we BREVIEWERON COMMERCTALLAW rangement because only the ostensible partner oduct the business ‘802, DISTINGUISHED FROM PARTNERSHIR. 8) So jurideal personality, A joint account has no jude personality while «partnership has ‘personality separate and ditne fom the pe }) As to business name. No commercial name tovmmon to al partpants can be adopted 9 nin’ accounts (Art. 241 Cade of Commer). A Patinership can adopt a partnership name ©) Asto management. The general partners areal ‘manager inthe partnership whe only the o tensile partner manages an rasa business inhis own name and under his nada la ity (art 2, Cae of Commer) 10) Asto paties i cases, Only the ostensible par ‘er —ithe peson earring on the ont bushes eb yan ale operas tans ‘rl partners maybe ake even up tothe extent ‘of thee personal properties and may therefore ‘besued by thind persone 4, BUSINESS TRUSTS, Tes legal relation whereby one person, called the trust conveys a property to another forthe benefit ‘of person called the beneficiary The person in whem Confidence i rposed sega the propery ed the trae art 10, Ci Cos PP 5. JOINT VENTURE. S01. JOINT VENTURE — an association of persons or ‘companies jointly undertaking some. commercial enterprise; generally all contte assets and share risks Ie requtres a community intsest in the perfor mance ofthe subject sght to direct and govern the palcy connected therewith and duty, which may be ‘tere by apeement o share both in profit and lass ts host, Ine Gunga, 252 SCRA 10 (199). 8) Alpin ventures actually a form of patnership ‘nd should ths be over by the laws of pat rershipAuroch Sey Wares Manctring Corp, 130 SCRA 130 1989, 1) Corponstions can ener into joint venue agree sents id ©) Join Ventures may result ina formation of int ‘enture corporation. kn such cae, mast cm ply wih applicable nationalization laws. 1G Emmi: CAs No, 128285, Newebe 20,2000) 6 COOPERATIVES — A cooperative is an autonomous and ‘aly registered association of persons, witha cornmon bond Dtinterest who Rave voluntarily joined together to achieve their soca, economic, and cultural neds and aspirations by making equa contritions tothe capital requie, Iuonising foe products and services and accepting 3 Er shore ofthe tule and benefits ofthe undertaking in accordance wih uaivesllyacepted cooperative principles (Are, RA, No. 920. 'B, CORPORATION CODE OF THE PHILIPPINES. (EP-BLG. 68, CCP) Whats a corporation? Acorporatios san artifical being ceateby operation cof lam, having the sight of sucresion and the powers Stiibutes and properties expressly authorized by law or incident tots exsenee “LOL. What are the atebutes of onportion 8) Hisanarificl being with separate and distinct pessoal,1) leiserented by operation of a; ©) Tehas the ight to succession; 4) tthas powers and tributes confened by aw of Incident to is existence 2, DISCUSSION OF ATTRIBUTES. 201, ARTIFICIAL BEING WITH SEPARATE PERSON. AUTY. 4) Consequences of Separate Personality 1) Brapenty. It 8 entitled to oven proper ini own name and its properties ave not the properties of 5 stockholders, die: tors and offices (Wise Ma Sa Lang 69 Phi 30). Consistently, the properties ots stockholders dizer and ofiers are not the properties ofthe corporation, The ner: fst ofthe stockholders over the properties ofthe corporation is merely inchoate (Sa 2 Cour of Apa, 193 SCRA 74011991). 2) Obligations It can incur obligations and Nsobigations ae not the obligations of ts Stockholders, directors and ofcers Vise: De Boy, 74 Pi 560) As crolary to this ful, abligations ofthe stockholder dire tors and officers are not the obligations of the sorporstion| 3) Rights Rights belonging tothe corpors ton cannot be invoked by the stokhaiers (or dirctors and ofcers) even the latter ‘wns substantial majority of the shares i that corporation and rights of the stock: holders directors and officers cant be lnwoked bythe corporation (Son Die in, GR. No. 13530, June 19,1967), Exam ple The constituonal right of invials !gainstunweasonable searches and seize 4 3 6 4s personal to him and cannot be invoke bythe corporation, Tax exemptions in for ofthe corporation cannot Ikewise Be used by its stockholders la Gas Corp. Ca toro nena even, 62 Phi 89511936. ‘Consitutional rights. Corporations are en le to certain constitutional right. Ee ‘amp: Right against unreasonable searches fd seizure Its also considered 9 person Underthe de proces clause (See 1 Ae I Cnstution cont ght onl bcs an ‘aa being bu aso basen mer Cra of ample The Fah gain ‘Stina pelt fodacton ‘recone doce Tin ia or PNB Ct Ss a emt by he ro ‘Err natn ments stg {Sy or gee oie so Report a. Ser atl he omy whe ioe ncn pe 9 poor (Pa Enny — ties ws, the ‘tuto pasion eter tint y the aay fhe on ating ldo int oh. 0 Iver purpon — The Fon (0 pvtmet he om AN “ipo enn(1) corporation onganizad under Philippine laws of which 6% ofthe capil stock outstanding land ened to vote owned and ‘held by Pilipino Citizens 2) corporation organized abroad Sand registered af doing business In the Philippines under the Cor portion Cade of which 100% of the eapital stocks entitled to vote belong to Flipnos, Note: Where a corporation and its non Filipino stockholder own socks in ‘SECregitred entoepise, atleast of the capital stock outstanding and ented to vote ofeach ofboth corporations must ‘beowned and held by cizensof the Pilp- pines and atleast 6% ofthemembersof the Board of Directors ofeach of both eoepons- Hons must be etzen ofthe Pippin, ‘order that the corporation shall be consid ‘red a Philippine national (Se ll, RA No. 7082s amended by R.A. No, $173). Example: X corporation owns 68% of the outstanding shares enitled vote “A” corporation, ‘The 70% shares outstanding ened to vote lnX corporation are owned by Ped, l= Pino and four of ve directors are also Filipinos. "A" corporation is Philippine [Natlonal in this example. However “A corporation isnot a Philippine National i 17h of the shares outstanding ented 10 vote in X corporation (vhich owns 65% of ‘A corporation) belong to aliens, The same oneltsion willbe reched even if only 35% ‘ofthe shares outstanding ented to vote in Xelong oaliens but more than 40% of » ART — BUSINESS ORGANIZATIONS m nator are aliens (eg ofS dlietors are sen) 7) Whutis your understanding ofthe “grand father re Crandfter Role ba mato of de tein he rao os sorporation ‘teint omen antes Noty being down heey sue orto sharlrs th crporato. The perntge of shares fd y the secon Ean nthe tip bythe Inre ow Filpan ey an he po tefl hse percep edamind be Teuimate Fipimcwnerhip ofthe Suir epost Ts pps ol te fle eas stan 6 a eo Sting cpl ofa compra ht oe Side iRe pry nana enero = Siac moat oe me by Pippin tatoals (se An Pipe apt tam Comat Atl Being Hens by Acton of ae oly fetes ssa tliat that ae ner Teneo mate 1) edans I can act only through i die {oovoffies and employees 2) lain Lai, Corporations ae nce In floies tht are purse under the Recon! Penal Code. They cannot comsit Sines tht ate ponshabe under special Tivo teease ces ae personal nme. in edion, te Penalty of imprisonment aot be posed However, he corpore tm maybe dole for visto of one (Cnp Cade Se 14m REVIEWERON COMMERCIALLAW 9 the crime s committed by acorpors- ion or other ariel entity, the dieters ‘officers employeos or other ocr therst "esponsible forthe offense shall be charged and penalized for the erm, precisely be- ‘aust ofthe nature of the cme and the penalty therefor. A corporation cannot be Sesto and imprisoned hence, it cannot be penalize fora crime punishable by im pPtonment. Hoveveralnw may be passed to specially provide thats corporation is cximinally abe. There can bes ciminal Statute under which corporation may Be ‘hanged and prosecuted for crime if the lmposabl penalty i ine. Even if the sat ‘te prescribes both fine and imprisonment aspenally a corporation may be prosecited fd found gy may be fined. (hing 8 Srretary of usc, GR No. 164317, February 2006 snot be award ia favor of exponen trmune they do mot Ihave feelings and mental sate. They may rot even aim moral damages for be Stnsched reputation. Mental suffering con be experienced only by ane having 2 ner vous system andi lows fom ra ils, so rows and git of life —allof which cannot besufeed by an artifical person (Nationa! Power Corporation Philp Brothers Cee In, GA. Na 126206, November 20,2001 See lssonting opinion or th contrary se). ‘The Supreme Court clarified in ABS: (CBN Broadwsting Corraton Honea Court of Appeals (GR. No 128680, January 21,1989 that moral damages are awarded tocnable the injured party to obtain means, PAR — BUENEDS ORGANIZATIONS - diversion or amusements that will serve to ‘obvine the mora suffering he has under {gone The statement in People: Mane and ‘Mamta Late Co. PNB hata corpors- tion ay recover moral