Orporation ODE OF THE Hilippines: General Provisions

CORPORATION CODE OF THE PHILIPPINES
'ORPORA(ION 'O)E *+P ,-. effecti/e 0a$ 1. 12-34

GENERAL PROVISIONS Q: What is a corporation? A: An artificial being created by operation of law having the right of succession, and the powers, attributes and properties expressly authorized by law and incident to its existence. (Sec. 2) Q: What are the attributes of a corporation? A: 1. It is an artificial being; 2. It is created by operation of law; 3. It en oys the right of succession; and !. It has the powers, attributes and properties expressly authorized by law or incident to its existence. Q: What are the theories on the formation of a corporation? A: 1. Concession Theory or Fiat Theory "eans that a corporation was conceived as an artificial person owing existence through creation by a foreign power. It has without any existence until it has received the i#pri#atur of the state acting according to law, through the $%&. (Tayag v. Benguet Consolidated, Inc., L-232 !, "ove#$er 2%, &%!') Theory o( cor)orate enter)rise or econo#ic unit 'he corporation is not #erely an artificial being, but #ore of an aggregation of persons doing business, or an underlying business unit. ()owever, this doctrine is being used in support of other doctrines.* *enossenscha(t Theory + 'reats a corporation as + the reality of the group as a social and legal entity, independent of $tate recognition and concession,. (Tayag v. Benguet Consolidated, Inc., L-232 !, "ove#$er 2%, &%!') 3. Q: What are the si!nificance of the "octrine of separate persona#it$? A: 1. Lia$ility (or acts or contracts - the acts of the stoc.holders do not bind the corporation unless they are properly authorized. 'he obligations incurred by a corporation, acting through its authorized agents are its sole liabilities. 'he obligations of the corporation are not the obligations of its shareholders and #e#bers and vice/versa. (Cease v. C,, L-33172, -cto$er &', &% %) .ight to $ring actions - #ay bring civil and cri#inal actions in its own na#e in the sa#e #anner as natural persons. (,rt. /!, Civil Code) .ight to ac0uire and )ossess )ro)erty property conveyed to or ac0uired by the corporation is in law the property of the corporation itself as a distinct legal entity and not that of the stoc.holders or #e#bers. 1,rt. //(3), Civil Code2
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Note: 'he interest of the shareholder in the properties of the corporation is inchoate only. 'he interest of the shareholder on a particular property beco#es actual, direct and existing only upon the li0uidation of the assets of the corporation and the sa#e property is assigned to the shareholder concerned.
Q: Are corporate propert$ stoc&ho#"ers or members?
o%ne"
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A: 1o. $toc.holders or #e#bers are in no legal sense the owners of corporate property which is owned by the corporation as a distinct person. !. ,c0uisition o( court o( 3urisdiction - service of su##ons #ay be #ade on the president, general #anager, corporate secretary, treasurer or in/house counsel. (Sec. &&, .ule &/, .ules o( Court). Changes in individual #e#$ershi) corporation re#ains unchanged and unaffected in its identity by changes in its individual #e#bership.
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UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil
UST GOLDEN NOTES 2009

Q: What are the constitutiona# !uarantees to %hich a corporation is entit#e"? A: a. 4ue )rocess / It cannot be deprive of life and property without due process of law. (,l$ert v. 5niversity 6u$lishing, L-%377, ,)ril &', &%8') 90ual )rotection o( the la: (S#ith, Bell ; Co. v. "atividad, /7 6hil. &3!) 6rotection against unreasona$le searches and sei<ures. (Stonehill v. 4io=no, L-&%887, >une &%, &%! ) GR: 1o. $ince a corporation is a #ere legal fiction, it cannot be held liable for a cri#e co##itted by its officers, since it does not have the essential ele#ent of #alice; in such case the responsible officers would be cri#inally liable. (6eo)le v. Tan Boon @ong, 8/ 6hil.!7 ) 5PN: An officer of a corporation can be held cri#inally liable for acts or o#issions done in behalf of the corporation only where the law directly #a.es the person who fails to perfor# the act in the prescribed #anner expressly liable cri#inally. (Sia v. 6eo)le o( the 6hili))ines, L-37'%!, ,)ril 2', &%'3) Q: In a comp#aint fi#e" a!ainst 567 'orporation. Lu8on (ra"in! 'orporation a##e!e" that its Presi"ent 9 Genera# 0ana!er. %ho is a#so a stoc&ho#"er. suffere" menta# an!uish. fri!ht. socia# humi#iation an" serious an:iet$ as a resu#t of the tortuous acts of 567 'orporation; In its counterc#aim. 567 'orporation c#aime" to ha/e suffere" mora# "ama!es "ue to besmirche" reputation or !oo"%i## as a resu#t of Lu8on (ra"in! 'orporation<s comp#aint; 0a$ Lu8on (ra"in! 'orporation reco/er mora# "ama!es base" on the a##e!ations in the comp#aint? A: 1o. A corporation, being an artificial person which has no feelings, e#otions or senses, and which cannot experience physical suffering or #ental anguish, is not entitled to #oral da#ages. 0a$ 567 'orporation reco/er mora# "ama!es? A: 5es. 6hen a uridical person has a good reputa/ tion that is debased, resulting in social hu#iliation, #oral da#ages #ay be awarded. "oreover, goodwill can be considered an asset of the corporation. *122- +ar Question4 Q: What is the "octrine of piercin! the /ei# of corporate fiction? A: It is the doctrine that allows the $tate to disregard the notion of separate personality of corporation for ustifiable reason7s. Q: What are the tests in piercin! the corporate /ei#? A: 1. 2. 3. !. 8raud 'est &ontrol 'est Alter/ego or Instru#entality 'est 9b ective 'est
$. c.
Note: A corporation is not entitled to invo.e the right against self/incri#ination. (Bataan Shi)yard v. 6C**, L8''8, ?ay 2 , &%' )
Q: Is a corporation entit#e" to mora# "ama!es? A: GR: A corporation is not entitled to #oral da#ages because it has no feelings, no e#otions, no senses. (,BS-CB" Broadcasting Cor)oration v C,, *... "o. &2'!%7 >anuary 2&, &%%% and 6hilli) Brothers -ceanic, Inc, *... "o. &2!27/, "ove#$er 27, 277& ) 5PN: 'he corporation #ay recover #oral da#ages under ite# 3 of Article 2214 of the 1ew &ivil &ode because said provision expressly authorizes the recovery of #oral da#ages in cases of libel, slander, or any other for# of defa#ation. Article 2214(3* does not 0ualify whether the in ured party is a natural or uridical person. 'herefore, a corporation, as a uridical person, can validly co#plain for libel or any other for# of defa#ation and clai# for #oral da#ages. (Fili)inas Broadcasting "et:or=, Inc. v. ,?9C-BCC? *... "o. &/&%%/, >anuary & , 2778) Q: Is a corporation #iab#e for torts? A: 5es whenever a tortuous act is co##itted by an officer or agent under the express direction or authority of the stoc.holders or #e#bers acting as a body, or, generally, fro# the directors as the governing body. (6"B v. C,, L-2 &88, ?ay &', &% ') Q: Is a corporation #iab#e for crimes? A:

2. 1on/pay#ent of separation benefits 'est corporation o%ns; After a fe% $ears. S #ost his corporate positions but he refuse" to return the motor /ehic#e c#aimin! that as a stoc&ho#"er %ith a substantia# e=uit$ share. he o%ns that portion of the corporate assets no% in his possession; Is the contention of S /a#i"? E:p#ain; A: 1o. 'he contention of $ is not valid. 'he 8ord %xpedition is owned by the corporation. 'he corporation has a legal personality separate and distinct fro# that of its stoc.holder. 6hat the corporation owns is its own property and not the property of any stoc.holder even how substantial the e0uity share that stoc.holder owns. *A333 +ar Question4 Q: What are the cases %hen the "octrine of piercin! the /ei# of corporate fiction ma$ be use" to "isre!ar" the persona#it$ of the corporation? A: a. b. 6here the corporation is a #ere alter ego or business conduit of a person; or :6here the corporation is so organized and controlled and its affairs are so conducted as to #a.e it #erely an instru#entality, agency, conduit or ad unct of another person.
Q: What are the re=uisites of the contro# test? A: 1. &ontrol, not #ere #a ority or co#plete stoc. control, but co#plete do#ination, not only of finances but of policy and business practice in respect to the transaction attac.ed such that the corporate entity as to this had at that ti#e, will or existence of its own; $uch control #ust have been used by the defendant to co##it fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest or un ust act in contravention of plaintiffs legal right; and 'he control and breach of duty #ust proxi#ately cause the in ury or un ust loss co#plained of. (Conce)t Builders, Inc. v. "ational La$or .elations Co##ission, *... "o. &7' 3/, ?ay 2%, &%%!)
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Q: What are the effects of piercin! the /ei#? A: &ourts will loo. at the corporation as an aggregation of persons underta.ing the business as a group.
Note: 6hen the veil of corporate fiction is pierced in proper cases, the corporate character is not necessarily abrogated. It continues for legiti#ate ob ectives. 'he decision applies only for that particular case. (.eynoso IA v. C,, *... "os. &&!&2/-28, "ove#$er 22, 2777)
Note: 8raud is not an ele#ent in these cases.
Q: Is the a##e!e" contro# of a proprietor o/er a corporation enou!h in or"er that the separate >uri"ica# persona#it$ of a corporation to be "isre!ar"e"? A: 1o. 'he alleged control of a corporation was not evident in any particular corporate acts of the corporation wherein the proprietor using the corporation executed acts and powers directly involving the corporation. 8or the separate uridical personality of a corporation to be disregarded, the wrongdoing #ust be clearly and convincingly established. (?atuguina Integrated Bood 6roducts, Inc. v. C,, *... "o. %'3&7, -cto$er 2/, &%%!) Q: Nine in"i/i"ua#s forme" a pri/ate corporation pursuant to the pro/isions of the 'orporation 'o"e of the Phi#ippines *+atas Pambansa +#!; ,-4; Incorporator S %as e#ecte" "irector an" presi"ent?!enera# mana!er; Part of his emo#ument is a @or" E:pe"ition. %hich the
Q: P#aintiffs fi#e" a co##ection action a!ainst B5B 'orporation; Cpon e:ecution of the court<s "ecision. B5B 'orporation %as foun" to be %ithout assets; (hereafter p#aintiffs fi#e" an action a!ainst its present an" past stoc&ho#"er B6B 'orporation %hich o%ne" substantia##$ a## of the stoc&s of B5B corporation; (he t%o corporations ha/e the same boar" of "irectors an" B6B 'orporation finance" the operations of B5B corporation; 0a$ B6B 'orporation be he#" #iab#e for the "ebts of B5B 'orporation? Wh$? A: 5es, ;5; &orporation #ay be held liable for the debts of ;<; &orporation. 'he doctrine of piercing the veil of corporation fiction applies to this case. 'he two corporations have the sa#e board of directors and ;5; &orporation owned substantially all of the stoc.s of ;<; &orporation, which facts ustify the conclusion that the latter is #erely an extension of the personality of the for#er, and that the for#er controls the policies of the latter. Added to this is the fact that ;5; &orporation controls the finances of ;<; &orporation which is #erely an ad unct, business conduit or alter ego of ;5; &orporation. (Co##issioner o( Internal .evenue v.

