
respectvey fa due
2. Suspenson of recever wth a management
commttee wth a rehabtaton pay or suspenson of
payments accompaned by a proposa for rehabtaton
(wth or wthout rehabtaton)
- corporaton has suffcent assets to cover ts
abtes, but sees the possbty; s or wthout
rehabtaton pans; normay woud attach the
rehabtaton pan
- For purpose of economc deveopment
3. Suspenson of payments when the corporaton
has no suffcent assets to ts abtes
May t st be revved?
- Yes, t may st be revved
How can a corporaton wth more abtes than
assets contnue ts operatons proftaby?
- Even f the dstressed company has no
suffcent assets and abtes t can go for suspenson
- It asked for a management commttee wthout
a recever pan (Vctorus Mng case)
Convert ther cams nto equty
- Ther abty was amost wped out they
became stockhoders nstead of credtors
- After 5 years those who converted sod t back
to the corporaton, thereby makng profts
Amendment s for the economc deveopment
of the country
What f waang amendment, e mas maramng
abtes kesa assets
Suspenson order- a actons for cams aganst
the corporaton are accordngy suspended at whatever
stage the proceedngs maybe
Effect of suspenson- you cannot forecose
What are cams?
- Debts or demands of pecunary nature.
Asserton of a rght to have money pad
- Cams aganst the corporaton sha be
suspended, asserton of a rght to have money pad; t
must present a monetary cam, qudated or
unqudated
Nufcaton of corporatons does not present a
monetary cam of pecunary nature
Unon vs. CA
- It does not aow a mere ndvdua to fe the
petton whch s mted to corporatons partnershp or
assocatons.
- Where no authorty s granted to hear pettons
of ndvduas for suspenson of payments, such petton
are beyond the competence of the SEC
What happens f there s a suspenson order?
Expan the key phrase "quaty s equty"
- A credtors stand on equa footng, secure or
unsecure, hodng or en or wthout a en, no credtor
may enforce hs en whe rehabtaton s gong (Aemar
case)
- No preference sha be gven
RCBC vs. IAC
- Decded on moton for reconsderaton
- It court 7 years to decde authentcaton
Rue of the thumb
- Automatc suspenson even f not decreed n
the decson tsef
- Once fted the preferred credtors w regan
ther preference
Appontment of a management commttee
- Take over the management commttee of the
dstressed corporaton
- Extraordnary and drastc remedy
- Wthout any remedy
What s an ntra-corporate controversy?
- Secton 5(B)
- Soe crtera s whether there exsts an ntra-
corporate dspute s that f there s an ntra-corporate
reatonshp
Why s there suspenson of a actons aganst
cams when a recever s apponted?
- To enabe the management commttee to
exercse ts powers
Sy Chm vs. Sy Sy Ho (before a management
commttee may be opt by a court)
- 2 requstes for a vad appontment of
management commttee
1. Immnent danger of dsspaton, oss, wastage
or destructon of assets or other corporate propertes
2. Parayss of busness operatons, the mere
apprehenson of future msconduct based upon pror
management
- Save and except n the case of a cose
corporaton n case of deadock management commttee
s aowed to take over rght away
|acnto case
- 2
nd
par of page 676
- 2 requstes where present
- Waa ng mapautang, there was a parayzaton
Sy Chm
- Dd not appont a management commttee
- In the absence of a strong showng of an
mmnent danger of dsspaton, oss wastage or
destructon of assets or other propertes of a corporaton
and parayss of ts busness operatons, the mere
apprehenson of future msconduct based upon pror
msmanagement w not authorze the appontment of a
management commttee
Secton 5 and 6(D) governed by separate rues;
nterm rues and ntra-corporate controversy
Venue of actons
- Rues of court- where the partes are resdng
- Intra-corporate- no matter where the partes
are resdng t w be n the cty or muncpaty where
the prncpa offce s ocated
Rehabtaton proceedngs venue
- In rem
- Acqured upon pubcaton wthout furnshng
the credtors a copy of the petton and attachments
thereof
- A credtor may now fe the suspenson
proceedngs; provdes that credtors owns at east 25%
Intra-corporate- rue 1 secton 6
Servce of summons- rue 2 secton 5
- Summons may be made to anyone
In case of ntra-corporate dspute, eectons,
fraud, etc; f they are governed by nterm rues of