damages it “has ‘good reputation hat is based resulting {noc ulation is an aie dtm. However, the Supreme Court ruled in Fines roasting Network Inco Ago Media! end Educational Center (GR. No. 111934, January 17,2005) that a corpore tion can recover moral damages under Ar. 22100) twas the victim of defamation. ‘What do you understand by the doctrine of ‘leecing the vl of corporate entity? “The doctrine that a corporation i a legal entity distinc from the persone composing i It ‘Sa theory intoduced fo the purposes of conve ‘lence and to serve dhe ends of justice. But when the well of corporate sion suse se shied to petal, oda public conven us hrs oon ri, this fetion shal be dsr (gue end the individuals composing it will be treated dentally. This a judicial Funetion (Crus Dalsay, AM No. RABI fly 1, 1987) ‘Also the corporate veil cannot be used to shield otherwise blatant violation of the proki- bon again forum shopping (Fst Phlipine Treats Bak. CA, No. 158949, ansary 4, 196 1) Obligations of Disectors, Officer et. ‘Although there ae instances when. corpration aye hel Hable for the ob- Tigatons of stockholders or offer under the doctrine of piercing the veil of corpo" rate ton in some instances, the doctrine‘cannot be used to support an ation fo the enforcement of the personal obligations of the directors, officers and incorporaton. ln Frecisco Motors Court of Appeals G09 SCRA72), a lawyer was hired by the dice {ors and ofcers of corporation all mem. ters f the same aml to represent them, ina intestate proseeings. Later, the said lawyer sought to recover the fees fr such services in. counterelsim against the cor poration. The Supreme Cou este this ‘move ruling tha the doctrine cant be ap plied to make the corporation able for the Personal abligation f directors officers oF shareholders According to the High Court, ts fr fetched to allege thatthe corpora: tions protecting fraud oe promoting jus ice slo pod out tha the doin normaly nce make the diet ars tnd sharoles sb forthe obligations te caortin What he layer sought as However in Bank of Amie NT SA, eta 8 Cour of Appeal. No "20735, Mach 1, 2003) the Supreme Court allowed the fing of «complaint by the Stockholders of = comporation asking the petitioner bank to render an accounting of fhe income ofthe vessels that are registered inthe name ofthe sat corporations (whieh the sid stockholders whelly-owned). The Sepreme Court ruled that sich course ‘would preclude multiplicity of suits and would result inthe definiuve determine tion and termination ofthe dispute. 2) What are the circumstances that may be ‘considered to justify the application of the PARTH—WUSINESS ORCAMZATIONS = doce to make the patent corporation {ible forthe obligations ofits subslany? ‘Any, combination of al ofthe fl lowing ay be considered (PAL. National nl Riva Grup ne GR. No 12616, yuty 31, 201, ed uM lng Lae Si Cer Baa GR. Na 1800, Ap un a2) () The parent corporation owns all of © ott he copa stk othe abs tay (i) The poent and subsidy comport tins have common ier o o- (i) Te pare company ances he ub scary iv) "The parent company subbed tall (Recall stock ofthe abiay OF ether cous ts neoporton (0) The subsidiary has gry inadequate pial (0 The subsdary has substaally n0 Dusinces expt withthe pent cor provato or nowt eaceptthose cor {eyed orb the parent poration (i) The paper ofthe parent coxporation inte sateen te fers te Sibi Is dened a a depart {nent or dvson of he parent corpo- fain, oe bus fina Spon seed as the parent xpos’ own (ye parent corporation wes the prop- ey ofthe subi aston,| | | 2 (0) The iectors or executives ofthe sub slay dome actindependenty in the intrest ofthe subiiany bu take thle ‘orders rom the parent corporation. (60) The formal legal requimements of the subsidy ate no bserved. Examples of cases when doc pled wae ap The separate personality may be disse rowed i sch personality i (0 sed Wo evade obligations to employ ‘sor wed aa pretent a dismiss em ployer (i) used to evade tna obligations or money odgment (Gi) dominated by ofcers or stockholders tether person oentiy tothe extent that the corporation a mere ler 90 adjunct or snes Sond, (ie) used deft public convenione (6) wed to juatity wrong: (i) used to protec rau (i) wed to defend crime; (ido to conse legitiate legal judicial isseres; = (ox) used to perpetrate deception o other: ese ccurmeert the lw (Land Bak of the Pics Court of Apps G ‘No. 127181, September 4, 2001; Lito asia, Cour of Appeals, GR No. 12595, Nace 2,200. 1s ownership of substantial portion of the outstanding capital in a corporation ‘enough justifaton to apply the doctrine? NO, Mare ownertip by a singe stociolder or By anther corporation SP ator neal ail of te copia stock Sr the corporation docs not sty the Spptentin ofthe doin Tete must be othe: creumstaccs that mute preset Frnt Me GR. No 141617, get tesa PNB Rito Gu ine deat ly 31,20, “Ths, the mere fac tha coxpration ‘ow all the aac if anter orpere thon taken lon, not ulin toasty ther being reste oe ety he sub Siar sted to perk etna fan Tons subsidiary separate existence shall be sprted and the ability ofthe parent Company a well sth stay wil Bo Contd to thon sing from he espe tive business (MA Hinge LA 0 Sher aris jr spr “The general rte wil be followed even ifthe ewe corporation wan the rslt ofa pn of former division of the parent company (Sau Mig! Conp- nplyes Unio {8 Cine, 262 SCRA 11990. {Wht are the elements tha mst be pres at to fsify the pring of te yell of lrponate ftion om the proud that the {Srporation earmere alter ego? (0 Conta — not mere sock conta but Compete domination nt ony ot fener, ut of poly and tenes race in nop t the arco ‘tacked and tavern aah tht the erprae ety auto strane thon tthe ne separate mind, trllorenence ftom(G Sach control must have been used by the defendant to commit fraud oF wrong to perpetuate the violation of Statatory or other positive legal breach of duty ora dishonest and an unjust fac in contavention of the pints legal ight ana (i) The sid conto and breach of duty must have proximately cased the ln jury or unjust os complaned of ON 1 Ande Elecre& Enginering Cm ay, C..No. 142836, Api 17,200). ‘Ths none cs, oe corporation weaconidrd setter ora junto intrwmeraliy of ee her Sense th ote athe sane the manager te prs ncontal sf opera the seth ve these comer hy facia ‘he sme bldg ne by te ma jy stockholder and he basins ‘rte hwo eptone morgen the sunt corer fos slats nner fc bigs ofthe eter coraten toh ates properties were made to anower forthe sid elgatons ‘est bos Lt Pa Bon tne Coporati,ch GX Ne M205 ‘p38 23) 202. CREATED BY OPERATION OF LAW. CONCESSION THEORY. 1s a principle inthe creation of eurpora ons under which eorpration isn ial create without any existence ut has re ‘Sived the init othe State acing acco ing to law through the SEC. The life of the cor poration a coneesson made by the tate 'b)_ FRANCHISES OF CORPORATION. 1) Prinary corporate o general franchises — thefandiseo ext ss corporation. The primary franchise os corpratin, that {Revi to evi assoc, vested nthe snl ho opr te raton fn mt the corporation ell US Bast tC per ts 1SCRA Saris (0 cannot be transfered without appeoy of Congres 2) Spal or secondary franchises — certain ‘phe and privileges conferred upon exit ing corporations stich ay the ght to We the sees of municipality to lay pipes tock eet poles string res, or the Fight to engage in delivery serie (i) (@thespecal or secondary franchises ofa ‘pation ae vested nthe corpora {lof and may oninaiy be conveyed for mortgage under a general power [rated toa corporation fo dispose of ispropety, except such pedal ese tary franchises sv ape charged ith Speblicuse (i issubject to levy and ste on execution {ogether and including all the proper ty necesary forthe enjoyment hero, (HOW CREATED, 1) General Law — private corporations are fgewraly creed under the provisions of Corporation Code, This is done by ling the appropriate Aiticles of Incorporation208, REVIEWER ON CONDEERCIALLAW with the Secures and Exchange Commis. ‘son; the fe ofthe corporations stat rom the issuance ofthe Certifeate of ncorpora 2) Speci Law — public copoations are ‘te thrgh nec nw: Pate ep intr cnmot be ete by spall Exception Goverment owed“ tole erporaton which a acl) pe vate compotion RIGHT OF SUCCESSION — capacity 10 have Contimity of exene Serpe the Changes on te ferone who compose it Than the Sera Evins dsp the_change of “tildes, inembers br ments rte POWERS, ATTRIBUTES AND PROPERTIES. 