"orton ; Carrison Co#)any, L-& !&', ,ugust 3&, &%!/) *A331 +ar Question4 Q: What are the re=uisites in A#ter E!o or Instrumenta#it$ Ru#e? A: 'CP 1; Control. not #ere #a ority or co#plete stoc. control, but co#plete do#ination, not only of finances but of policy and business practice; 2. $uch control #ust have been used by the defendant to co##it fraud or wrong, to perpetrate the violation of a statutory or other positive duty, or dishonest and un ust act in contravention of plaintiff=s legal rights; $uch control and breach of duty #ust )roDi#ately cause the in ury or un ust loss co#plained of. (Aelarde v Lo)e<, Inc. *... "o. &83''!, >anuary &/, 277/) bet%een
9((ect o( ?is#anage#ent A partner as such can sue 'he suit against a a co/partner who #e#ber of the A9B or #is#anages A9' who #is#anages #ust be in the na#e of the corporation 9Dtent o( lia$ility to Third )ersons @artners are liable $toc.holders are liable personally and subsidiarily only to the extent of the (so#eti#es solidarily* for shares subscribed by partnership debts to third the# whether paid or persons not. 5PN: Ci#ited partner .ight o( Succession 1o right of succession )as right of succession Trans(era$ility o( SCEs interest @artner cannot transfer his $toc.holder has the interest in the partnership right to transfer his without the consent of all shares without prior the other existing consent of the other partners. stoc.holders unless the right of first refusal is e#bodied in the articles of incorporation. Ter# o( eDistence "ay be established for "ay not be for#ed for a any period of ti#e ter# in excess of 2D stipulated by the partners years. "ay be extendible to not #ore than 2D years in any one instance Fir# "a#e In a li#ited partnership it "ay adopt any na#e is re0uired by law to add provided? the word +Ctd., to its na#e 1. it is not identical or deceptively si#ilar to any registered fir# na#e; 2. not contrary to existing law. 4issolution "ay be dissolved at any &an only be dissolved ti#e by the will of any or with the consent of the all of the partners. $tate Beath, civil interdiction Beath or insolvency of and insolvency of a shareholders can=t partner dissolves the dissolve the corporation. partnership. *overning La: Eoverned by the &ivil Eoverned by the &ode &orporation &ode
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Q: What are the "istinctions partnership an" corporation?
PAR(NERSDIP 'ORPORA(ION ,s to creation &reated by #ere &reated by law or by agree#ent of the parties operation of law Co##ence#ent o( 3uridical )ersonality fro# the #o#ent of fro# the date of #eeting of #inds of the issuance of the partners certificate of incorporation by the $%& "u#$er o( Incor)orators "ay be organized by at >e0uires at least 2 least two persons incorporators but not #ore than 12 5PN: corporation sole 6o:ers GR: "ay exercise any "ay exercise only such power authorized by the powers as #ay be partners. granted by law and its articles of incorporation, 5PN: Acts which are i#plied therefro# or contrary to? / law, incidental thereto. #orals, good custo#s, public order, public policy ?anage#ent 6hen #anage#ent is not @ower to do business agreed upon, every and #anage its affairs is partner is an agent of the vested in the A9B7A9' partnership
Q: What are the a"/anta!es an" "isa"/anta!es of a business corporation? A: ,dvantages 1. Ci#ited liability;

2. 3. !. 2. F. 3. G. 4. $hareholders are not general agents of the business; %asy transferability of shares; &ontinuity of existence; Its credit is strengthened by such continuity of existence; $tandardized #ethods for the creation, organization, #anage#ent and dissolution under corporation code; &entralized #anage#ent in the A9B7A9'; 8easibility of great underta.ings; 'he corporation has legal capacity to act as a legal unit. Q: 0a$ a corporation enter into a contract of partnership? A: GR: &orporations have no power to enter into partnership. .eason: @ublic policy. In a partnership, the corporation would be bound by the acts of the persons who are not its duly appointed and authorized agents and officers, which would be entirely inconsistent with the policy of the law that the corporation shall #anage its own affairs separately and exclusively. 5PN: 'he $%& allowed corporations to enter into partnerships with other corporations and individuals provided? a. 'he authority to enter into partnership relation is expressly conferred by the &harter or the A9I and the nature of the business venture to be underta.en by the partnership is in line with the business authorized by the charter or the A9I. (S9C -)inions, Fe$. 2%, &%'7, 4ec. &, &%%3, and Fe$. 23, &%%/.)F b. 'he partnership #ust be a li#ited partnership and the corporation #ust be a li#ited partner; c. If it is a foreign corporation, it #ust obtain a license to transact business in the country. Q: )oes a "efecti/e incorporation resu#t into a partnership? A: 'he answer depends on whether or not there is a clear intent to participate in the #anage#ent of the business affairs on the part of the investor. @arties who intends to participate or has actually participated in the business affairs of the proposed corporation would be considered as partners under a de (acto partnership. 9n the other hand, parties who too. no part notwithstanding their subscriptions do not beco#e partners with other subscribers . (6ioneer Insurance v. C,, *... "o. '/&% , >uly 2', &%'%) Q: 0a$ a corporation enter into a >oint /enture? A: 5es. It #ay enter into a oint venture with another where the nature of that venture is in line with the business authorized by its charter. (,ur$ach v. Sanitary Bares ?anu(acturing Cor)oration, *... "o. 8' 8, 4ece#$er &8, &%'%)
4isadvantages 1. >elatively co#plicated in for#ation and #anage#ent; 2. %ntails high cost of for#ation and operation; 3. Ci#ited liability of shareholder serves as a li#itation to corporate creditor because shareholders are not personally liable; !. 'here is ordinarily lac. of personal ele#ent in view of the transferability of shares; 2. 'here is greater degree of govern#ental control and supervision that in any other for#s of business organizations; F. In large corporations, holding rights have beco#e largely theoretical because of the use of proxies and widespread ownership; 3. $toc.holders have little voice in the conduct of the business; G. In large group, #anage#ent and control has been separated fro# ownership; 4. Bouble taxation on corporate syste#. Q: Gi/e the simi#arities bet%een a partnership an" a corporation; A: 1. 2. 3. !. )as uridical personality separate and distinct fro# that of the individuals co#posing it; &an act only through agents; 9rganization co#posed of an aggregate of individuals; 5PN: corporation sole; Bistributes its profits to those who contribute capital; 5PN: 'he case of an industrial partner who also shares in partnership profits; &an only be organized where there is a law authorizing its organization; Aoth are taxable as corporation, sub ect to inco#e taxation.
2. F.

authorized to distribute to holders thereof of such shares dividends or allot#ents of the surplus profits on the basis of the shares held. "on-stoc= cor)oration - Boes not issue stoc.s and does not distribute dividends to their #e#bers
Q: What are the "istinctions bet%een >oint account an" partnership? A:

EOIN( A''OCN( )as none and is conducted In the na#e of the ostensible partner. )as no uridical personality and can sue or be sued only in the na#e of the ostensible partner. )as none. 'he ostensible partner #anages its business operations. Ci0uidation thereof can only be done by the ostensible partner. PAR(NERSDIP )as a fir# na#e.
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)as uridical personality and #ay sue or be sued under its fir# na#e
)as a co##on fund. All general partners have the right of #anage#ent. Ci0uidation #ay, by agree#ent, be entrusted to a partner or partners.
,s to legal status a. 4e 3ure - 9rganized in accordance with re0uire#ents of a law. b. 4e (acto - 'here exist a flaw in its incorporation but there is colorable co#pliance with the re0uire#ents of law. c. Cor)oration $y esto))el - A group of persons assu#es to act as a corporation .nowing it to be without authority to do so, and enters into a transaction with a third person on the strength of such appearance. 'hey are liable as general )artners for all debts, liabilities and da#ages incurred or arising as a result thereof. It cannot be per#itted to deny its existence in an action under said transaction. (Sec.2&) ,s la:s o( incor)oration a. 4o#estic cor)oration - 8or#ed, organized or existing under @hilippine law. b. Foreign cor)oration / 8or#ed, organized or existing under any laws other than those of the @hilippines and whose laws allow 8ilipino citizens and corporation to do business in its own country or state. ,s to relationshi) :ith other cor)oration a. 6arent or Colding Cor)oration -)as the power either directly or indirectly through another corporation, to elect a #a ority of the directors of such other corporation. b. Su$sidiary - A #a ority of its directors can $e elected, directly or indirectly, by such other corporation. c. ,((iliated - 9ne related to another by owning or being owned by co##on #anage#ent or by a long/ter# lease of its properties or other control device. An affiliation exists between a holding or parent co#pany and its subsidiary, or between two corporations owned or controlled by a third.
Q: What are the c#asses of corporation? A: 1. ,s to nu#$er o( co#)onents a. ,ggregate - &onsisting of #ore than 1 #e#ber. b. Cor)oration sole - &onsisting of 1 person or #e#ber only. 2. ,s to (unctions a. 6u$lic- 9rganized for the govern#ent of a portion of a $tate. (%.g. cities H #unicipalities* b. 6rivate - 8or#ed for so#e private purpose. ,s to the #anner o( creation a. Cor)oration created $y s)ecial la: Birectly created by &ongress through special law. b. Cor)oration created under a general la: - &reated under the &orporation &ode, or the old &orporation law. c. Cor)oration $y )rescri)tion - 1ot for#ally organized as such but has been duly recognized by i##e#orial usage as a corporation. ,s to eDistence o( stoc=s a. Stoc= Cor)oration + Bith capital stoc. divided into shares and is
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G. ,s to )ur)ose a. 9cclesiastical Cor)oration + co#)osing entirely of spiritual persons li.e bishops, deacons and the li.e and are established for the furtherance of religion and for perpetuating the rights of a church. b. Lay cor)oration - All corporations other than ecclesiastical. c. 9lee#osynary or charita$le cor)oration - &reated not for private gain or profit but for charitable purposes for the ad#inistration of charitable trust d. Civil cor)oration - 1ot for the purpose of charity but for benefit, pecuniary or otherwise, of its #e#bers. A: 1o. @.B. 1313, which created the 1%6 AE>I<, I1&. violates $ec.!, Article <IK of the 1433 &onstitution which prohibits the for#ation of a private corporation by special legislative act, since the new corporation was neither owned nor controlled by the govern#ent, and that the 1ational Bevelop#ent &orporation was #erely re0uired to extend a loan to the new corporation, and the new stoc.s of the corporation were to be issued to the old investors and stoc.holders of the insolvent Agrix upon proof of their clai#s against the abolished corporation. ("6C v. 6hili))ine Aeterans Ban=, &%%7) Q; What are the components of a corporation? A: 1. 4. S)ecial Ty)es o( Cor)oration $ee discussion on educational and religious corporations. 2. Q: What are the tests in "eterminin! the nationa#it$ of corporations? A: 1. Incor)oration Test / Beter#ined by the state of incorporation, regardless of the nationality of the stoc.holders. Control Test - Beter#ined by the nationality of the controlling stoc.holders or #e#bers. 'his test is applied in ti#es of war. *rand(ather .ule - 1ationality is attributed to the percentage of e0uity in the corporation used in nationalized or partly nationalized area. Q: What are the =ua#ifications of incorporators? A: 1. 1atural person; 2. 1ot less than 2 but not #ore than 12; 3. 9f legal age; !. "a ority #ust be residents of the @hilippines; and 2. %ach #ust own or subscribe to at least one share. (Sec.&7) Q: Who can be incorporators? A: GR: 9nly natural persons can be incorporators.
Note: If at least FDI of the capital is owned by 8ilipino then the corporation is of @hilippine nationality.
Cor)orators - 'hose who co#pose a corporation, whether as stoc.holders or #e#bers Incor)orators / 'hey are those #entioned in the Articles of Incorporation as originally for#ing and co#posing the corporation and who are signatories thereof.
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Q: What is the nationa#it$ of a corporation or!ani8e" an" incorporate" un"er the #a%s of a forei!n countr$. but o%ne" 133F b$ @i#ipinos? A: Jnder the control test of corporate nationality, this foreign corporation is of 8ilipino 1ationality. 6here there are grounds for piercing the veil of corporate entity, that is, disregarding the fiction, the corporation will follow the nationality of the controlling #e#bers or stoc.holders, since the corporation will then be considered as one and the sa#e. *122- +ar Question4 Q: 'an pri/ate corporations be create" b$ specific #e!is#ati/e act?
5PN: 6hen otherwise allowed by law, e.g., >ural Aan.s Act of 1442, where incorporated cooperatives are allowed to be incorporators of rural ban.s.
Note: An incorporator can be corporator. 1on/residents #ay be incorporators because the law only re0uires the #a ority to be residents of the @hilippines. An incorporator re#ains to be an incorporator even if he will later on ceases to be a corporator or shareholder.
3. !.
Stoc=holders - 9wners of shares of stoc. in a stoc. corporation. ?e#$ers - &orporators of a corporation which has no capital stoc..