procedure on ntra-corporate controverses
Venue
- Speca commerca courts where prncpa
offce s ocated/estabshed (secton 5 rue 1)
- Matters of payment/suspenson must be fed n
the cty/ muncpaty where corporaton s ocated
Under od rue, credtors have no rght to
nsttute an acton for recevershp; now credtors, f they
sod 20% they can nsttute an acton for recevershp
Secton 5
- Servce of summons may be made by fax/e-
ma
E.B. Varosa vs. Bento
- W appy ony f t s not an ntra-corporate
controversy
If the controversy arose out of an ntra-
corporate dspute rues on nterm rues of procedure of
ntra-corporate controverses sha govern
Rue 4 secton 17- mmunty from sut
Rehabtaton recever sha not sub|ect to any
acton, cam or demand n connecton wth any act done
omtted by hm n good fath n the exercse of hs
functons and powers heren conferred
Cam
- Rght to payment, whether or not t s reduced
to |udgment, qudated or unqudated, fxed or
contngent, matured or unmatured, dsputed or
undsputed, ega or equtabe and secured or unsecured
Investment contracts
- A contract, transacton or scheme whereby a
person nvests hs money n a common enterprse and s
ed to expect profts prmary from the effects of others
The management commttee and rehabtaton
recever are empowered to:
1. Take custody and contro of a assets of the
corporaton
2. Evauate assets and abtes, earnngs
operatons of the corporaton
3. Determne the best way to protect the nvestors
and credtors
4. Study, revew evauate the feasbty of
contnung operaton and structures
5. Submt recommendatons to the RTC regardng
rehabtaton pan
6. Rehabtate the corporaton f determned to be
feasbe by the RTC
7. Report to the RTC unt the corporaton s
dssoved
T(E SECURITIES REGULATION CODE <RA"%!!=
- Aso known as the B?3e SB> L*@ snce t was enacted
to protect the pubc from unscrupuous promoters who
stake busness whch have no bass and se shares and
nterest theren to nvestors, who are then eft hodng
certfcates representng nothng more than a cam to a
square of the bue sky.
-SEC. 2. Decaraton of State Pocy. - The State sha
estabsh a socay conscous, free market that reguates
tsef, encourage the wdest partcpaton of ownershp n
enterprses, enhance the democratzaton of weath,
promote the deveopment of the capta market, protect
nvestors, ensure fu and far dscosure about securtes,
mnmze f not totay emnate nsder tradng and
other frauduent or manpuatve devces and practces
whch create dstortons n the free market.
BROKER - person who buys and ses securtes for the
account of others.
DEALER - person who buys and ses securtes for
hs/her own account n the ordnary course of busness.
NOTEA No person sha engage n the busness
of buyng or seng securtes n the Phppnes as a
broker or deaer, or act as a saesman, or an assocated
person of any broker or deaer uness regstered as such
wth the Commsson. (Sec 28)
SECURITES - shares, partcpaton or nterests n a
corporaton or n a commerca enterprse or proft-
makng venture and evdenced by a certfcate, contract,
nstrument, whether wrtten or eectronc n character. It
ncudes:
CODE: COFDIPS
a) C ertfcates of assgnments, certfcates of
partcpaton, trust certfcates, votng trust certfcates
or smar nstruments;
b) O ther nstruments as may n the future be
determned by the Commsson;
c) F ractona undvded nterests n o, gas or
other mnera rghts;
d) D ervatves ke opton and warrants;
e) Investment contracts, certfcates of nterest or
partcpaton n a proft sharng agreement, certfcates
of depost for a future subscrpton;
f) P ropretary or non propretary membershp
certfcates ncorporatons; and
g) S hares of stock, bonds, debentures, notes,
evdences of ndebtedness, asset-backed securtes;
GRA Securtes sha not be sod or offered for sae or
dstrbuton wthn the PH, wthout a regstraton
statement fed wth and approved by SEC. Pror to such
sae, nformaton on the securtes, n such form and wth
such substance as the Commsson may prescrbe, sha
be made avaabe to each prospectve purchaser. (Sec
8)
EHCEPT: Exempt Securtes under Sec 9
a) Any securty ssued or guaranteed by the
Government of the PH, or by any potca subdvson or
agency thereof, or by any person controed or
supervsed by, and actng as an nstrumentaty of sad
Government.
b) Any securty ssued or guaranteed by the
government of any country wth dpomatc reatons