8) Theory of Special Capacitew/Limited Capacity Doctrine, [No corporation unde this Code, shall por: sess or exerse any conporste powers, expe those contered bylaw is Articles of Incorpo ‘ation, thoes implied from expss poe de the 35 are necessary or incidental Yo the ex reise ofthe powers so conferred, The conpora: tion's apactislimited osuchexpress, implied and ineiental powers D)_ Ie the act ofthe corporation isnot one of those expres implied or incidental power the ts lees. 3. CLASSIFICATION AND DISTINCTIONS, ‘What ae the classes of corporation? ©) Astoorganizer: 1) publie—by State only and 2) private—by private persons alone or with the state, 7 » a ° USINESS ORGANIZATIONS ws Asto functions: 4) puble— govemment of a potion ofthe Ete and 2) private — usually for profit-making func: As to goveming law 1) publ — Special Laws and Local Gover Sent Caden 2) priae—Law on Private Corporations Astolepl tats. 1) de jae corporation — corporation org an ctndance with requement of tive 2) defacto corporation —a corporation where ieee fain ts tctporaton The ‘ene foresee ae {The eistence of valid le under ‘ici may be lneorporate (im atempt in god fh incorpo {uy Use of cnporate powers Note nsance of ceric fi corporation bythe SEC a mina ferrement foninad ood Eat 1 her i ttl compan de ju corporation salts ony aoe She compliance rte in def eo poration corporation by estoppel — group of persons Sich hls tf ont corporetion an {Sita contact with hd pean ‘tong of such sppesrance cannot be pera {Slides exces nan actlon nde oad {Sra fe 2, CCP) Note Ths actualy ot ‘Seneomperaton1 Those who assume to act as a corporation knowing it tobe without authority to dose shale lable as general partners (meaning "upto ther personal properties) Thos whe were not are ofthe deft ae Hable only "up to thei investment 2) The Supreme Curt ru in oe ce that all those iho drivel benefit fom the transaction made bythe estemsibte expe tation depte knowlege o ea ft ay be hell hate sonra iy imply assented to tok avatage oF iin Pipe Fg rho Ine, 317 SCRA'RS 199) oxporation by prescription — 3 cixporation that was not formally organized as suc bat han ‘ben ly recognize by immemorial wage at poration with right and tics mimic tlw. Example Roman Catholic Churely As to existence of socks, 1) Stock corporation — 3 corporation in hich ptt stack vied shares and i authorized to dstibte to holes thereof of such shares vider oF alle ‘ents ofthe surplus profits on the bass of the shares eld. CP) In Caletorof Intra Ree Clb Fipino de Cebu (5 SCRA 321 11362). the Supreme Court rule that ven if there ins Statement of capital stock, th corporation isi not a stock corporation if dividends sre not supposed to be deca, thst ‘heres no dstibution of retain eaming 2) Non-stock corporation — a corporation which doesnot issue stocks and does mat istibue dividends to their memivs Lo » Asto lave of incorporation: 1) Domes copontion — contin » fored, organized or existing under Philip- pines 2) Forde Corporation — 2 corporation {crwedorgantnnd oe exiting under any love ther than those of the Pilippines Sndwhowe laws allow Flipin ders ad ‘Drpration toda bn town con tryerstat e128 CCP) 1) Clow Corporation 2) Special Corporation 3) Educational corporation 41) Reigous corporation corporation sole 1. rligiows sees Corporations going public vs. Corporations go- ‘Accporaton is deemed ob “ging pb ic whe dso share he sock ‘xcange, Ths nce corporations tt ‘ake il pico shares. corporation i sid to be “ing private” shen would ent th harold fo tin up ina sene tial lneludes case or ‘Syd corporation. $02, DISTINGUISHED FROM PARTNERSHIF. ” {As to manner ofceation. — Partnership i re fed by mere agreement while the existence of the corporation commences only fom the st nce of Cerificate of Incorporation by the SEC tein proper cass, passage ofa special lawBy As tothe numberof organizers. — Even two persons may form a partnership hile @ corp ation needs atleast ve (3) meorporators ©) As to powers. — A corporation i more reste. co ins powers because of ts limited person ity whe a partnership is subject onl to what ray be agreed upon by the parners 8) Authority of those who compose. — There i ‘mutual agency in partnership and each general priner can present and bind the partnership Irie stockholders ae not agents of the corpo. Yim in the absence of expres authority. (© Transfer of interest. — Corporate shares are frelytransferabie without the consent of oer ‘toctholders (ones heres 2 stipulation) while Interest in the partnership cannot be transferred ‘without the coneent ofthe oer partners. Succession. —Ther sno sight of sucesion in partnership as death of 2 general partner die olvesthe partnership ‘803, De Facto Corporations va De jure Corporations, DEJURE DEFACTO Tone created in stnct or [1 one which actualy Substantial conformity | — iss for all practical wrth the statutory ‘ultements for incor pomtion Purposes asa eorpors tion but which hae no legal ight to corporate ensence as again the Stat, Tight to exist cannot be | 2. sight to exit cannot be ccestullyalacked | succesully faced feven in a dint pro-| even in a diet fweding by thestate. | csinghy the Siate PROBLEMS: 1 ‘corporation wis ccated by a special aw Later, the tw centing it was declared inal. May such orporaton aim to bea defect corporation? NO. The corponiton #8 nota defirto comporation Ipeense the reutes for ts existence are abent "There sno ald lv under which it was organized and there would be no continu of good ith “Thisisspecbly te if he corporation that wos created. as 6 rivate corporation which was not Sgovernmentanmned_or -conrlled corporation ‘rate corporations can only be created By speci Tawi its goveramentgwned o contre ‘Mamhanan was invited y his eends to invest in UR Corps a newly organized fir engaged in money market and financing operation. Because of Ns Tray ivestinents Mamvhnan became the firm's president andes sich, purchased a big number of Computers typewriters and other equipment from ‘Tktok Corp. cr installment Basis. A Corp. paid Tietdowe payrent and Tak Corp. ised the onespondng eit. To his chagsin, Mamhunan ‘Swen that the Aces of Incorporation had not {hon ie by his friends on that date so he hurriedly [here to the ates, No sooner had the Certificate St Incorporation Been iswed by the SEC, A Corp trcame bankrupt alter three months {Upon being sued by Toktak Corporation his personal capadtyy Mamubunan raised among, i Tftenses the dactrines of de ato corporations and Corporations by estoppel ‘Can he two defenses vali raised? Explain NO, the two defenses cannot be rsd because they fhe not avalate to Mamuhunan. Inthe frat. there ‘rss no de fc corporation because the Arties ofIncorporation was not fled with the SEC. There «an be no attempt in god faith to incorporate no ‘tc of Incorporation was led with the SEC. In addition, Mamiuhunan cannot raise the defense that Ii corporation isa de facto conporation to desta slaim. Until the personality i attacked by the State, the defacto corporation can continue asa corporation, ‘The allegation that dhete was a corporation by ‘stopped may be comet but the same isnot defense ‘agaist claimains. The concept of corporation by ‘stopped is precly forthe purpose of protect third persons or creditors The defense i established in favor of persons with whom the corporation deals Dut notin vor of thoee who represent therbeves a such corporation ldhough snot ke Mamuhtnan, However, Mamufunan can raise his good faith asa defense and aim that is lablty only up tothe extent ois investment Setion 21 ofthe Corporation Code makes Hable as general partner only thos: ‘who assume to act aba corporation knowing tobe without authority. 4. ADVANTAGES AND DISADVANTAGES. 4A01. ADVANTAGES. 8) Thecapacty tact an legal unit, 1) Limitation of or exemption fom, individual ie sbiltyof shareholders ©) Continuity of existe, 4) Transferability of shaves ©) Centealized management of board of dirctors and 1) Standardized method of organization, and Finance (Sloe, Pi. Law on Proae Corortions, Seda 79). 