2. 6ro#oter / A person who, acting alone or with others, ta.es initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor. ($>&* A: 'he a#ount fixed in the articles of incorporation to be subscribed and paid in or secured to be paid in by the stoc.holders, either in #oney, or property o services, at the organization of the corporation, or afterwards and upon which the corporation is to conduct its operations. Q: What is state" capita#? A: 'he capital stoc. divided into no par value shares. Q: What is pai"?up capita#? A: 'he portion of the authorized capital stoc. which has been subscribed and actually paid. Q: What is #e!a# capita#? A: Is the portion of the paid in capital arising fro# the issuance of capital stoc. which cannot be returned to the stoc.holders in any for# during the lifeti#e of the corporation. Q: What is authori8e" capita# stoc&? A: A#ount fixed in the Articles of Incorporation to be subscribed and paid by the stoc.holders of the corporation. Q: What is subscribe" capita# stoc&? A: 'he portion of the authorized capital stoc. that has been subscribed but not yet fully paid and therefore still unissued. Q: What is outstan"in! capita# stoc&? A: >efers to the total shares of stoc. issued to subscribers or stoc.holders, whether or not fully or partially paid except treasury shares so long as there is a binding subscription agree#ent. Q: What is a""itiona# pai" in capita#? A: Is the portion in capital representing excess over the par or stated value. Q: What are retaine" earnin!s? A: >epresent the cu#ulative balance of periodic earnings, dividends distributions, funda#ental errors and other capital ad ust#ents. Q: What is mar&et /a#ue? A: 'he price at which shares of capital stoc. are bought and sold by investors in the #ar.et.
Q: Are promoters a!ents of a corporation? A: 1o. @ro#oters are not agents of the corporation $e(ore it co#es into existence. Jpon incorporation, the practice is for the A9B to pass a resolution ratifying the contracts entered into by the incorporators with the pro#oter. 'hen, they beco#e agents of the corporation. F. Su$scri$er - persons who have agreed to ta.e and pay for original, unissued shares of a corporation for#ed or to be for#ed. 5nder:riter - a person who guarantees on a fir# co##it#ent and7 or declared best effort basis the distribution and sale of securities of any .ing by another co#pany. (Sec. 3 ..,. ' %%) bet%een
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Q: What are the "istinctions corporators an" incorporators? A:

IN'ORPORA(ORS 1ecessarily a corporator $ignatory of the Articles of Incorporation Boes not cease to be an incorporator upon sale of his shares 2 to 12 natural persons 5PN: in case of cooperative, incorporator of rural ban. 9riginally for#s part of the corporation 8ilipino citizenship is not a re0uire#ent. 5PN: 6hen engaged in a business which is partly or wholly nationalized where #a ority #ust be residents
'ORPORA(ORS 1ot necessarily an incorporator 1ot signatory of the Articles of Incorporation &ease to be a corporator by sale of his shares 1o li#it 1ot necessarily
Q: What is a share of stoc&? A: It is an integral unit of a capital stoc. which represents proportionate interest to the corporation=s assets, profits, dividends and #anage#ent. Q: What is capita# stoc&?

2. Q: What is boo& /a#ue? A: 'he a#ount per share that each shareholder would receive if the corporation were li0uidated without incurring any further expenses and if assets were sold and liabilities li0uidated at their recorded a#ounts. Q: What are the &in"s or c#assifications of share? A: 1. @ar value shares 2. 1o par value shares 3. &o##on shares !. @referred shares 2. >edee#able shares F. 'reasury shares 3. 8ounder=s share G. Koting shares 4. 1on/voting shares 1D. &onvertible shares 11. 6atered stoc. 12. 8ractional share 13. $hares in escrow Q: What are par /a#ue shares? A: $hares with a value fixed in the articles of incorporation and the certificates of stoc.. 'he par value fixes the #ini#u# issue price of the shares.
Note: A corporation cannot sell less than the par value but a shareholder #ay sell the sa#e less than the par value because it is his.
F.
'he articles of incorporation #ust state the fact that it issued no par value shares as well as the nu#ber of said shares; 9nce issued, they are dee#ed fully paid and non/assessable. (Sec. !)
Q: What are common shares? A: 'hese are ordinarily and usually issued stoc.s without extraordinary rights and privileges, and entitle the shareholder to a )ro rata division of profits. Q: What are preferre" shares? A: 'hese entitle the shareholder to so#e priority on dividends and asset distribution. Q: Are ho#"ers of preferre" shares cre"itors? A: 1o. )olders thereof cannot co#pel the corporation to give the# dividends. 'he preference only applies once dividends are declared. Q: What are the &in"s of preferre" shares? A: 1. 6re(erred shares as to assets - $hares which gives the holder preference in the distribution of the assets of the corporation in case of li0uidation; and a. 6artici)ating )re(erred shares + %ntitled to participate with the co##on shares in excess distribution. b. "on-)artici)ating )re(erred shares 1ot entitled to participate with the co##on shares in excess distribution.
Q: What are no par /a#ue shares? A: $hares having no par value but have issued value stated in the certificate or articles of incorporation. Q: What are the #imitations on no par /a#ue shares? A: 1. 2. 3. !. 1o par value shares cannot have an issued price of less than @2.DD; 'he entire consideration for its issuance constitutes capital so that no part of it should be distributed as dividends; 'hey cannot be issued as preferred stoc.s; 'hey cannot be issued by ban.s, trust co#panies, insurance co#panies, public utilities and building and loan association;
2. 6re(erred shares as to dividends - $hares which are entitled to receive dividends on said share to the extent agreed upon before any dividends at all are paid to the holders of co##on stoc.. a. Cu#ulative )re(erred shares - If a dividend is o#itted in any year, it #ust be #ade up in a later year before any dividend #ay be paid on the co##on shares in the later year. "on-cu#ulative )re(erred shares 'here is no need to #a.e up for undeclared dividends
b.

Q: What are re"eemab#e shares? A: 'hese are shares of stoc.s issued by a corporation which said corporation can purchase or ta.e up fro# their holders as expressly provided for in the articles of incorporation and certificates of stoc. representing said shares. (Sec. ') Q: 'an a corporation purchase its o%n shares? A: GR: &orporation cannot purchase its own shares except out of current retained earnings. 5PN: >edee#able shares #ay be redee#ed, regardless of the existence of unrestricted retained earnings (Sec. '), )rovided that the corporation has, after such rede#ption, sufficient assets in its boo.s to cover debts and liabilities inclusive of capital stoc.. &orporations issuing redee#able shares with #andatory rede#ption features are re0uired to set up and #aintain a sin=ing (und. Q: What are unrestricte" retaine" earnin!s? A: 'hese are surplus profits not sub ect to encu#brance. Q: What are the #imitations on re"eemab#e shares? A: 1. 2. Issuance of redee#able shares #ust be expressly provided in the articles of incorporation; 'he ter#s and conditions affecting said shares #ust be stated both in the articles of incorporation and in the certificates of stoc.; >edee#able shares #ay be deprived of voting rights in the articles of incorporation, unless otherwise provided in the &ode (Sec. ! )ar. !). >ede#ption cannot be #ade if it will cause insolvency of the corporation. A: 1. 2. 3. !. 2. 'o collect or co#pro#ise unpaid indebtedness to the corporation; 'o eli#inate fractional shares; 'o pay dissenting or withdrawing stoc.holders entitled to pay#ent for their shares; >ede#ption; and &lose corporation.
Q: What are the #imitations on treasur$ shares? A: a. 'hey #ay be re/issued or sold again as long as they are held by the corporation as treasury shares. &annot participate in dividends because dividends cannot be declared by the corporation itself. It cannot be represented during stoc.holder=s #eetings. 'he a#ount if J>% e0uivalent to the cost of treasury shares being held shall be restricted fro# being declared and issued as dividends.
b. c. d.
Note: 6hen treasury shares are sold below its par or issued value, there can be no watering of stoc. because such watering conte#plates an original issuance of shares.
Q: What are foun"ers< shares? A: $hares classified as such in the articles of incorporation which #ay be given special preference in voting rights and dividend pay#ents. Aut if an exclusive right to vote and be voted for as director is granted, this privilege is sub ect to approval by the $%&, and cannot exceed 2 years fro# the date of approval. (Sec. ) Q: What are /otin! shares? A: $hares with a right to vote. Q: What are non?/otin! shares? A: $hares without right to vote. 'he law only authorizes the denial of voting rights in the case of redee#able shares and preferred shares, provided that there shall always be a class or series of shares which have co#plete voting rights. 'hese redee#able and preferred shares, when such voting rights are denied, shall nevertheless be
3.
!.
Q: What are treasur$ shares? A: $hares that have been earlier issued as fully paid and have thereafter been ac0uired by the corporation by purchase, donation, and rede#ption or through so#e lawful #eans. (Sec. %) Q: What are the other means for a corporation to reac=uire treasur$ shares?
10