wth the PH, or by any state, provnce or potca
subdvson thereof on the bass of recprocty: Provded,
that the SEC may requre compance wth the form and
content of dscosures the Commsson may prescrbe.
c) Certfcates ssued by a recever or by a trustee
n bankruptcy duy approved by the proper ad|udcatory
body.
d) Any securty or ts dervatves the sae or
transfer of whch, by aw, s under the supervson and
reguaton of the Offce of the Insurance Commsson,
Housng and Land Use Reguatory Board, or the Bureau
of Interna Revenue.
e) Any securty ssued by a bank except ts own
shares of stock.
AND Exempt Transactons under Sec 10
a) A |udca sae, or sae by an executor,
admnstrator, guardan or recever or trustee n
nsovency or bankruptcy.
b) By or for the account of a pedge hoder, or
mortgagee or any other smar en hoder seng or
offerng for sae or devery n the ordnary course of
busness and not for the purpose of avodng the
provsons of ths Code, to qudate a bona fde debt, a
securty pedged n good fath as securty for such debt.
c) An soated transacton n whch any securty s
sod, offered for sae, subscrpton or devery by the
owner thereof, or by hs representatve for the owners
account, such sae or offer for sae, subscrpton or
devery not beng made n the course of repeated and
successve transactons of a ke character by such
owner, or on hs account by such representatve and
such owner or representatve not beng the underwrter
of such securty.
d) Dstrbuton by a corporaton, actvey engaged
n the busness authorzed by ts AOI, of securtes to ts
stockhoders or other securty hoders as a stock
dvdend or other dstrbuton out of surpus.
e) Sae of capta stock of a corporaton to ts own
stockhoders excusvey, where no commsson or other
remuneraton s pad or gven drecty or ndrecty n
connecton wth the sae of such capta stock.
f) Issuance of bonds or notes secured by
mortgage upon rea estate or tangbe persona property,
where the entre mortgage together wth a the bonds or
notes secured thereby are sod to a snge purchaser at a
snge sae.
g) Issue and devery of any securty n exchange
for any other securty of the same ssuer pursuant to a
rght of converson enttng the hoder of the securty
surrendered n exchange to make such converson:
Provded, That the securty so surrendered has been
regstered under ths Code or was, when sod, exempt
from the provsons of ths Code, and that the securty
ssued and devered n exchange, f sod at the
converson prce, woud at the tme of such converson
fa wthn the cass of securtes entted to regstraton
under ths Code. Upon such converson the par vaue of
the securty surrendered n such exchange sha be
deemed the prce at whch the securtes ssued and
devered n such exchange are sod.
h) Brokers transactons, executed upon
customers orders, on any regstered Exchange or other
tradng market.
) Subscrptons for shares of the capta stock of a
corporaton pror to the ncorporaton thereof or n
pursuance of an ncrease n ts authorzed capta stock
under the Corporaton Code, when no expense s
ncurred, or no commsson, compensaton or
remuneraton s pad or gven n connecton wth the sae
or dsposton of such securtes, and ony when the
purpose for soctng, gvng or takng of such
subscrptons s to compy wth the requrements of such
aw as to the percentage of the capta stock of a
corporaton whch shoud be subscrbed before t can be
regstered and duy ncorporated, or ts authorzed
capta ncreased.
|) The exchange of securtes by the ssuer wth
ts exstng securty hoders excusvey, where no
commsson or other remuneraton s pad or gven
drecty or ndrecty for soctng such exchange.
k) The sae of securtes by an ssuer to fewer than
twenty (20) persons n the Phppnes durng any tweve-
month perod.
) The sae of securtes to any number of the
foowng quafed buyers: () Bank; () Regstered
nvestment house; ()nsurance company; (v) Penson
fund or retrement pan mantaned by the Government
of the Phppnes or any potca subdvson thereof or
managed by a bank or other persons authorzed by the
Bangko Sentra to engage n trust functons; (v)
nvestment company or; (v) Such other person as the
Commsson may by rue determne as quafed buyers,
on the bass of such factors as fnanca sophstcaton,
net worth, knowedge, and experence n fnanca and
busness matters, or amount of assets under
management.
PROTECTION OF S(ARE(OLDERS INTEREST