4ug2, DISADVANTAGES. » » ° a @ ® More cemplicated in formation and manage: Higher ot of formation and operation: Lack of persona element Grater governmental control and repulaton: Managenent and control are separate from ownership Stockh ders have ite voice in the conduct of Inusinese (De Lio, The Caroration Cade of the Phi, Amott, 2002, 9p 48-49), 5. COMPONENTS OF A CORPORATION: sm. 3) » ° INCORPORATORS — those mentioned inthe ticles of inconporation a orginally forming fd composing the corporation, having signed the ates and acknowledged the same before 4 tay public. They have no powers beyond those vested i them by the state 1) They must be natural persons 2) Atleast five (8) but not more than fiteen iss 3) They must be of gal age: 4) Mijority must be sesidens of the Phiip- pineend 5) Each must own or subscribe toa east one shore CCORPGRATORS — all the stoctholders and memes of a corporation including the incor porstor who are sil stockade. STOCKHOLDERS AND MEMBERS — stock holdersare persons who hold or own shares ina tock corporation while members are those who ‘compos the non tock corporation,Incorporation was not fied with the SEC. There ‘ean Beno attempt in good faith to incorporate i mo ‘tices of Incorporation vas Aled with the SEC. In ‘tion, Mamalhnan cannot ease the defense that his corporation isa se facto corporation to defeat 2 ‘lain. Unt the personality is attacked by the Sa the defect corporation can continue a5 a coxporation ‘The allegation that there seas a corporation by. ‘estoppel may be corect but the same is nota defense Sganst limatnts. The concept of corporation by ‘estoppel is preiely forthe purpose of protecting third person or ereitors, The defense is xtablished in favor of persons with whom the corporation deals but not in favor of thous who represent therelves sch corporation although it sot ike Mamuhunan, However, Mamulunan can raise his good faith ssadefense and aim thatisiabity sony up tothe “xtentofhisinvestment Section 2 of the Corpraton ‘Code makes lable as general partner only those who assume to at asa coxporation knowing i tobe teithout authority. 4. ADVANTAGES AND DISADVANTAGES. 401, ADVANTAGES, 8) Thecapacity to act asa legal unit; 1) Litton of, or exemption from, individual bility of sharcholders ©) Continuity ofexstence; 4) Transferability of shares; 19) Centralized management of boa of directors nd Standardized method of organization, and Finance (Slog, Pl Law on ree Corporations, Snip. 9), 4m, DISADVANTAGES. ” » 9 a 3 ® ‘More complicated in formation and manage Higher ox of formation and operation: Lack of personal element Greater govenmental cont and egulaton: Managerent and control are separate fom owners Stockholders have ite voice in the conduct of busines (De Li, The Corporation Cale of the Pt ina, 202 ep. 1849, 5. COMPONENTS OF A CORPORATION: sou a) » ° INCORTORATORS — those mentioned inthe Aanices of Incorporation as orginally forming, land conposing the corporation, having signed the aces and acknowledged the same bore ‘a notary publi, They have no powers beyond thase vein them by the state 1) They must be natural persons 2) At st ive (5) but nt more than fier 3, 3) They must be of egal age 4) Maprity must be residents of the Philip pans and 5) Each must own or subseribe to atleast one shar, CCORPORATORS — all the stockholders and members of corporation ining the incor orators who areal stockade STOCKHOLDERS AND MEMBERS — stock. holders ee persons who hold ar vn shares in 3 ‘Mock compration wile members are those who ompoue the non-tockcoporstion4) DIRECTORS AND TRUSTEES — the Board of Dizetors isthe overning body in stock corp ‘ation we Board of Tastes i the governing body ina non-stock corporation. They exere the power ofthe corporation, ©) CORPORATE OFFICERS — they are the off cers who are identified as such inthe Corpots Hon Code, the Aries of Inearporation oe the By awe of the corporation. 9) PROMOTER — 4 self-constitued organizer ho finds an epi vene and ips (0 attract investors, forms 2 corporation an launches it in Busines, all with ew #0 pro: motion profs (Suong, p70, 1) The coporation isnot bound by the con- tract entered into by the promoter before Incorporation unless the contract said (Capeyon Fishing De. Ca Ie Sai, 65 Ph 23) 2) The promot is personally lable for con- Arsctzoragreements with hid person on raced in bea ofthe tue cteportion the corporation doesnot ati the same of ‘nes the agreement was expresly made subject to such approval or rtication 8) The promoter should remit to the coepors tion profs that he derived that properly eras tothe coxporation, DIFFERENTIATE CORPORATORS. FROM INCORPORATORS. INCORFORATORS ‘CORPORATORS 1. Signatory to Are de ‘Stokoe of stock corporation or mex ero non-stock cor: 2 Do not coue tobe] 2 Cense wo be mich if sch they are-no Tonger ohare, ‘3 Numberislimited [3 No restriction as to fost, mien “Mast have contrac: | 4 Maybe such through tual capa. his uardian, Sn. FOREIGN STOCKHOLDERS. a » Canal thestackholdesin a corporation be fr signers? ‘YES, excep in ily or partly nationalized corporations For example, a manufacturer that exports allt products ean be wholly-owned by foreigners. What ae the fully or party nationalize corpo- 1) Where mo foreign stockholder is allowed (Mass Media except recording (Art XVI So 11, Consuton (i) Retail wade enterprises with paid-up ‘aplal of less than US825 Millon (Ste 5, RA No.8762) (ii) Private seouty agencies (Se 6, RA No.sis7), Ge) Small-scale mining (Se. 3, RA No. 7076. (©) Ustization of natural resources (Art XI, Se. 2, Constitution. (oi) Soaks Se. 5, PD. Ne 449) (oi) Manufacture, reply, stockpiling and/or distribution of pula weap ns (Art Il Se. 8, Costin.» 9 4 (ui) Manufacture of frerackers and Sher pyrotechnic devices (Se 5, RA NR 7183 Up to twenty percent 20%) foreign eqsi- ty Private radio communications network TRA No.3886). Up to twentyfve percent (25%) foreign eal (i) Private serutment, whether for lat froverseas, employment (Ar. 27, PD. Nod (i) Construction and repair of locally funded works Se 1, GA. 54D, (ii) Construction of defense-related strc ture Se 1, CA.) Upto forty percent (40%) foreign equity: (i) Exploration development and utiza- ‘Sono natural eesotress (AN XI, Se SCout (a Realty companies and other compors- fons that om privat ands (47. XT, Sec 7, Consitan ii) Operation and management of public ‘lies (art XI, Se 11, Consition {o) Culture, production, milling, proces Ing wading excep retail of Fee and fen and by-products (Se. 5, PD. No 19 S15, RA. No 8762) (0) Adjustment companies (Se: 323, PD. Nola (i) Seuna and star bath bathhouse massage nics and similar activities (eA No. 700), 5) Uptesiaty percent (60) foreign equity. (0) nancng companies (Se 6, RA. No 5900 soda by RA. No 8556). (a) tqvestment houses (Se5, PD. No-129, ‘amended by RA. No 8366 FORMATION OF A CORPORATION. ‘heli of corporation commences rom the sane “ofthe Cerifent of Reiststion By the SEC upon filing of the Aces of Incorporation and other document G01, ‘THE ARTICLES OF INCORPORATION. 4) What arethe contents ofthe Articles of incor poration prescribed under Sec, 14a the Corpo- ation Cole? 1) name of corporation: 2} purposes indicating the primary an ec ‘endiy purposes: 3) plac of principal office; 4) term which shall note more than 5 years 5) names cizenship ad vesidences of ico priors 6) munber, names, citizenship and residences freon, 1) if stock corporation, amount of authorized Coptal stock number of shares, 1) ingar value stock corporations the pa a ttc each shares 9) unter of shares and amounts of subserip- tion of subscribers which shall not be less than 25% of Autborzed Capital Stock: 10) ammount paid by each subscriber on theie Sserption, which shal not be less than 25% of subesibed capital and shall not be les than P5000;» ° » 2 name of treasurer elected by subscribers, and 16 the corporation engages in a national tae ndstey a statement tat no tana ‘of stock willbe allowed i will rede the Stock ownership of Filipinos to percent ‘age below the requited egal ita, What documents should be fled withthe SEC for purposes of securing a ertifete of regi ttatlon ofa stock corporation? » 2 3 a 9 4 Articles of Incorporation “Treasurers Affidavit cetifyng tha 25% of the total authorized capital stocks has Been subseribed ad at least 25% of such have ‘een fully pad is cash oe property Bank crtfeate covering the paid-up capi ta Let authority authorising the SEC oexx rine the bank deposit and other corporate ‘book and records to determine Ihe cx ‘oso pid up spl Undertaking to change the compara name in cave there i anther person or ely with eae or snl ane that was prvi ously registered, Certificate of author from proper gow ferment agency whenever appropriate ke [GP for banks an Insurance Commision forineurance comporations ‘What corporate mame cannot be used? » [Names which are identi. deceptively for confusingly similar to that of any ox fsting corporation including inleration- ally known foreign corporation though not ‘used inthe Philippines o 2) Name already protected by lw: 3) Name which is contrary to Taw, morals or public policy. Notes: A corporation which seeks to prevint another fom sing nage must Sow that (a) acquired prio ight to we ‘he same and (b) the name i ether of 3 mentonsd above (Onda Rtracories Corp of he Pi. Repctores Cap. of the Phipps, No. 122174, October 3, 2002) “The coxporation chooses ts name ats per stand the use of a name similar to one adopted by enaher corporation, whether 3 business ofa sons proft organization, if misleading or lkely {o injure in the exerie of is corporate Fane tons, reparles of intent, may be prevented by {he exporation having prior righ by a suit for fnjunctr to prevent use It may Uhewise