entitled to vote on the following funda#ental #atters (Sec. ! )ar. !) Q: What are con/ertib#e shares? A: A share that is changeable by the stoc.holder fro# one class to another at a certain price and within a certain period. GR: $toc.holder #ay de#and conversion at his pleasure. 5PN: 9therwise restricted by the articles of incorporation. Q: What is a %atere" stoc&? A: A stoc. issued not in exchange for its e0uivalent either in cash, property, share, stoc. dividends, or services. Includes stoc=sG a. Issued without consideration. b. Issued for a consideration other than cash, the fair valuation of which is less than its par or issued value. c. Issued as stoc. dividend when there are no sufficient retained earnings to ustify it. d. Issued as fully paid when the corporation has received a lesser su# of #oney than its par or issued value. Q: What is a fractiona# share? A: A share with a value of less than one full share. Q: What are shares in escro%? A: $ub ect to an agree#ent by virtue of which the share is deposited by the grantor or his agent with a third person to be .ept by the depositary until the perfor#ance of certain condition or the happening of a certain event contained in the agree#ent. Q: Are c#asses of shares infinite? A: 5es. 'here can be other classifications as long as they are indicated in the A9I, stoc. certificate and not contrary to law. Q: What is the "octrine of e=ua#it$ of shares? A: 6here the articles of incorporation do not provide for any distinction of the shares of stoc., all shares issued by the corporation are presu#ed to be e0ual and en oy the sa#e rights and privileges and are also sub ect to the sa#e liabilities. (Sec. !) Q: What are the re=uisites of a "e facto corporation? A: a. b. c. A valid law under which the corporation is organized; An atte#pt in good faith to incorporate under such law / Issuance of a certificate of incorporation by the $%& Assu#ption of corporate powers
Q: What is the nature an" status of "e facto corporation? A: 'he existence of a de facto corporation shall not be in0uired into collaterally in any private suit to which such corporation #ay be a party. $uch in0uiry #ay be #ade by the $olicitor Eeneral in a 0uo :arranto proceeding. (Sec. 27)
Note: )owever, as long as it exists, a de facto corporation en oys all attributes of a corporation until the $tate 0uestions its existence. In co#parison with a corporation by estoppel where the stoc.holders are liable as general partners, stoc.holders in a de facto corporation are liable as a de ure corporation. )ence, up to the extent of their share holdings.
IN'ORPORA(ION AN) ORGANI7A(ION O@ PRIVA(E 'ORPORA(ION

Q: What is incorporation? A: It is the perfor#ance of conditions, acts, deeds, and writings by incorporators, and the official acts, certification or records, which give the corporation its existence. Q: What is the term of corporate e:istence? A: GR: A corporation shall exist for a period not exceeding fifty (2D* years fro# the date of incorporation 5PN: unless sooner dissolved or unless said period is extended.
Note: %xtension #ay be #ade for periods not exceeding (2D* years in any single instance by an a#end#ent of the articles of incorporation. 6rovided, 'hat no extension can be #ade earlier than five (2* years prior to expiration date unless there are ustifiable reasons as #ay be deter#ined by the $%&. (Sec. &&)
Q: What are the #imitations on e:tension of corporate term?
11

A: 1. $hould not be #ade earlier than 2 years prior to the original or subse0uent expiry dates unless there are ustifiable reasons for earlier extension to be deter#ined by $%&. $hould be #ade before the expiry date. %xtension shall not exceed 2D years. %xtension #ust co#ply with procedural re0uire#ents for a#end#ent of A9I. 3. Jtilization of "arine >esources (,rt. JII, Sec. 2 o( the Constitution); G. &oc.pits (Sec. 8 o( 64 //%); 4. "anufacture, repair, stoc.piling and7or distribution of nuclear weapons (,rt. II, Sec. ' o( the Constitution); 1D. "anufacture, repair, stoc.piling and7or distribution of biological, che#ical and radiological weapons and anti/ personnel #ines (Aarious treaties to :hich the 6hili))ines is a signatory and conventions su))orted $y the 6hili))ines)F 11. "anufacture of firecrac.ers and other pyrotechnic devices (Sec. 8 o( ., &'3). B. 5) to SiDty 6ercent (!7I) Foreign 90uity 1. 8inancing co#panies regulated by the $%& (Sec. ! o( ., 8%'7 as a#ended $y ., '88!)F 2. Invest#ent houses regulated by the $%& (Sec. 8 o( 64 &2% as a#ended $y ., '3!!). C. 5) to Forty 6ercent (/7I) Foreign 90uity 1. %xploration, develop#ent and utilization of natural resources (,rt. JII, Sec. 2 o( the Constitution)F 2. 9wnership of private lands (,rt. JII, Sec. o( the ConstitutionF Ch. 8, Sec. 22 o( C, &/&F Sec. / o( ., %&'2)F 3. 9peration and #anage#ent of public utilities (,rt. JII, Sec. && o( the ConstitutionF Sec. &! o( C, &/!)F !. 9wnership7establish#ent and ad#inistration of educational institutions (,rt. JIA, Sec. / o( the Constitution)F 2. &ulture, production, #illing, processing, trading excepting retailing, of rice and corn and ac0uiring, by barter, purchase or otherwise, rice and corn and the by/products thereof (Sec. 8 o( 64 &%/FSec. &8 o( ., ' !2)F F. &ontracts for the supply of #aterials, goods and co##odities to E9&&, agency or #unicipal corporation (Sec. & o( ., 8&'3) 3. @ro ect @roponent and 8acility 9perator of a A9' pro ect re0uiring a public utilities franchise (,rt. JII, Sec. && o( the ConstitutionF Sec. 2a o( ., &')F G. 9wnership of condo#iniu# units where the co##on areas in the condo#iniu# pro ect are co/owned by the owners of the separate units or
2. 3. !.
Q: When must the amen"ment be ma"e? A: Aefore the expiration of corporate ter#, for after dissolution by expiration of the corporate ter# corporation ceases i)so (acto. Q: What are the capita# stoc& re=uirements? A: GR: 1o #ini#u# authorized capital stoc. as long as the paid/up capital is not less than @2, DDD.DD 5PN: a. As provided by special law b; As provided by corporation code / that at least 22I of the authorized capital stoc. has been subscribed and at least 22I of the total subscription #ust be paid. Q: Is it re=uire" that each subscriber pa$ AGF of each subscribe" share? A: 1o. It is only re0uired that at least 22I of the subscribed capital #ust be paid. Q: What businesses are nationa#i8e" an" part#$ nationa#i8e"? A: ,. Hero )ercent (7I) Foreign 90uity 1. "ass "edia except recording; 2. @ractice of all professions a. Caw b. "edicine and Allied @rofessions c. Accountancy, etc. 3. >etail trade enterprises with paid/up capital of less than J$L2.2 " (Sec. 8 o( ., ' !2); !. &ooperatives (Ch. III, ,rt. 2! o( ., !%3'); 2. @rivate $ecurity Agencies (Sec. / o( ., 8/' ); F. $#all/scale "ining (Sec. 3 o( ., 7 !);
12

owned by a corporation (Sec. 8 o( ., / 2!). 4. 5) to Thirty 6ercent (37I) Foreign 90uity 1. Advertising (,rt. JAI, Sec. && o( the Constitution). 9. 5) to T:enty-Five 6ercent (28I) Foreign 90uity 1. @rivate recruit#ent, whether for local or overseas e#ploy#ent (,rt. 2 o( 64 //2)F 2. &ontracts for the construction and repair of locally/funded public wor.s (Sec. & o( C, 8/&, L-I !37) except? a. infrastructure7develop#ent pro ects covered in >A 331G; and b. pro ects which are foreign funded or assisted and re0uired to undergo international co#petitive bidding (Sec. 2a o( ., &')F 3. &ontracts for the construction of defense/related structures (Sec. & o( C, 8/&). F. 5) to T:enty 6ercent (27I) Foreign 90uity 1. @rivate radio co##unications networ. (., 3'/!). Q: )efine Artic#es of Incorporation; A: Articles of Incorporation (A9I* is one that defines the charter of the corporation and the contractual relationships between the $tate and the corporation, the stoc.holders and the $tate, and between the corporation and its stoc.holders. Q: What are the contents of AOI? A: NaPuP? (I)CA?ONO 1. Na#e of corporation; 2. Purpose7s, indicating the pri#ary and secondary purposes; 3. Place of principal office; !. (er# of existence; 2. 1a#es, nationalities and residences of incorporators; F. 1u#ber of "irectors or trustees, which shall not be less than 2 nor #ore than 12; 3. 1a#es, nationalities, and residences of the persons who shall act as directors or trustees until the first regular ones are elected and 0ualified; G. If a stoc. corporation, the a#ount of its authorized capital stoc., nu#ber of shares and in case the shares are par value shares, the par value of each share; 4. 1a#es, nationalities, nu#ber of shares, and the a#ounts subscribed and paid by each of the original subscribers which shall not be less than 22I of authorized capital stoc.; 1D. If non/stoc., the a#ount of capital, the na#es, residences, and a#ount paid by each contributor, which shall not be less than 22I of total subscription; na#e of treasurer elected by subscribers; and 11. Other #atters as are not inconsistent with law and which the incorporators #ay dee# necessary and convenient. (Sec. &/) Q: What are the corporate name? A: #imitations in a"optin!
1. 'he proposed na#e is identical or

2. 3. !. 2. F. 3. deceptively or confusingly si#ilar to that of any existing corporation; Any other na#e protected by law; or @atently deceptive, confusing or contrary to existing laws. (Sec. &'). 'he corporate na#e shall contain the word +&orporation, or its abbreviation +&orp., or +Incorporated,, or +Inc., 'he partnership na#e shall contain the word +&o#pany, or +&o.,. 8or li#ited partnership, the word +Ci#ited, or +Ctd., $hall be included. If the na#e or surna#e of a person is used as part of a corporate or partnership na#e, the consent of said person or his heirs #ust be sub#itted except if that person is a stoc.holder, #e#ber, partner or a declared national hero. 'he na#e of a dissolved fir# shall not be allowed to be used by other fir#s within 3 years after the approval of the dissolution of the corporation by $%&, unless allowed by the last stoc.holders representing at least #a ority of the outstanding capital stoc. of the dissolved fir#. (SC ?e#orandu# Circular &/)
G.
Q: If a corporation chan!es its corporate name. is it consi"ere" a ne% corporation? A: 1o, it is the sa#e corporation with a different na#e, and its character is in no respect changed. (.e)u$lic 6lanterEs Ban= v C,, *... "o. %37 3, 4ece#$er 2&, &%%2) Q: What are the basic re=uirements for a stoc& corporation? A:
13