1. Tender Offers (Sec 19)
2. Proxy soctaton (Sec 20)
3. Interna record keepng and accountng (Sec 22)
TENDER OFFER - A pubcy announced ntenton actng
aone or n concert wth others to acqure equty
securtes of a company. (2002 Bar Exams)
In2t*nce2 @,en Ten+e7 O99e7 i2 ReG3i7e+
1. When the person ntends to acqure 15% or
more of the equty share of a pubc company pursuant
to an agreement made between or among the person
and one or more seers;
2. When the person ntends to acqure 30% or
more of the equty share of a pubc company wthn a
perod of 12 months;
3. When the person ntends to acqure shares that
woud resut n an ownershp of more than 50% of the
equty shares of a pubc company.
PROH/ SOLICITATION
NOTEA A broker or deaer who hods or acqures the
proxy for at east ten per centum (10%) or such
percentage as the Commsson may prescrbe of the
outstandng share of the ssuer, sha submt a report
dentfyng the benefca owner wthn ten (10) days
after such acquston, for ts own account or customer,
to the ssuer of the securty, to the Exchange where the
securty s traded and to the Commsson. (Sec 20.5)
FRAUDULENT TRANSACTIONS AND OT(ER MAR1ET
MANIPULATIONS
1. W*2, S*?e (Sec 24.1(a)()) - any transacton n
a securty whch nvoves no change n the benefca
ownershp thereof.
2. M*tc,e+ O7+e7 (Sec 24.1(a)()) - order or
orders for the purchase or sae of securty wth the
knowedge that a smutaneous order or orders of
substantay the same sze, tme and prce for the sae
or purchase of such securty has, or w be entered by or
for the same or dfferent partes.
NoteA Wash sae and matched orders become ega
when they are used as a means to create fase
appearance of actve tradng n the securty concerned.
3. M*7Bin. t,e c?o2e - pacng the purchase
order, at or near the cose of the tradng perod. The
prce that was cosed w then be the prce that w be
posted on the foowng tradng day.
4. P*intin. t,e t*6e - nvoves a seres of
transactons that are reported pubcy to gve the
mpresson of an actvty n a securty.
5. SG3eeCin. t,e 9?o*t - the part of an
outstandng securty ntentonay hed by deaers or
other persons wth a vew of reseng them ater for
proft.
6. (>6e *n+ +3-6 - Act empoyed by a person
or group of persons of purchasng the outstandng
capta stock of a dormant pubc she company for a
nomna amount and merge t wth ther prvatey hed
company. They woud then gan contro of the ma|orty
stocks of the merged entty. Stock certfcates are often
re-ssued n the name of the merged entty to reatves
and assocates who act as nomnees of the person or
persons empoyng the devce. They woud then ook for
a broker-deaer who woud be wng to make a "hype"
of the securtes. The broker-deaer then generates
voume and advance bd prce. When the market
reaches a hgh prce, they woud "dump" ther
sharehodngs and ba out.
7. Boi?e7 Roo- O6e7*tion2 - nvoves an
ntensve seng campagn through numerous saesmen
by teephone or through drect ma offerngs for
securtes of ether a certan type or from a specfc
ssuer. Investors are nduced to purchase through hard-
se based on unfounded predctons and mang of
mseadng market etters.
NoteA Markng the cose, Pantng the tape, Squeezng
the foat, Hype and dump, Boer Room Operatons
become unawfu f t s effected to ether rase the prce
or nduce the purchase of a securty or of a controng,
controed, or commony controed company by others
or to depress the prce to nduce the sae of a securty,
whether of the same or of a dfferent cass, of the same
ssuer or of a controng, controed company or
common controed company by others or to create
actve tradng to nduce the purchase through sad
devces or schemes.
8. Ci7c3?*tin. o7 Di22e-in*tin. In9o7-*tion -
crcuatng an nformaton that any of the securty sted
n the exchange w or s key to rse or fa because of
manpuatve market operatons of any one or more
persons conducted for the purpose of rasng or
depressng the prce of the securty and thus nducng
the purchase of such securty.
9. M*Bin. F*?2e o7 Mi2?e*+in. St*te-ent2
wth respect to any matera fact whch he knew or had
reasonabe ground to beeve was so fase or mseadng
for the purpose of nducng the purchase or sae of such
securty.
10. Pe..in. o7 Fi;in. O7 St*4i?iCin. the prce of
securty effected ether aone or wth others through any
seres of transactons for the purchase or sae thereof, f