be lected ts change fs corporate name (Ang Mga Kant ges ng Dis Kay Krist ess, HS ‘anon Pilipino gia gine ay Crist fs, alga Stay ng Katoaianan, CR ‘No 13752, Deer 12,2001 where ptr tas onder change tine for bing Sia fo the espondets ma) Whatistheimportncelsigniicanceof the prin: ipa place of busines stated inthe Articles of Incorporation? “The principal place of business may deter rine the venue of cout eases involving compo ‘ations Tema abo determine i serve of sm ‘mons andnoties was properly made (Sy Tyson Enterprises, In, 19 SCRA 367 (1982). (Nate: A specific addres i now required: Metro Manis [So longer allowed, SEC Cicalar No.3 Seis of 2000).What isthe maximum term of «corporation? Canit be extended? corporation has a maximum term of ity (60) years tay be extended for a period not ‘exceeding ft (0) years any single instance However no extension canbe made eater han five 5) yeas prior tothe expiration of the te (See. 11, CP), Define the follwing term: (1) authorized cap- al stock; (2) subscribed capital stock () pals up capital) outstanding expital-and (3) epi. tl 1) Authorized Capital Stock — the amount fixed inthe aries of incorporation to be subscribed and paid by the stockholders of the eoeporation (SEC Opinio, Augie Tl, 1971, 2), Subseribed Capital — that postion ofthe authorize capital stock that is cover By Subscription agreements whether ul paid 3) Paldip Capital — the portion ofthe au ABorized capt stock which hasbeen ub serie and actually paid (MSCI-NACUSTP aol Chapter: National Wages ad Prada ily Comision, 260 SCRA 1731987). 4) Outstanding Capital Stock — the tot shares of stock Isued to subserbers or Stockholder, whether or not fully or par ally paid excep ieasury-shaes so fong as ther irlng subscription agreement (See 157,07 5) Capital — properties and assets of he cor: poration that are used fr its business or Operation, PROBLEM: 1. The Articles of Incorporation to be rite in the Secuntis and Exchange Commision contained the folowing provisions) Fast Antic Thename ofthe ‘omporati stall be Tao Marketing Compa”) Third Article The principal office of the eonporation stl be lead in Region I. im such municipality {herein a6 is Board of Dieters may designate” ¢) Seventh Arte, The capital stock othe coxporation ‘is One Millon Pesos (P000,00000), Philippine Carvency What areyourcomments and suggested changes to the proposed articles? [Av a) The First Arie doesnot comply withthe SEC Memorandum Circular No.5 dated uly 17,2008 which rues the corporate name to contain the ‘word “eurporaton” ors abbreviation "Corp. Incoeporied or Ine” Hence the name should titer be “Toho Marketing Corporation” oF “Toho. Marketing, Company, Incorporated “Toho Marketing Corp. "Toho Makting, ns 1b) The Thiad Avice should indicate the specie sxddressn the Plippines and not meray the gion (SEC Crear No.3, Sno 2005. ©) The Soveth Article mas indicate the number ‘of shares ino which the eaptal stocks divided fd the par value if any aswell as those without parvalue (602, AMENDMENT OF ARTICLES OF INCORPORA- THON. 2) Procedure Majority vote of dirctors or tastes nd seriton ast ofthe stoctholders represent. ing 2/3 of outstanding expt o 2/3 0 em tes of nonstock conporaions 1) When efeetive. Upon approval of SEC o If not sete upon by SEC within sx (6) months from‘he date of fling proved tht delay cannot be sttibuted tothe conporaion ©) Congres. The passage of sates amending the Corporation Code or special les may remit {he amendment ofthe Arties of Incorporation provided that no vested rights pated (Se, s.ccP). WHEN CAN SEC SUSPEND OR CANCEL CER: TIFICATE OF REGISTRATION (Se. 61, PD. No. mA). 8) fraud in procuring registration: 1) serous misepreentation aso objectives of oe poration ©) esa to comply with lawful order of SEC: 12) continuous inoperation for at eat 5 yeas; ©) flue to fle by Lae within require periods fire to file reports and 8} othorsiniae grounds. 701 za, BY-LAWS — relatively permanent and continuing rules faction adopted by the corporation frit oom {overnment and that ofthe individuals composing, IW and those having the direction, management And contol of ts af, in hole oe in par in he ‘management and contol of is affairs and activities (Chin Banting Corporation 8. CA, 270 SCRA D3 (1997, [Fletcher Se 4160. [REQUISITES OF VALID BY-LAWS. 8) I must be consistent with Corporation Code, ther pertinent laws and. sepulatons (Set Fler Bain Nase, 47 Pl. 583 Barreto 18 La Prvsone Flin, 59 Pi. 22). Example: A provision inthe By-laws granting a permanent eatin the Board of Directors is contrary to the Code Gre Chition High Sh Court ofA fone 2805CRAT 1997) 1) Tus be consist with the Atl of Inco poration Hence, cae of conic the Atees Fincrpraton preva Lgl Grand Vis meno Soul Ae, Tne Cort of pes Bre scRA 611957. ©) mst be resonable ae not aby oF op- presi 4) stn a vn inp att ‘propeny sighs feelers or enters ot tte unknown tla ee homer Scot of ipa 298 SCRA 20 1950, where the Cour ded able tcton on he fight ander and Salona Pie ame Fa) 30 SCRA 9198) where Court de “ined that amended By awe should not ner tne tesco o fete ofan employee by deciing the poronnoexsten ADOPTION AND AMENDMENT 2) Ossi Bylaws: 1) may accompany the Artic of ncorpra and SEC wl approve ogee th thetic or 2) fled within one (1) month from notice of iseance of ceifite of corporation im ich cae mnt be (approved Oy Srouolders costing at lest ma iy ot outanding capil and (3 «copy ed’ by approving ocbolders oF freer, ceed by ajo rectors rests and counesgnad by coxporte Stag) mse led with he see Note No-fling within ne (2) mah is « pound to fone france and wil ot ut automatic dislation LayoGrand Vis [South) Homeooers% CA, 276 SCRA GBI (1997). by Amendment. May be madeby the (1) Stockhold- together with the Board or (2) Board only. 1) Stockholders other wth Boa: mao ‘tort pes mayo oustanding ap tne 2 By the Boda delegated by 2/3 of out ining capita ct ora/3 fers 104, BINDING EFFECT OFPROVISIONS OF BY-LAWS, 4) sto the Corporation and its components — binding not ony upon the corporation but alas ‘om its stockholder members and those having irection, management and conto of tsafane }) Asto Thied Persons — not binding unless there \sdtual knowledge. Third persons ase not even bound to investigate dhe content because they are not bound to know the Bylaws which ae merely provision forthe government of a cor poration and notice to them will not be pre- Samed (China Boning Corp. CA. 270 SCRA lisse Examples: Provisions ofthe By Jaws on de- lnguency sasha not be nding on a pledge {iam PMI Cll @ NLRC CSC Sed 11397 the proviso i the By ows enumerat ing the contact signatory bot binding on thd [eso who signe contact wth th co fron as represent by the Chalrnan who eat ‘ne ths enumerated POWERS OF A CORPORATION, ‘S01. KINDS, 4) Express — those expresly authorised by the Corporation Code and other laws and. its -Atieles of Incorporation of Carter 1) Implied Powers — thwe that can be inferred from or necessary forthe exercise of the express powers ©) Incidental Powers —those that are incidental to the exisnce ofthe corporation. Nae: Thee are express powers that are in- cidertal powers ke the power aqui prop: ‘802, EXPRESS POWERS UNDER THE CORPORATION CODE. 2) GENERAL POWERS (Se 36, CCP). » » 3 9 4 ® » 1 » so a be sued in its corporate name; dp and sea corporate seal amend Asti of Incorporation ‘spt amend o pel by Jaws for stock corporations — issue stocks to Sthocrbers and Io sell easy stocks or hovstock corporations — adit members old on porchase,resive take, or gran ej all eas pledge mortgage and other trite deal with eal and personal property, poss tots al busines emer ino merger or convoidation; to make reasonable donations for public ‘welfare, hospital chastabl cultura sien ‘heel simile parposes. Probie for para politcal avy to sabi pension, retirement and other Plans for the benefit of directors, testers ‘cers a employees ther power essential or necessary to carry ‘out its purposes.by SPECIFIC POWERS (Sec.37 to See. 44, CCP) 1) ower exo shoren comport em (See. 37, CCP, 2) Inerwase/ Decrease Corporate Stock Se, co: 3) Incut Create Bonded indebtedness (Se. 38 cer 4) Deny preemptive ight (Se. 39, CCP 5) Sell. dispose, lease, encumber all or sub- anally al of corporate asses (Sec 40, cory: {6 Purchase or acquire own shares (Se. 41, cco 7) Investin another corporation busines oth ec than the primary purpose Se. 2, CCP) 8) Declare dividend (S343, CCP, 9) Enter into management contact (Sc #4, cory: 10) Amend the ates of incorporation (Se ‘08. ULTIA-VIRES ACTS. 2) Ultra vines ats ofthe corporation — An ls tres ats ene committed outside the object for whic corporation i rated as defines by the law ofits ganization and therefore beyond the [power conferred upon i by law (Atrium Ma "gement Copan 8. Cour of Appa, GR: No- IB, Febry 28,201), 1) Ulta irs act vilegal acts — The term ut tres distinguished from an Wega at for the former is merely voidable which may be en force by performance, ralieation or estoppel, ‘while the later is vid and ean be valde (aia, o ° fest Ulva Wes Act 1) executed contact — courts will not set ‘Side or interfere with such contracts 2) execatory contents — 10 enforcement hom a the suit ether prt (God and tienforeae: 4) pat executed and part execatory — pin pe aginst ens enrichmen! shall ppl. Distinguished fiom Acs that do not comply th female tf xtin procedures or formals are pre scitain te Arhsol norprtno By ts Suet re not comple ih theres Ig sti ol ue is act of coportion. Than we Byler a proce 0 Crise im ents andthe ane as nt Srp wh chen th conta nave In Pee war exc econ may even De NS hn pons nam fata ih tied laws Distinguished rom Unaumorized As “The act may be wth the powers f the compotion but oot within the powers of the ‘ena ace The ater is an rave orth corporation But sometimes eer ian an sat tt ce The ot ey apliesFr ste he shor were nrtng nase na gh sept unter Arle 1674 a he Cl Code Stresses her Swen abort rm th ard of Decors {eset the nd nthe fort of Resolution the ‘Sict the ren by a fir hal te vo (AP iy Deut Dioctnan Fg Series, GA oT, Jay 1202)‘SDA, EXERCISE OF POWERS, |) Who may exercise the powers ofthe compors: Won? ‘The Board of Directors exercises the powers ofthe corporation. Generally, the Board alone, Without the concurrence of the stockholder, may execs the powers. The stockhaliers ca fot overrule the decors in iy exerci of the corporate powers. 1) Whennotxerise by the boas The pose ‘er ae nt exercised by the board diet TG) there i a management contacts ant (i the powers of the Board are delegate by majority vote (of board) to an exceative comme 2), What are the powers that cannot be eee Sse by o cannot be delat io the 2 ‘sul commultce? ‘The exective committee cannot exer cw ay of the olowing approval of action requiring. concut- rene of stokholdes (fing of vacancies in the boar (Gi) adoption amendment o repel of by tows (iv) amendment oF repeal of board 80- Tuton which by’ terms cannot be amended or repealed, (©) distribution of cash dividends Note: The exceutive committee is compoued ofa eat thee (3) members of the bosed ard must be crested under the Ils. The Board may not by Hef eeate the executive committee under Section 35 ofthe Corp. Code: However, the boar, 9 » the governing body, may rae “xcatve™ ommtecs ha ey bein manag he Sano! he corporation but na under Sec 35 pie Prt Sovias Go, ea GR No.8 Mach 16,2007) In some cases, corporate officers ks the resent can alo bind the corporation ‘he nuthoiy of sah individual o bind thecoeporation generally Srv rom © tw Gi) corporate by tas oF Gi) authorzation from the board, eter Spry oF impliedly by habit cs tom or acpescene inthe ger Course of Busnes {Ir Asi est sot nds ne Cot Apes S.No 125778 Je 10, 205 cig Pepe's Arg and Wardsing Co Ince Cour of Apes 297 SCRA 173 ins Accepraeofct or nga may represent ira Bind the corporation io tanactons ATi thin peso fo the exe tthe uoity tod so has confer upon Fim and these ncode (powers tha inthe wu ours ofthe Fariclar bans ne ince 19 {hone exprealy provided: powers that may be implied from the [overs intentionally conered; (Gi) powers added by custom and usage, Se usually pertaining to the particular ‘officer o agent and (i) such apparent powers as the corpora fiom as caused person dealing withEVIEWERON COMMERCIALLAW the ofcer or agent to belive that it has confered (ne Asia Ioetnent In tastes, Inc. Court of Apes, id). 5) Am officer may also bind the corporation Ihe has apparent authority Apparent au thonty x derived not merely fon practice. Itsexistence may be ascertained hough (0 the goer manner in which the cor poration holds out an officer or agent [shaving he power to acto in chet ‘words the apparent thon to ct in eer with wich clothes hiner (3) theacqiscnce in is acs of partic ‘lrnatre wth actuator contractve Ioowedge there, within or beyond theseope oF hi odinary powers 1k eguies pretation of evi dence fila ae) exes ther initstavor ein foro other patos Ws pot the quanti of simian acs which establishes apparent author, tattoo tet with power 10 bind the corporation Ue Asie etme Inu, ne our fA i), PROBLEM: IAL Ie. (AD by. Slock Purchase Agreement Sot Al ne (AD fh sum of 93 in a is outstanding share of wots In “F” Corp The Sgcomen wat spd by UC and NV pede of Tend Al wap Tl expe rane in the agreement he neh fF Capo PS ahi iAilpy Athena Aas iN py Ath deen Aly 12 Mion and ened the amount of 73 lon toanswer for any defect met word ated of reflecting ret worth i turned out that “F* ad decency of PL2 Million, Hence, IA is bligated to rimbuite Al the amount of PI32 Milion (P12 Min pas the deficieny of P12 Mili) Howeves, Considering ths Al setained P75 Mion the balance fo be reimbursed is only P52 milion Later, LG, the prsdent cf TAL proposed in weiing that Als ‘aim for refund be edu to P49 Mion but he ‘promised to pay the cots of certain supersteactures Inbchalf of ALAL accepted the proposal Late, ATs Board reftsed fo Implement te acepted propos fn the grou that while the said Bond authorized {UG to purchasethe shares it did not authorize UG to ‘make the lst proposal. Is the position of TAs Board tenable? The potion ofthe Board of TAL isnot tenable, An office of corporation whois authorize to purchase thestockof ashe corporationbastheimplied power to perform al ther obligations aring therefrom. Such a payment of the shares of tock: By allowing its president te sign the agreement to purchase the Shure on its tehal, the comportion clothed. him tt apparent spac to perform al acts hich ae ‘cxpresly provided for or impliedly and inherently Include therein ntr-Asia estan! Indus, In {Cour of Ape i). 1b) In what instances i concurrence of the sock holders nncesary forthe exercise of the pow= fers of the corporations? 1) Approval ofthe majority of the hoard and oncarence ofthe stockholders represent (or2/308 ng 2/3 ofthe ntsanding capital thenember whenever applicable s neces Sayin the eerie ofthe allowing powers 0 Power to extend or shorten corporate term (So. 97, CCP):2 (i) Inerease/ Decree Comporste Stock (ee 38, CCP (ii) newt, Create Bonded Invebteness (See 35, CCP), (i) To deny preemptive right (Se Ta gory peempive ight (Se 3, (©) Sell, dispose, lease, encumber al or substan” ll of corporate asses (See 40, cP (0) Toinvest in another corporation, bs ness other than the primary purpose (See #2,C¢P) (i) To declare stock dividends (Se. 43, corr " (Ci) To enter to. management contract (See 44, CCP) (1) stockholder or stockholders Fepresenting the same interest of both the managing and the man aged corporations own or conta ‘ove than 1/3 ofthe fa out Standing capital ented to vote ofthe managing corporation or (2) a majority ofthe members ofthe boant or directors ofthe manag ing corporation aso constitute imajonty-of the members of the board oF the managed eorpors (0) Toamend the aries of incorporation (See T6,CCP). Approval of the stoctholders representing is nce ‘sary together with ard approval in the following instances PART — BURRESS ORGANIZATIONS wr (0) Bo eer ito management contrat it ny ofthe two itetances stated above {re absent (ae: vi] and 2] above): {G)Toadopt, amend o opal the by Jaws (Ses, doa 8, CCP 8) Withaut boa rst, the stockholders may () 3 of Outstanding Capital — Del. gate tothe board the power toamend Reb awe (Se 48, CCP) (i) Majority of Outstanding Capital —Re- ‘ove th power ofthe Board to amend theby-lawes which was previously del ate. ‘405, Instances when corporation may acquire its owen shares (Sec 8) the corperatin has unrestricted retained ear igo tits books to caver the shares to be pu chased aquired, 1) fora legitimate corporate purpose including ‘ent lined othe following 1) toeliminate factional shares arising out of ook dividends: 2) 1 allect or compromise an indebtedness {0 the corporation arising out of unpaid Stbscription in a delinquency sale and purchase delingdent shares sold during the Sie 3) to pay dissenting or withdrawing stock Fler entitled to payment of thei shares. {806, DIVIDENDS, 3) Who may declare dividends? (Se. $9) 1) xd. of Dito alone — ih, property siden.» @ 2) ‘Bosal of Dinstors with the appnoval of ‘Sostholderseprsenting not ess than 203 of Outstanding Capital —stock dividends What are the conditions that mast be present declare dividends? 2 ° 1) unnsteced etained earings 2) resolution of the board. oe if stock dvi. ‘dnd, the board with the concurrence of 2/Sof outstanding capil. {Can the board be compelled to decare divi. sends every yeat? 