1. 2. 3. !. 2. F. 1a#e verification slip; A9I and Ay/laws; 'reasurer=s affidavit; >egistration data sheet; @roof of pay#ent of subscription li.e Aan. &ertificate of Beposit if the paid/up capital is in cash; 8avorable endorse#ent fro# proper govern#ent agency in case of special corporations. h. 9ther corporations governed by special laws 1Sec. & (2)2
Q: When "oes corporate e:istence commence? A: 8ro# the date the $%& issues a certificate of incorporation under its official seal. (Sec. &%) Q: When "oes amen"ment of AOI ta&e effect? A: Jpon approval by the $%&. 'hat is upon issuance of a#ended certificate of incorporation. Q: Is it necessar$ that the appro/a# of SE' be e:press? A: 1o, i#plied approval of $%& is also allowed. 'hus a#end#ent #ay also ta.e effect fro# the date of filing with $%& if not acted upon within ! #onths fro# the date of filing for a cause not attributable to the corporation. Q: What are the pro/isions of AOI that cannot be amen"e"?
Q: What is the content of a treasurerHs affi"a/it? A: 'hat at least 22I of the authorized capital stoc. of the corporation has been subscribed, and at least 22I of the total subscription has been fully paid in actual cash and7or property. $uch paid/up capital being not less than @ 2,DDD. Q: What are the amen"ment of AOI? A: 1. 'he a#end#ent #ust be for legiti#ate purposes and #ust not be contrary to other provisions of the &orporation &ode and $pecial laws; Approved by #a3ority of A9B7A9'; Kote or written assent of stoc.holders representing 273 of the outstanding capital stoc. or 273 of #e#bers; 'he original and a#ended articles together shall contain all provisions re0uired by law to be set out in the articles of incorporation. $uch articles, as a#ended, shall be indicated by underscoring the change7s #ade; &ertification under oath by corporate secretary and a #a ority of the A9B7A9' stating the fact that said a#end#ent7s have been duly approved by the re0uired vote of the stoc.holders or #e#bers, shall be sub#itted to the $%&; "ust be approved by $%&. (Sec. &!)F "ust be acco#panied by a favorable reco##endation of the appropriate govern#ent agency in cases of? a. Aan.s; b. Aan.ing and 0uasi/ban.ing institutions; c. Auilding and loan associations; d. 'rust co#panies and other financial inter#ediaries; e. Insurance co#panies; f. @ublic utilities; g. %ducational institutions; and re=uirements for the
2. 3. !.
2.
A: 'hose #atters referring to acco#plished facts, except to correct #ista.es. %xa#ples? 1. 1a#es of incorporators; 2. 1a#es of original subscribers to the capital stoc. of the corporation and their subscribed and paid up capital; 3. 1a#es of the original directors; !. 'reasurer elected by the original subscribers; 2. "e#bers who contributed to the initial capital of the non/stoc. corporation; and F. 6itnesses to and ac.nowledge#ent with A9I. Q: What are the !roun"s for the re>ection or "isappro/a# of AOI or amen"ment thereto b$ the SE'? A: 1. If such is not substantially in accordance with the (or# prescribed; 2. 'he )ur)oseKs of the corporation are patently unconstitutional, illegal, i##oral, or contrary to govern#ent rules and regulations; 3. 'he 'reasurer=s ,((idavit concerning the a#ount of capital stoc. subscribed and7or paid is false !. 'he re0uired percentage of o:nershi) of the capital stoc. to be owned by 8ilipino citizens has not been co#plied with. (Sec. & )
F. 3.
14

Q: Is there an automatic re>ection of the AOI or an$ amen"ment thereto? A: 1o; the $%& shall give the incorporators a reasonable ti#e within which to correct or #odify the ob ectionable portions of the A9I or a#end#ent. 1Sec. & (&)2 Q: What is the effect of non?use of corporate charter an" continuous inoperation of a corporation? A: 1. Failure to organi<e and co##ence $usiness :ithin 2 years (ro# incor)oration - its corporate powers ceases and the corporation shall be dee#ed dissolve. Continuous ino)eration (or at least 8 years - ground for the suspension or revocation of corporate franchise or certificate of incorporation. (Sec. 22)
Note: A person who does not own a stoc. at the ti#e of his election or appoint#ent does not dis0ualify hi# as director if he beco#es a shareholder before assu#ing the duties of his office. (S9C -)inions, "ov. %, &%' ; ,)ril 8, &%%7)
Q: What are the common re=uirements of a "irector an" trustee? A: 1. "a ority of the directors7trustees #ust be residents of the @hilippines (Sec. 23)F 2. )e #ust not have been convicted by final udg#ent of an offense punishable by i#prison#ent for period exceeding F years or a violation of the &orporation &ode, co##itted within 2 years prior to the date of his election (Sec. 2 )F 3. )e #ust be of legal age; !. 9ther 0ualifications as #ay be prescribed in $pecial laws or regulations or in the by/ laws of the corporation. Q: What are the "is=ua#ifications? A: 1. 2. &onviction by final udg#ent of an offense punishable by i#prison#ent exceeding F years; Kiolation of the &orporation &ode co##itted within 2 years prior to his election or appoint#ent.
2.
Note: 'he above shall not be applicable if it is due to causes beyond the control of the corporation as deter#ined by $%&.
Q: Is the "isso#ution or re/ocation "ue to fai#ure to operate or inoperation automatic? A: 1o, $%& is of the opinion that there should be proper proceedings for the revocation of A9I in co#pliance with due process. +OAR) O@ )IRE'(ORSI(RCS(EESIO@@I'ERS Q: What are "irectorItrustee? A: A. 4irector 1. 2. 3. "ust own at least 1 share of the capital stoc.; "ust be a natural person; 9wnership of stoc. shall stand in his na#e on the boo.s of the corporation. the =ua#ifications of a
Q: What is the term of office of +O)I+O(? A: GR: 'he regular director shall hold office for 1 year until their successors are elected and 0ualified. 5PN: If no election is held, the directors and officers shall hold over until their successors are elected. 'his is applicable to a going concern where there is no brea. in the exercise of the duties of the officers and directors. (S9C -)inion, 4ec. &8, &%'%). Q: Is permanent representation a##o%e" in the +O)? A: 1o, directors #ust be elected every year. %stoppel does not set in to legiti#ize what is wrongful. (*race Christian Cigh School v. C,, *... "o. &7'%78, -cto$er 23, &%% ) Q: Who is an in"epen"ent "irector? A: )e is a person who, apart fro# his fees and shareholdings, is independent of #anage#ent and
Note: 6hat is #aterial is the legal title, not beneficial ownership of the stoc. as appearing on the boo.s of the corporation.
B. Trustee 1. "ust be a #e#ber of the non/stoc. corporation.
15

free fro# any business or other relationship which could, or could reasonably be perceived to, #aterially interfere with his exercise of independent udg#ent in carrying out his responsibilities as a director in any corporation. Q: Who sha## e:ercise corporate po%ers? A: GR: 'he A9B7A9'. (Sec. 23) 5PNs: 1. In case of an %xecutive &o##ittee duly authorized in the by/laws; 2. In case of a contracted #anager which #ay be an individual, a partnership, or another corporation. Q: 0a$ a "irector or officer be he#" so#i"ari#$ #iab#e for the i##e!a# "ismissa# of an emp#o$ee? A: 5es it was held that +while the general rule is that obligations incurred by a corporation, acting through its directors, officers and e#ployees, are its sole liabilities, there are ti#es when solidary liabilities #ay be incurred such as in this case where it is undisputed that petitioners had a direct hand in the illegal dis#issal of respondent e#ployees. 'hey were the ones, who as high/ ran.ing officers and directors, signed the Aoard resolution retrenching the private respondents on the (eigned ground of serious business losses that had no basis apart fro# an unsigned and unaudited profit and loss state#ent which had no evidentiary value whatsoever. 'his is indicative of bad faith on the part of petitioners for which they can be held ointly and severally liable with the corporation for all the #oney clai#s of the illegally ter#inated respondent e#ployees., (5ichico v. "L.C, *... "o.&2&/3/, >une 2, &%% )
Note: Art. 1G43 of the &ivil &ode provides that +it is well/ .nown principle of law that an agent who acts in behalf of a disclosed principal within the scope of his authority cannot be held liable to third persons.,
1.
2.
>esolutions and transactions entered into by the Aoard within the powers of the corporation cannot be reversed by the courts not even on the behest of the stoc.holders. Birectors and officers acting within such business udg#ent cannot be held personally liable for such acts.
Note: In case the contracted #anager is another corporation, the special rule in $ec. !! applies.
3.
In case of close corporations, the stoc.holders #ay #anage the business of the corporation instead by a board of directors, if the articles of incorporation so provide.
Q: Is a pro/ision in the b$?#a%s of the corporation "ec#arin! a person en!a!e" in a competin! business ine#i!ib#e for nomination for e#ections to the boar" of "irectors /a#i"? A: 5es, provided that before such no#inee is dis0ualified, he should be given due process to show that he is not covered by the dis0ualification. (*o=ong:ei v. S9C, L-/8%&&, ,)ril &&, &% %) .easonG 'he dis0ualification of a co#petition fro# being elected to the board is a reasonable exercise of corporate authority. Q: What is business >u"!ment ru#e? A: Jnder this rule, the will of the #a ority controls in corporate affairs, and contracts intra vires entered into by the board of directors are binding on the corporation and courts will not interfere unless such contracts are so unconscionable and oppressive as to a#ount to a wanton destruction of rights of the #inority. (Ingersoll v. ?ala$on Sugar Co., L-&!% , ,)ril 2&, &%22) Q: What are the conse=uences of business >u"!ment ru#e? A:
Q: Do% is e#ection of +O)I+O( ma"e? A: 1. At a #eeting of stoc.holder or #e#bers called for the election of directors or trustees, there #ust be present either in person or by representative authorized to act by written proxy, the owners of the #a3ority of the outstanding capital stoc. or #a ority of the #e#bers entitled to vote; 'he election #ust be by ballot i( re0uestedF A stoc.holder cannot be deprived in the articles of incorporation or in the by/laws of his statutory right to use any of the #ethods of voting in the election of directors; 1o delin0uent stoc. shall be voted; 'he candidates receiving the highest nu#ber of votes shall be declared elected. (Sec. 2/)
2. 3.
!. 2.
16