done for such purpose.
11. S,o7t 2*?e - seng of securty whch the
vendor does not own uness done n accordance wth the
rues and reguatons of the SEC.
12. In2i+e7 T7*+in. - the act of an nsder to buy
or se securty of the ssuer whe n possesson of
matera nformaton wth respect to such securty that s
not generay made known to the pubc uness (a) The
nsder proves that the nformaton was not ganed from
such reatonshp; or (b) If the other party seng to or
buyng from the nsder (or hs agent) s dentfed, the
nsder proves: () that he dscosed the nformaton to
the other party, or () that he had reason to beeve that
the other party otherwse s aso n possesson of the
nformaton.
NoteA W,en i2 in9o7-*tion E-*te7i*? non0634?icIJ
0 f: (a) It has not been generay dscosed to the pubc
and woud key affect the market prce of the securty
after beng dssemnated to the pubc and the apse of a
reasonabe tme for the market to absorb the
nformaton; or (b) woud be consdered by a reasonabe
person mportant under the crcumstances n
determnng hs course of acton whether to buy, se or
hod a securty.
NoteA W,o i2 *n Ein2i+e7IJ - "Insder" means: (a) the
ssuer; (b) a drector or offcer (or person performng
smar functons) of, or a person controng the ssuer;
(c) a person whose reatonshp or former reatonshp to
the ssuer gves or gave hm access to matera
nformaton about the ssuer or the securty that s not
generay avaabe to the pubc; (d) a government
empoyee, or drector, or offcer of an exchange,
cearng agency and/or sef-reguatory organzaton who
has access to matera nformaton about an ssuer or a
securty that s not generay avaabe to the pubc; or
(e) a person who earns such nformaton by a
communcaton from any of the foregong nsders.
INDEPENDENT DIRECTOR
Person other than an offcer or empoyee of the
corporaton, ts parent or subsdares, or any other
ndvdua havng a reatonshp wth the corporaton,
whch woud nterfere wth the exercse of ndependent
|udgment n carryng out the responsbtes of a
drector.
Co76o7*tion2 @,ic, 7eG3i7e *n In+e6en+ent
Di7ecto7
1. An exchange; or
2. Any corporaton wth a cass of equty securtes
sted for tradng on an Exchange or wth assets n
excess of P50M and havng 200 or more hoders, at east
200 of whch are hodng at east 100 shares of a cass of
ts equty securtes or whch has sod a cass of equty
securtes to the pubc pursuant to an effectve
regstraton statement sha have at east two (2)
ndependent drectors or such ndependent drectors
sha consttute at east 20% of the members of such
board, whchever s the esser.
OPTION TRADING
Put - a transferrabe opton or offer to dever a
gven number of shares of stock at a stated prce on any
gven tme durng the stated perod.
Ca - a transferrabe opton to buy a specfed
number of share at a stated prce
Stradde - a combnaton of put and ca.
SETTLEMENT OFFERS
At any tme, durng an nvestgaton or
proceedng under ths Code, partes beng nvestgated
and/or charged may propose n wrtng an offer of
settement wth the Commsson. The Commsson may
ony agree to a settement offer based on ts fndngs
that such settement s n the pubc nterest. Any
agreement to sette sha have no ega effect unt
pubcy dscosed. Such decson may be made wthout a
determnaton of gut on the part of the person makng
the offer.
DAMAGES
A suts to recover damages sha be brought
before the Regona Tra Court, whch sha have
excusve |ursdcton to hear and decde such suts. The
Court s authorzed to award damages n an amount not
exceedng trpe the amount of the transacton pus
actua damages.
NOTES
If there are goods nvoved n the mutmarket,

t s beyond the |ursdcton of SEC (Ex Frst Ouadrant)
Crmna charge for voaton of SRC s a
specazed dspute, hence t must be frst referred wth
SEC (Bavera vs. Pagnawan G.R. No. 168380 Feb
8, 2007)
T3 R3?e in t7*+in. o9 Sec37itie2 - Tradng

day + 3 more days you must compy wth your
obgatons.

Corporation Law Reviewer2-2

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Corporation Law Reviewer2-2

Uploaded by

Copyright:

Available Formats

CORPORATION LAW

Corporaton s one of the types of busness

4 mtatons of purpose cause

W a the drectors be abe? What f you

A foregn corporaton not dong busness n the

If there are goods nvoved n the mutmarket,

T3 R3?e in t7*+in. o9 Sec37itie2 - Tradng

You might also like