'No, Declaration of dividends is dizcetion- ay upon the Board. Dividends are payable only when terete proftseared by the conporaion anda a general rule, even if here ate existing profi, the Board of Director asthe discretion fo determine whether or not dividends are de- Jared Repu Plater Baoan, 269 SCRA 1 1397). Faception: Stock corporations ar pro hibited rom retaining surplus profits n excess 110% of thle pcp te However even if he retained surplus prot itsareinexces of 10% ofthe panei the Foard may stil refuse wo declare dividends i 1) justified by defiete corporate expansion rots pogroms approved bythe Board: 2) the corporation is prohibited under any Jan agteement with any franc ltt ion oF ereitor whether loa ot foreign, foo declaring dividends without is/his consent and such consent hat et been secured or 3) iteanbedleaey shown that such retention is noessry under special ccumstances ob a ° taining inthe corporation. ample: When thate a ned fr special reser tor pro se contingencies Dividends cannot be declared out of the capi tal Excpfion, Wasting Assets Corporation — Corporations solely or pny enage inthe ception of “wasting snes” to dsb the fet promeds derived fom expototion oftheir Folding such as mines, wey patents and fewschocds, without allowance or deduction for depletion “The trast fund dstrine wil be volte i dividends ore declan out of capita ecept ony {roo instances (1) ligating dividends: and {Qh vilens fom vestments in wanting somporeton (0) What can be included in unrestricted re tained esting? 2) What items cannot be used for dividend distribution? () Con gain from fale of real property be considered part of w strc retained earnings? () Can teasry Shaesbe distibuted by way af dividends? 1) Unresticted Retained Earning shall only Fret accunutted pits and is r= flzed out ofthe normal soa entinons ‘Operations ofthe company ater deducting therefrom distributions of stctolders and transfers to capil stock or ther acount fant which is (2) not appropriated by it Band of Directors for eaxposate expansion prec or programs (2) mol covered by a triton for dividend! declaetion uot Sloan agreement) and (3) not reuited 10 be retained under special vicumstanes ‘otainng in the omporation suchas when thew ism need fra spec reserve for2 probable contingencies (SEC Memorandum Crear MCT Ne 11 Seri f 2008), For such purpose, the surpls pro ts cine nt tea na ie inne founded upon actual eamings or profits ‘The existence, therfore, of surplus prot its arising fom the operation of corporate busines ia condition precedent to the declaration of dividend. The pease “aca ‘omings or profit” as mentioned above Shall be the net income for the yen based fon the audited financial statements (SEC IMC No. 11 Seis of 2008). ‘The following unvealized items and other asiate or oink vente ‘auity method asthe same is not yet act: Sil earned or realized, Iti ony ater the {nvestee company declares such income a ‘Gvedend that said income is actually tele {aed or the eamings become avaiable for ‘ividend declaration. Duc tothe elfect on the investment acount, the investor com pany shall consider only cash oF property Aividends declared by the investe-om- pany as carings declrable as dividends (SEC MC No.1 Sores of 2008) (Una foregnexchange gains except those ttbutabe to cash and cash ‘sivalents forthe time being that they ae ‘at yet actual income rir fo realization of ‘uch foreign exchange gain (SEC MC No.1 Seri of 208) ii) Unalze. etal gains which ‘i the result when the company chooses ‘BUSS ORGANIZATIONS m 2 the option of rengizing actuarial gains rls dnty to profit oss satement {SECM Ne I otf 208): (ey Fsiralue adjustment othe gave axing on fom market market val on mich are not yet resized (SECM No 11 Sere 208 (0 The amount of seognaed_ de foxx tet ede the mount of {fhe tu expense oa Incense he net thcome ane reed caring, unt ited GEC ME No.1 Sov f 208: (oi iczupls cannot be de tare ns didend. Pid in surpls the ‘fence betren the parva and the ‘Ri vale or sling pc ofthe shares ar sc tenforecoveidered profits eared intheconduct of the sins ofthe corpo ‘Bo They ar considered pat Feit to Reyauaton surplus or the in crea in he vaca asset canon eco ‘Sade eaangs o the corporation They ‘Seimtincome om operation. They are by ‘sujet future SEC Opis Tage 2 1981 and March 19,192) ‘oy Rdtion surplus cnnot Hhe swise be nce in the sunt to Be de nel ws dividends becuse they are not teome fom operation: Redaction Surplus tre tose aig fom the eduction ofthe ‘ir ne of the koued shares of socks TSEC Opinion dtl August 8190) ‘Gsireansak ft corporations rl pop: itch be colder part of retained Ean, The ste cam be part of dhe bus ‘Sf the conporation. Retained earnings22 REVIEWER ON COMMERCIALLAW AKT HL —BUSINES ORGANIZATIONS ms Inu otonly exigent emtbe fi ted ot onthe aun pl forth sae ordry oe tana ec ‘Sec Op ny 0 Senbalas Gee arya “not associat ad 2) Stockholders at the time of declaration are indie centres ats vents Dds dcr Bon esping the busines for which ‘before the transfer of shares belong to the the erat ogi er ew Tie snd thse tc ee te Fe lferpe poring og meee ter belong tthe ater SEC Oi Ses iam end intenesta Sor Gee wm by ‘iomdated July 15, 1994). then he capone mse and esas? 2 Howerec ew mete susp 5) Tester srightob pi viens Fence cpus ea se Mice tse oe me fp fom st lal ropes ws isis wise tthe Corpor tion Code rom that time, the tocolder Alen ithe value of the semaining acts = ‘an alresdy demand payment thereof (SEC after distribution ses than the amount of egal or stated capital and liabilities (SEC. Opinion dated October 10, 1982) pion dats ay, 1230) 4) Sick viens canbe declared ata prem ©) Yes but only as property dividends Tn: tm tale higher than pe (EC Opinion ‘aupcshares cannot be declared as stock civ- dated October 23, 1992). end or cash dividends betas hey ae en unpaid soberibers at ented odie ‘ot conadeed part of eared otal, =, Pots The dition of ash or soxk {ividends oto teary shares would be ‘407, SALE OF ALL OR SUBSEANTIALLY ALL PROP. onverang the orporticn ino both debe ers, rand crttor fo the ame amount at he 2) Regutes: 1) approval of musty ofthe Sime tine or gun to ake money or die or testes Sock ton one ts pocket an puting inanother, which is absurd. Treasury shares eS fenting 2/3 of outstanding apa of 2/3 of member in ‘meting duly called forthe ‘rpose iter weten notice, may be declared as property dividend tobe Issued out ofthe stained earings prev ‘ously used to support ther action pro ded thatthe amount of the sid ett ering hos ot bees sbquey f it mast comply wth he fr eyo SEC Opn tly © als oft Beller Lae | 1 OtherRules Concerning Dividends. » Wotan cove susan al cpr 1) Stockholders are entitled to dividends pro Properry and assets if thereby the corporation ‘tn based on the total number of heres fwould be rendered incapable of continuing,the busines or accomplishing the purpose fo ‘hte inopone he POS ©) Effet on creditors. The transfer buyer of ll or substantially af ofthe assets (or ever chars illo be lable forthe debts o the tranteroe, 1 ihe sam een asp of ai 2) theres consolidation or merger: 3) the purchase was fn a of cris 4) ifthe purchaser becomes continuation of thesdher PROBLEMS: X Corporation is engaged in selling pencils on ‘wholesale bass. It merely renting» bicga and Siro is assets consist of ts toc of pen“ school supply dealer purchase all the socks of X CConporation. Is the transaction a sale of subtatally ail 'of the assets of the corporation requiing ‘outstanding capital stock? ae No. Section 40 ofthe Corporation Code provides that stg nh fa nee rel the owe of any corporation, without suthorzation okies member ell heb spac of any ofits property an ase! the ame ‘necessary inthe usual aid eg course of business {rif the procteds ofthe sale or ther dsposion of Sich property and amet be appropiate forthe Conduct ofits remaining busines The ale the ‘Sven pb apes to a sl he ely {ue of busines beenuseX Corporation le inwholesalebusines al ‘AA Corporations engagedinthe business of print took Around 70% of ts ance conn of nin the bank 25% pining machine and the remaining office ‘sipment andsupplies. AA Corporation plans ose themarhine. Can be considered sale of substantially aif the asst of he corporation? Yes, it may be considered sale of substantially a Of the gusts Hecause without a printing machine, the corporation. would be rendered incapable of continuing ity pining Busines. The fact that it {Sony 29% ofthe total assets of the corporation is lemmatera ._ INCREASE O8 DECREASE OF CAPITAL. 