Q: What are the "ifferent metho"s of /otin!? A: 1. Straight Aoting - every stoc.holder #ay vote such nu#ber of shares (or as #any persons as there are directors to be elected. Cu#ulative voting (or one candidate - a stoc.holder is allowed to concentrate his votes and give one candidate, as #any votes as the nu#ber of directors to be elected #ultiplied by the nu#ber of his shares shall e0ual.
Note: %very decision of at least a #a ority of the directors or trustees present at a #eeting at which there is 0uoru# shall be valid as a corporate act.
5PN: If A9I or the by/laws provide for a greater nu#ber.
2.
5PN: 'he election of officers which shall re0uire the vote of a #a ority of all the #e#bers of the board. 1Sec. 28 (2)2 Q: Who are corporate officers? A: 6resident - "ust be a director at the ti#e the assu#es office not at the ti#e of appoint#ent; Treasurer - "ay or #ay not be a director; as a #atter of sound corporate practice, #ust be a resident Secretary - 1eed not be a director unless re0uired by the by/laws; #ust be a resident and citizen of the @hilippines; (Sec. 28); and $uch other o((icers as #ay be provided in the by/laws. Q: 'an the presi"ent of a corporation si!n the /erification an" certification of non?forum shoppin! %ithout the appro/a# of the +oar" of )irectors? A: GR: 9nly individuals vested with authority by a valid board resolution #ay sign the certificate of non/foru# shopping on behalf of a corporation. 5PN: 'he following officials or e#ployees of the co#pany can sign the verification and certification without need of a board resolution? 1. 'he &hairperson of the Aoard of Birectors; 2. 'he @resident of a corporation; 3. 'he Eeneral "anager or Acting Eeneral "anager; !. @ersonnel 9fficer; and 2. An %#ploy#ent $pecialist in a labor case. .easonG 'hey are in a position to verify the truthfulness and correctness of the allegations in the petition. (Cagayan Aalley 4rug Cor)oration v CI., *... "o. &8&/&3, Fe$ruary &3, 277') Q: 0a$ a suit be "ismisse" b$ /irtue of #ac& of authorit$ of the !enera# mana!erItreasurer to si!n the certificate of non?forum shoppin! from
3. Cu#ulative voting $y distri$ution / a stoc.holder #ay cu#ulate his shares by #ultiplying the nu#ber of his shares by the nu#ber of directors to be elected and distribute the sa#e a#ong as #any candidates as he shall see fit. Q: When is cumu#ati/e /otin! a##o%e"? A: &u#ulative voting is allowed in the election of directors of stoc= cor)orations. &u#ulative voting is allowed in non-stoc= cor)orations only if the sa#e is provided in the A9I. Q: What are the #imitations on the stoc&ho#"erHs ri!ht to /ote? A: 1. 6here the articles of incorporation provides for classification of shares pursuant to $ec. F, non/voting shares are not entitled to vote except as provided for in the last paragraph of $ec.F. 2. @referred or redee#able shares #ay be deprived of the right to vote unless otherwise provided in the &ode. 3. 8ractional shares of stoc. cannot be voted. !. 'reasury shares have no voting rights as long as they re#ain in the treasury. 2. )olders of stoc. declared delin0uent by the board of directors for unpaid subscription are not entitled to vote or to a representation at any stoc.holder=s #eeting. F. A transferee of stoc. cannot vote if his transfer is not registered in the stoc. and transfer boo. of the corporation. Q: What is the re=uire" number of +O)I+O( to constitute =uorum? A: GR: "a ority of the nu#ber of directors or trustees.
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the +O) at the time of fi#in! the comp#aint but subse=uent#$ "esi!nate" b$ the boar" as the corporationHs attorne$?in?fact? A: 1o. Although the general #anager7treasurer initially failed to show that he had the capacity to sign the verification and institute the case on behalf of the corporation, when confronted with such 0uestion, he i##ediately presented the $ecretary=s &ertificate confir#ing her authority to represent the co#pany. (6asricha v 4on Luis 4ison .ealty Inc., *... "o. &3!/7%, ?arch &/, 277')
Note: A board resolution appointing an attorney/in/fact to represent the corporation in the pre/trial is not necessary where the by/laws authorizes an officer of the corporation to #a.e such appoint#ent. (Citi$an=, ".,. v. Chua, *... "o. &72377 ?arch & , &%%3)
A: 1. It #ust ta.e place either at a regular #eeting or special #eeting of the stoc.holders or #e#bers called for the purpose; 2. @revious notice to the stoc.holders or #e#bers of the intention to re#ove a director; 3. A vote of the stoc.holders representing 273 of outstanding capital stoc. or 273 of #e#bers; !. If the director was elected by the #inority, there #ust be cause for re#oval; (Sec. 2') Q: In 1222. 'orporation BAB passe" a boar" reso#ution remo/in! B5B from his position as mana!er of sai" corporation; (he b$?#a%s of BAB corporation pro/i"es that the officers are the presi"ent. /ice?presi"ent. treasurer an" secretar$; Cpon comp#aint fi#e" %ith the SE'. it he#" that a mana!er cou#" be remo/e" b$ mere reso#ution of the boar" of "irectors; On motion for reconsi"eration. B5B a##e!e" that he cou#" on#$ be remo/e" b$ the affirmati/e /ote of the stoc&ho#"ers representin! AIJ of the outstan"in! capita# stoc&; Is B5<sB contention #e!a##$ tenab#e; Wh$? A: 1o. $toc.holdersM approval is necessary only for the re#oval of the #e#bers of the Aoard. 8or the re#oval of a corporate officer or e#ployee, the vote of the Aoard of Birectors is sufficient for the purpose. *A331 +ar Question4 Q: What are the %a$s in fi##in! up of /acancies in the boar"? A: 1. Kacancies filled up by stoc.holders or #e#bers, if it is due to (a* re#oval; (b* expiration of ter#; (c* grounds other than re#oval or expiration of ter# (e.g. death, resignation* where the re#aining directors do not constitute a 0uoru#; or (d* increase in the nu#ber of directors; 2. Kacancies filled up by the re#aining directors constituting a 0uoru#, if it is due to causes other than those specified above. (Sec. 2%)
Note: A director elected to fill vacancy shall serve the unexpired ter#. (Sec. 2%)
Q: What are the "istinctions bet%een a corporate officer an" a corporate emp#o$ee? A:
'ORPORA(E O@@I'ER @osition is provided for in the by/laws or under the &orporation &ode. >'& acting as a special co##ercial court has urisdiction over intra/ corporate controversies. 'ORPORA(E E0PLO6EE %#ployed by the action of the #anaging officer of the corporation. CA has urisdiction in case of labor disputes.
Q: In case %here there are A #ists of +O) submitte" to SE'. %hich one is contro##in!? A: In deter#ining whether the filing of an action was authorized by the A9B, it is the list o( directors in the latest general in(or#ation sheet as filed with the $%& which is controlling. Ay express #andate of the &orporation &ode, all corporations duly organized pursuant thereto are re0uired to file with the $%& the na#es, nationalities and residences of the directors and officers elected. (6re#iu# ?ar$le .esources, Inc. v C,, *... "o. %!88&, "ove#$er /, &%%!) Q: 0a$ A or more corporate positions be he#" concurrent#$ b$ the same person? A: 5es, except that no one shall act as president and secretary or president and treasurer at the sa#e ti#e. Q: What are the re=uisites for remo/a# of "irectors or trustees?
Q: Do% are "irectors compensate"? A:
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GR: 'hey shall be entitled as such directors to reasonable per die#s only. 5PN: 1. 6hen their co#pensation is fixed in the by/ laws; 2. 6hen granted by the vote of stoc.holders representing at least a #a ority of the outstanding capital stoc. at a regular or special #eeting; 3. 6hen they are also officers of the corporation. 5PN to 5PN: In no case shall the total yearly co#pensation of directors, as such directors exceed 1DI of the net inco#e before inco#e tax of the corporation during the preceding year. (Sec. 37) Q: What are the instances %hen "irectors are persona##$ #iab#e? A: GR: Birectors and officers are not solidarily liable with the corporation. 5PN: AGIWAL 1. 6illfully and .nowingly voting for and assenting to patently unlawful acts of the corporation; (Sec. 3&) 2. Gross negligence or bad faith in directing the affairs of the corporation; (Sec. 3&) 3. Ac0uiring any personal or pecuniary interest in conflict of duty; (Sec. 3&) !. &onsenting to the issuance of %atered stoc.s, or, having .nowledge thereof, failing to file ob ections with the secretary F (Sec. !8) 2. Agreeing or stipulating in a contract to hold hi#self liable with the corporation; or F. Ay virtue of a specific provision of #aw. Q: What is the "octrine of #imite" #iabi#it$? A: $hields the corporators fro# corporate liability beyond their agreed contribution to the capital or shareholding in the corporation. Q: Gi/e the ru#es on contracts entere" into b$ "irectorsItrustees of or officers; A: 1. &ontracts which are entered into by the corporation with one or #ore of its own directors7trustees, or officers. (Sec. 32);
Note: If the interloc.ing director=s interest in one corporation or corporations is +no#inal, (not exceeding 2DI of the outstanding capital stoc.* and in the other substantial, then all the first 3 conditions prescribed in $ec. 32 #ust be present with respect to the corporation in which he has no#inal interest. 6here any of the first two conditions is absent, said contract #ust be ratified by the vote of the stoc.holders representing at least 273 of the outstanding capital stoc. or 273 of the #e#bers in a #eeting called for the purpose, provided? 1. 'hat full disclosure of the adverse interest of the director7 trustee involved is #ade at such #eeting; 2. 'he contract is fair and reasonable under the circu#stances.
contract was not necessary to constitute a 0uoru#; b. 'he vote of such director7trustee in the board #eeting approving the contract was not necessary for the approval of the contract; c. 'he contract is fair and reasonable under the circu#stances; d. In the case of an officer, there was previous authorization by the board of directors. 2. &ontracts entered into between corporations with interloc.ing directors (interest of said directors is +substantial,, #eaning, exceeding 2DI of the outstanding capital stoc.*. (Sec. 33) Kalid, provided that? a. 'he contract is not fraudulent; and b. 'he contract is fair and reasonable under the circu#stances.
Q: What is "octrine of corporate opportunit$? A: Jnless his act is ratified by stoc.holders representing 273 of the outstanding capital stoc., a director shall refund to the corporation all the profits he realizes on a business opportunity (Sec. 3/) which? a. 'he corporation is financially able to underta.e; b. 8ro# its nature, is in line with corporations business and is of practical advantage to it; and c. 'he corporation has an interest or a reasonable expectancy. *A33G +ar Question4
Note: 'he rule shall be applied notwithstanding the fact that the director ris.ed his own funds in the venture.
Koidable, unless? a. 'he presence of such director7trustee in the board #eeting approving the
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Q: 0a#$n. Schiera an" Ea8 are the "irectors of Patio In/estments. a c#ose corporation forme" to run the Patio 'afe. an a# fresco coffee shop in 0a&ati 'it$; In A333. Patio 'afe be!an e:periencin! financia# re/erses. conse=uent#$. some of the chec&s it issue" to its be/era!e "istributors an" emp#o$ees bounce"; In October A33J. Schiera informe" 0a#$n that she foun" a #ocation for a secon" cafe in (a!ui! 'it$; 0a#$n ob>ecte" because of the "ire financia# con"ition of the corporation; Sometime in Apri# A33K. 0a#$n #earne" about @ort Patio 'afe #ocate" in (a!ui! 'it$ an" that its "e/e#opment %as un"erta&en b$ a ne% corporation &no%n as @ort Patio. Inc;. %here both Schiera an" Ea8 are "irectors; 0a#$n a#so foun" that Schiera an" Ea8. on beha#f of Patio In/estments. ha" obtaine" a #oan of PG33. 333;33. from P+'om +an&. for the purpose of openin! @ort Patio 'afe; (his #oan %as secure" b$ the assets of Patio In/estments an" persona##$ !uarantee" b$ Schiera an" Ea8; 0a#$n then fi#e" a corporate "eri/ati/e action before the Re!iona# (ria# 'ourt of 0a&ati 'it$ a!ainst Schiera an" Ea8. a##e!in! that the t%o "irectors ha" breache" their fi"uciar$ "uties b$ misappropriatin! mone$ an" assets of Patio In/estments in the operation of @ort Patio 'afe; )i" Schiera an" Ea8 /io#ate the princip#e of corporate opportunit$? E:p#ain; A: $ciera and Naz violated the principle of corporate opportunity, because they used @atio Invest#ents to obtain a loan, #ortgaged its assets and used the proceeds of the loan to ac0uire a coffee shop through a corporation they for#ed. (Sec. 3/) *A33G +ar Question4
Q: Suppose that the b$?#a%s of B5B 'orporation. a minin! firm. pro/i"es that B(he "irectors sha## be re#ie/e" from a## #iabi#it$ for an$ contract entere" into b$ the corporation %ith an$ firm in %hich the "irectors ma$ be intereste";B (hus. "irector BAB ac=uire" c#aims %hich o/er#appe" %ith B5<sB c#aims an" %ere necessar$ for the "e/e#opment an" operation of B5<sB minin! properties; Is the b$?#a% pro/ision /a#i"? Wh$? A: 1o. It is in violation of $ec. 32 of the &orporation &ode. What happens if "irector BAB is ab#e to consummate his minin! c#aims o/er an" abo/e that of the corporation<s c#aims? *A331 +ar Question4 A: ;A; should account to the corporation for the profits which he realized fro# the transaction. )e grabbed the business opportunity fro# the corporation. (Sec. 3/) Q: What is an e:ecuti/e committee? A: A body created by the by/laws and co#posed of so#e #e#bers of the board which, sub ect to the statutory li#itations, has all the authority of the board to the extent provided in the board resolution or by/laws. "ust be provided for in the by laws and co#posed of not less than 3 #e#bers of the board appointed by the board. "ay act by a #a ority vote of all of its #e#bers.
Note: An executive co##ittee can only be created by virtue of a provision in the by/laws and that in the absence of such by/law provision, the board of directors cannot si#ply create or appoint an executive co##ittee to perfor# so#e of its functions. (S9C -)inion, Se)t 2 , &%%3)
Q: What are the #imitations on the po%ers of the e:ecuti/e committee? A: It cannot act on the following? 1. "atters needing stoc.holder approval; 2. 8illing up of board vacancies; 3. A#end#ent, repeal or adoption of by/ laws; !. A#end#ent or repeal of any resolution of the Aoard which by its express ter#s is not a#endable or repealable; and 2. &ash dividend declaration. (Sec. 38) POWERS O@ 'ORPORA(ION Q: What are corporation? A: 1. 9D)ress 6o:ers / Eranted by law, &orporation &ode, and its Articles of the &in"s of po%ers of
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Incorporation or &harter, ad#inistrative regulations and d. Bonation #ust bear a reasonable relation to the corporation=s interest and not be so re#ote and fanciful. forei!n
2. InherentKIncidental 6o:ers - 1ot expressly stated but are dee#ed to be within the capacity of corporate entities. 3. I#)liedK"ecessary 6o:ers - %xists as a necessary conse0uence of the exercise of the express powers of the corporation or the pursuit of its purposes as provided for in the &harter
Q: 'an a corporation %ith shareho#"in!s ac=uire rea# propert$?
A: 5es, provided that the capital stoc. of the corporation is FDI owned by the 8ilipinos. Q: Is the ri!ht of first refusa# o/er the shares of a pub#ic uti#it$ %hose capita#i8ation must be ,3F @i#ipino o%ne" !rante" to a forei!n corporation un"er a >oint /enture a!reement /io#ati/e of the Anti?)umm$ La%? A: 1o. 1o law dis0ualifies a person fro# purchasing shares in a landholding corporation even if the latter will exceed the allowed foreign e0uity, what the law dis0ualifies is the corporation fro# owning land. Q: What are the #imitations as to ac=uisition of rea# propert$? A: 1. Constitutional Li#itations - cannot ac0uire public lands except by lease. 6ith regard to private land, FDI of the corporation #ust be owned by the 8ilipinos, sa#e with the ac0uisition of a condo unit 2. S)ecial La: - Aan.ing laws, ban. cannot ac0uire real property except for business purposes or when they ac0uired the land in the course of business. corporation act as suret$ or
Q: What are the !enera# po%ers of corporation? A: SCSC'O?A+SP?0E)PO 1. 'o sue and be sued; 2. 9f succession; 3. 'o adopt and use of corporate seal; !. 'o a#end its Articles of Incorporation; 2. 'o adopt its by/laws; F. 8or stoc. corporations? issue and sell stoc.s to subscribers and treasury stoc.s; for non/stoc. corporations? ad#it #e#bers 3. 'o purchase, receive, ta.e or grant, hold, convey, sell, lease, pledge, #ortgage and deal with real and personal property, securities and bonds; G. 'o enter into #erger or consolidation; 4. 'o ma.e reasonable "onations for public welfare, hospital, charitable, cultural, scientific, civic or si#ilar purposes, )rovided that no donation is given to any (i* political party, (ii* candidate and (iii* partisan political activity. 1D. 'o establish pension, retire#ent, and other plans for the benefit of its directors, trustees, officers and e#ployees - basis of which is the labor code 11. 'o exercise other powers essential or necessary to carry out its purposes. Q: When "oes the po%er to sue an" be sue" commence? A: Jpon issuance by $%& of &ertificate of Incorporation. Q: What are the re=uisites for a /a#i" "onation? A: a. Bonation #ust be reasonable; b. "ust be for valid purposes including public welfare, hospital, charitable, cultural, scientific, civic or si#ilar purposes; c. "ust not be an aid in any (i* political party, (ii* candidate and (iii* partisan political activity;
Q: 'an a !uarantor? A: GR: 1o.
5PN: $uch guaranty #ay be given in the acco#plish#ent of any ob ect for which the corporation was created, or when the particular transaction is reasonably necessary or proper in the conduct of its business. Q: What are corporation? A: 1. @ower to extend or shorten corporate ter#; 2. Increase or decrease corporate stoc.; 3. Incur, create, or increase bonded indebtedness; the specific po%ers of a
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!. 2. $ell, dispose, lease, encu#ber all or substantially all of corporate assets; @urchase or ac0uire own shares provided? a. there is an unrestricted retained earnings, b. it is for a legiti#ate purpose. Invest corporate funds in another corporation or business for other purpose other than pri#ary purpose; @ower to declare dividends out of unrestricted retained earnings; %nter into #anage#ent contract :ith another cor)oration (not with an individual or a partnership/within general powers* whereby one corporation underta.es to #anage all or substantially all of the business of the other corporation for a period not longer than 2 years for any one ter#. (Secs. 3 -//) 1. "a ority vote of the A9B; 2. $) representing 273 of the outstanding capital stoc.; 3. 6ritten notice of the proposed increase or di#inution of the capital stoc. and of the ti#e and place of the stoc.holder=s #eeting at which the proposed increase or di#inution of the capital stoc. #ust be addressed to each stoc.holder at his place of residence as shown on the boo.s of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally; !. A certificate in duplicate #ust be signed by a #a ority vote of the directors of the corporation and countersigned by the chair#an and the secretary of the stoc.holder=s #eeting, setting forth? a. 'hat the foregoing re0uire#ents have been co#plied with; b. 'he a#ount of increase or di#inution of the capital stoc.; c. If an increase of the capital stoc., the a#ount of capital stoc. or nu#ber of shares of no par stoc. actually subscribed, the na#es, nationalities and residences of the persons subscribing, the a#ount of capital stoc. or nu#ber of no par stoc. subscribed by each, and the a#ount paid by each on his subscription in cash or property, or the a#ount of capital stoc. or nu#ber of shares of no par stoc. allotted to each stoc.holder if such increase is for the purpose of #a.ing effective stoc. dividend authorized; d. 'he a#ount of stoc. represented at the #eeting; and e. 'he vote authorizing the increase or di#inution of the capital stoc.
Note? 'he increase or decrease in the capital stoc. or the incurring, creating or increasing bonded indebtedness shall re0uire prior approval of the $%&.
F. 3. G.
Power to extend or shorten corporate term "ay be used as #eans to voluntarily dissolve a corporation Q: What are the proce"ura# re=uirements in e:ten"in!I shortenin! corporate term? A: 1. 2. "a ority vote of the A9B or A9'; 273 of the $) representing outstanding capital stoc. or by at least 273 of the #e#bers in case of non/stoc. corporation; 3; 6ritten notice of the proposed action and of the ti#e and place of the #eeting shall be addressed to each stoc.holder or #e#ber at his place of residence as shown on the boo.s of the corporation and deposited to the addressee in the post office with postage prepaid, or served personally !. &opy of the a#ended A9I shall be sub#itted to the $%& for its approval; 2. In case of $pecial &orporation, a favorable reco##endation of appropriate govern#ent agency. (Sec. 3 )
Note: Any dissenting stoc.holder #ay exercise his appraisal right in case of shortening or extending corporate ter# ($ec. 33*
Q: What is the a""itiona# re=uirement %ith respect to the increase of capita# stoc&? A: 'he application to be filed with the $%& shall be acco#panied by the sworn state#ent of the treasurer of the corporation, showing that at least 22I of the a#ount subscribed has been paid either in cash or property or that there has been transferred to the corporation property the
Power to increase or decrease capital stock Q: What are the proce"ura# re=uirements in increasin! or "ecreasin! capita# stoc&? A:
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valuation of which is e0ual to 22I of the subscription. Q: What sha## be the basis of the re=uire" AGF subscription? A: It shall be based on the additional a#ount by which the capital stoc. increased and not on the total capital stoc. as increased.
Note: 1o treasurer=s affidavit in case of decrease in capital stoc.. &orporation need not exhaust its original capital before increasing capital stoc..
office with postage prepaid, served personally. (Sec. /7)
or
Note: After such authorization or approval by the stoc.holders the board #ay, nevertheless, in its discretion, abandon such $C%"@9. (Sec. /7)
Q: What is meant b$ substantia##$ a## of corporate assets? A: If the corporation would be rendered incapable of continuing the business or acco#plishing the purpose for which it was incorporated. Q: When ma$ the corporation for!o the ratification b$ SD I members? A: a. If sale is necessary in the usual and regular course of business; b. If the proceeds of the sale or other disposition of such property and assets are to be appropriated for the conduct of the re#aining business; c. If the transaction does not cover all or substantially all of the assets. Q: What is the effect of transfer of a## or substantia##$ a## of assets of one corporation to another corporation? A: GR: 'he transferee corporation of all or substantially all of the assets of the transferor corporation shall not be liable for the debts of the transferor corporation. 5PNs: 1. %xpress or i#plied assu#ption of liabilities; 2. "erger or consolidation; 3. If the purchase was in fraud of creditors; !.If the purchaser beco#es a continuation of the seller; 2. If there is violation of the Aul. $ales Caw. Power to ac uire own shares Q: What are the re=uirements?
Q: What are the %a$s of increasin!I "ecreasin! the capita# stoc&? A: a. Ay increasing7decreasing the nu#ber of shares and retaining the par value; b. Ay increasing7decreasing the par value of existing shares without increasing7decreasing the nu#ber of shares; c. Ay increasing7decreasing the nu#ber of shares and increasing7decreasing the par value. Incur, create or increase bonded indebtedness Q: What is bon"e" in"ebte"ness? A: it is a long ter# Indebtedness secured by real or personal property.
Note? 1ature of indebtedness deter#ines if it needs stoc.holder=s approval. 'he re0uire#ents are basically the sa#e as the re0uire#ents for increase and decrease of capital stoc. as it li.ewise re0uires the sa#e approvals by the directors and the stoc.holders.
Se##. #ease. e:chan!e. mort!a!e. p#e"!e or other "isposition *SLE0PO4 of a## or substantia##$ a## of corporate assetsL Q: What are the proce"ura# re=uirements? A: 1. "a ority vote of the A9B or A9'; 2. $toc.holders representing at least 273 of the outstanding capital stoc. or by at least 273 of the #e#bers in case of non/stoc. corporation; 3. 6ritten notice of the proposed action and of the ti#e and place of the #eeting addressed to each stoc.holder or #e#ber at his place of residence as shown on the boo.s of the corporation and deposited to the addressee in the post
A: 1. 'he ac0uisition is for a legiti#ate corporate purpose; 2. 'here is unrestricted retained earnings OJ>%P. Q: What are the instances %here corporation ma$ ac=uire its o%n shares? A:
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a. b. 'o eli#inate fractional shares out of stoc. dividends; 'o collect or co#pro#ise an indebtedness to the corporation, arising out of unpaid subscription, in a delin0uency sale and to purchase delin0uent shares sold during said sale; 'o pay dissenting stoc.holders; 'o ac0uire treasury shares; >edee#able shares regardless of existence of retained earnings; 'o effect a decrease of capital stoc.; In close corporations, when there is a deadloc. in the #anage#ent of the business 1. Jnrestricted retained earnings; 2. >esolution of the board; 3. In case of stoc. dividend, resolution of the board with the concurrence of 273 of outstanding capital. Q: Who are entit#e" to recei/e "i/i"en"s? A: 'he stoc.holders of record date in so far as the corporation is concerned. If there is no record date, the stoc.holders at the ti#e of declaration of dividends (not at the ti#e of pay#ent*. Q: In case of mort!a!e" or p#e"!e" shares? A: GR: In the absence of statutory authority, the corporation cannot ac0uire its own shares 5PN: $%& 9pinion, 9ctober 12, 1442, i#posed the following conditions on its exercise? 1. 'he capital of the corporation #ust not be i#paired; 2. Cegiti#ate and proper corporate ob ective is advanced; 3. &ondition of the corporate affairs warrants it; !. 'ransaction is designed and carried out in good faith 2. Interest of creditors not i#paired, that is, not violative of the trust fund doctrine. In!est corporate "unds in another corporation or business "or other purpose other than primar# purpose Q: What are the re=uirements? A: 1. "a ority vote of the A9B or A9'; 2. $toc.holders representing at least 273 of the outstanding capital stoc. or by at least 273 of the #e#bers in case of non/stoc. corporation 3. 6ritten notice.
Note: Invest#ent of a corporation in a business which is in line with its pri#ary purpose re0uires only the approval of the board.
c. d. e. f. g.
GR: 'he #ortgagor or the pledgor has the right to receive the dividends. 5PN: 6hen the #ortage or pledge is recorded in the boo.s of the corporation, in such a case then the #ortgagee or pledgee is entitled to receive the dividends. Q: What are the forms of "i/i"en"s? A: 1. &ash 2. $toc.7@roperty
Note: $toc. dividends are withheld fro# the delin0uent stoc.holder until his unpaid subscription is fully paid. &ash dividends due on delin0uent stoc. shall first be applied to the unpaid balance on the subscription plus cost and expenses. 'he right to dividends is based on duly recorded stoc.holdings. $toc.holders are entitled to dividends @>9/>A'A based on the total nu#ber of shares and not on the a#ount paid on shares.
Q: When ma$ corporation "ec#are "i/i"en"s? A: GR: %ven if there are existing profits, A9B has discretion to deter#ine 691 dividends are declared. 5PN: $toc. corporations are prohibited fro# retaining surplus profits in excess of 1DDI of their paid/in capital stoc.. 5PN to the 5PN: a. Befinite corporate expansion pro ects approved by the board of directors
Power to declare di!idends out o" unrestricted retained earnin$s %&'() Q: What are the re=uirements? A:
24