2) What are the ways of increasing the capital sock? 1) by increasing the number of shares and ‘eainng the po value 2) by increasing the par value of existing ares without changing the mumber of Shares 8) by icressing the numberof shares and ine ‘sng the parvalve 1) What are the ways of dereasng the capital nooo’ ” ” 1) by ceceasng the number of shares and ‘tanng the pa value, 2) by decreasing the par value of existing Sane without changing the member of shan 3) by decreasing the number of shares and e unlawful foram insider to sll bay 8 security of he issuer, wile in possesion of mister information with respect to the issuer othe secity thats mot generally avallae to the publi, unless 2) The insider proves thatthe information was et gained fom such ations oH) I the ‘ther party sling to or buying from the insider (or his agent) identified the insider proves ) that Ihe disclosed the information tothe eter pat, ornm 200, (Ga that he had reason to believe thatthe other party ‘thei alsa posession af he information Presumption: A purchase or sale o security ofthe sswer made by an inser defined in Subsection 3.3, fr such insiders spouse or relatives by affinity oF ‘Consanguinity within the second degre, legitimate fr common-law, shall be presumed to have been ttieted while in possesion of material por-publi Iiormation if tmsated iter such information ‘cme into existence but peor to dissemination of Sch information to the publc and the lapse of 2 reasonable tne forthe market 10 absorb such Information: Prove, howe, That this presumption ‘hal be rebutted upon showing bythe purchaser fr seller that he was not aware of the material non- publicinformation at he time of the purchase or sal ‘What i material non-public information? ‘An information is “material non-public” i (a) Ithas not been generally disclosed to the public and would likely alec the market price of the security ter being disseminated to the public and the inpes of «teasonable time forthe market t abs0r> the information, or (2) would be considered by 2 ‘sasnable person mpoeant under the circumstances in determining his course of action whether to buy sellorhold a security What is the prohibition imposed on insiders regarding material non-public information? i shall be unlawfl for any insider to comm ricate material non-public information about the Ssuer or the security fo any person who, by virtue ofthe communiation becomes an insider where the Insider communicating the information ows or has reason to belive that euch person wil Lely buy or alle scuty ofthe laser wile in possession of such information. 13, TENDER OFFER, 1801, Whats Tender Offer— Tender offer means publicly announced ntenon by a person acing alone or in ‘oneert with other persons (hereinafter referred 10 235 “person” to acquise equity securities of 3 public ‘company. 2) Atenda ofr isan offer bythe acquiing person tostodader of public compat fo them tender hei shares therein on the ter spe! fi ole Tender ote in place top tet mio sharers agit any scheme that cists te share value ofr investments IMgiesthe minority cbocholer the cance o xt the company under resonable tr ing then the opportunity to sell hei shares the same price te thon of te majority shore holders (CEMCO HOLDINGS, IN Natal {etree Company, Ine, Ge No. 7115 de swt 20). 1b) Public Company means any corporation wih & see meyers lite an Exchange for with ase in excess of Fity Millon Pests {0.00¢ 00000) an having wo hundred (20) ‘or more holders, at leat two hundred (20) of ‘which sre holding at least coe hundred (10) ‘hares class oe ey secur, 1342, When tender offer is mandatory, 2) When ay person o group of persons acting in ‘concer who intend to agg thity-fve Per ‘ent (58) or more of equ shares ha public company (Note: They mst low the ner: tion to sete the shares contemporaneous wth hetnde fe) wane ©) Any peso or grup of penn acting ine Gen, ends to aque ny Ave percent (5 oc mows of guy share Ins pul co2 pny none or more transactions within a period [St tnelve (12) months sal be requted to make ' ender offer oll holders of such class forthe uber of shares so acquired within the sid pe fi. 1 any anquition of even less than thirty-five percent (3%) would result in ownership of over Fity-one percent (51) ofthe total outstanding fsqity secures of a public company, the “hui shal be required to make a tender offer forall the outstanding equity secures to all remaining stockholders of the sad company’ at 1 price supported by a falmess opinion prov fl by” am independent financial advisor or txuivalentthied party. The acquirer in such a tender offer sal be eguied to accep any and lf secures thus tendered 1.02. Exempt from Mandatory Tender Offer Regulre- The mandatory lender offer requirement shall ot apply tthe alleing » 2 2 » 5 ny purchase of shares fom the unissued capi Int sock provide hat the acguston wil not reall toa ity percent (57) or more ownership ‘of shates by the purchaser {any purchase of shares fom an increase in au Thovaed expt stock; purchase in connection with frelosure pro dings involving s duly constituted pledge oF security arrangement where the acquisition i made by the debtor or creditor: purchases in connection with pelvaization wn ‘Srtaken by the government ofthe Philippines: purchases in connection with corporate rehab Bon under cout superson: 6) purchases though an open market atthe pre Sling market pce 7) merger o onsliation. 13, Obligations of person making a tender offer. 2) Make an announcement of his intention in a newspaper of general Grculation, prior to the commencament ofthe oer, 2) Atleast business days prior tothe date of {he commencement ofthe tender offer 1). File with theSECa required form for tender fer SEC Form 1-1) including all exhib Its thereto (and any amendments thereto), withthe pesca ling ees nd 2) Hand deliver copy of such fem includ. ing al exhibit (and amendments thereto) tothetarget company ais prnepal eect tive oce and teach Exchange where such clas ofthe target company’s securities are Tse or trading. ©) Report the results ofthe tender oer by fling with th Commission, not later thant (10) ca lendar daysater the erminaton of the tender of {er copies the ial amendments to the form, DIRECT AND INDIRECT ACQUISITION. Owe: tership acquisition means both dwt and indirect. ‘hati decisive isthe detenninaion of the power of conto. The bottomline af the law to give the Shareholder of he pubic company the opportanity to decide wheter oe not to clin connection sith 3 transfer of ent. Ths, the rles apply even if one will acquire the shores inthe corporation that ovens the shares of a public company {including subst iar) Example» Corp. owns 51% ofthe outstanding shares in Ba public company. The tender offer rules {pply if thre wil bea sale ofthe controlling sharesln X Corp. (CEMCO HOLDINGS, INC.» Nato ie tolerates the purchases of its customer without Insurance Company, ne, pr. Pevforming its ligation under the Mandatory Clone ‘Gut Rue aad without reusing he later to deposit ‘ash before emarking on tading socks any fhe, broker violated the lave at its own per Hence, ‘not complain fr failing to obtain te fall amount (fie lim for later transactions (Abmcus Souris {Cop Aimpi id) “4 MARGIN TRADING. The customer purchases stocks by advising only a portion of the purchase price with te Toke extending credit or making loan for balance de, 1) The main purpone isto give the goverment an effective method of reducing the ageepae mount of the nation’s credit resource ih fn be directed by speculation into the stk ‘market and out of ether more desirable ses of ‘commerce and industry (Abacus Securities Cor, {8 Ampll GA: No 10046, Fbrary 272006) 14.01, PROHIBITIONS. 2) A Broker Dealer shall not extend credit toa cus tomer in an amount that exceeds ty percent (Sof) ofthe curent market value of the security atthe time of the transaction. n no event shall new orakional cet be extended in oan ae Count in which the equity sess than P0000. 45, VIOLATIONS OF SRC. All complaints for any violation of the Cade and is implementing res and regulation should be led withthe SEC Where the complain i criminal in ‘ature, the SEC shall ndorse the complaint to the DO} for psliminaryinvestgaion and prosection (Sc. $31, RCS Bein. Patin, eal, CR. No. 165380, February 8 27). 2) The margin maintained ina margin acount of ‘customer shall be no less than tenty five per ‘ont Q5%) of the current market valu ofall se uss “Long” in the secount and thirty percent (G0!) of the current market value of secures “short” in the account ©) Mandatory Close-Out Rule. When there isan insulfidency of margin, 2 call for aditonal ‘margin shall be isued promptly by the Broker Dealer to the customer al for ini margin shall be stsed within five (5) business days from the date the insuficincy is created. A call formaintenance margin shall be stsied within tnventy-four (4) hours after the calls sued 'W.02.The parties may be considered ie par deli they iolte the limitations on margin trading. fa broker