b. &orporation is prohibited under any loan agree#ent with any financial institution or creditor fro# declaring dividends without its7his consent and such consent has not yet been secured c. 'he retention is necessary under special circu#stances obtaining in the corporation, such as when there is a need for special reserve for probable contingencies. 2. Bividends fro# invest#ents in 6asting Asset &orporation. f. Treasury shares - &an declared as property dividends. Q: )istin!uish cash an" stoc& "i/i"en"s; A:
'ASD )IVI)EN)S @art of general fund >esults in cash outlay 1ot sub ect to levy S(O'M )IVI)EN)S @art of capital 1o cash outlay 9nce issued, can be levied by corporate creditors because they=re part of corporate capital Beclared by the board with the concurrence of the stoc.holders representing at least 273 of the outstanding capital stoc. at a regular7special #eeting &orporate capital is increased 1o debt is created by its declaration 1ot sub ect to tax either received by individual or a corporation
be
Q: What if there is a %ron!fu# or i##e!a# "ec#aration of "i/i"en"s? A: 'he Aoard of Birectors is liable. 'he stoc.holders should return the dividends to the corporation (solutio inde$iti*. Q: What are the sources of "i/i"en"s? A: GR: Bividends can only be declared and aid out of actual and $ona (ide unrestricted retained earnings. Q: What are the ru#es re!ar"in! other sources of "i/i"en"s? A: a. *ain (ro# sale o( real )ro)erty - 6here a corporation sold its real property, which is not being used for business, at a gain, the inco#e derived therefro# #ay be availed of for dividend distribution. .evaluation sur)lus / Increase in the value of a fixed asset as a result of its revaluation. It cannot be declared as dividend unless the asset is sold. 6aid-in sur)lus / Bividends can be declared out of the a#ount received in excess of the par value of shares when ($%& 9pinion*? 1. 'hat they be declared only as stoc. dividends and not cash; 2. 1o creditors are pre udiced; and 3. 'here is no i#pair#ent of capital.
Beclared only by the board of directors at its discretion (#a ority of the 0uoru# only, not #a ority of all the board* Boes not increase the corporate capital Its declaration creates a debt fro# the corporation to each of its stoc.holders If received by individual? sub ect to tax; If received by corporation? not sub ect to tax &annot be revo.ed after announce#ent Applied to the unpaid balance of delin0uent shares
b.
&an be revo.ed despite announce#ent but before issuance &an be withheld until pay#ent of unpaid balance of delin0uent shares
c.
Q: 0a$ stoc& "i/i"en"s be issue" to a person %ho is not a stoc&ho#"er in pa$ment of ser/ices ren"ere"? A: 1o. 9nly stoc.holders are entitled to pay#ent of stoc. dividends. ("ielson ; Co., Inc. v. Le)anto Consolidated ?ining Co., *... "o. 2& !3, 4ece#$er & , &%!!). Q: What is pro/i"e" for b$ the trust fun" "octrine? A: 'he subscribed capital stoc. of the corporation is a trust fund for the pay#ent of debts of the corporation which the creditors have the right to loo. up to satisfy their credits, and which the corporation #ay not dissipate. 'he creditors #ay
d. .eduction sur)lus / can be a source of dividends. >ule on paid/in surplus is applicable. e. 1o dividends can be declared out of capital eDce)t only in two instances? 1. Ci0uidating dividends; and
25

sue the stoc.holders directly for the latter=s unpaid subscription. Power to enter into mana$ement contract Q: What are the re=uirements? A: 1. &ontract #ust be approved by the A9B or A9' and by the stoc.holders owning at least the #a ority of the outstanding capital stoc., or #e#bers in case of a non/ stoc. corporation, of both the #anaging and the #anaged corporation, at a #eeting duly called for the purpose &ontract #ust be approved by the stoc.holders of the #anaged corporation owning at least 273 of the outstanding capital stoc. entitled to vote, 273 #e#bers when? a. $toc.holders representing the sa#e interest in both of the #anaging and the #anaged corporation own or control #ore than 173 of the total outstanding capital stoc. entitled to vote of the #anaging corporation; b. "a ority of the #e#bers of the A9B of the #anaging corporation also constitute a #a ority of the A9B of the #anaged corporation. Are the reso#utions bin"in! on the corporation an" its stoc&ho#"ers inc#u"in! Eimm$ 0orato. the "issentin! stoc&ho#"er? A: 1o. 'he resolutions are not binding on the corporation and its stoc.holders including Ni##y "orato. 6hile these resolutions were approved by the stoc.holders, the directorsM approval, which is re0uired by law in such case, does not exist. What reme"ies. if an$. are a/ai#ab#e to 0orato? A: Ni##y "orato can petition the $ecurities and %xchange &o##ission to declare the two (2* resolutions, as well as any and all actions ta.en by the Aoard of Birectors thereunder, null and void. *122- +ar Question4 Q: What are u#tra /ires acts? A: 'hose powers that are not conferred to the corporation by law, by its A9I and those that are not i#plied or necessary or incidental to the exercise of the powers so conferred. (Sec /8)
Note: Jltra vires acts apply only in executory contracts, not when the contract is already executed.
2.
Q: When "oes the act of the officers bin" the corporation? A: 1. 2. 3. !. If it is provided in the by/laws; If the act re0uires board approval; Jnder the Boctrine of apparent authority; and 6hen the act was ratified.
GR: "anage#ent contract shall be entered into for a period not longer than 2 years for any one ter#. 5PN: In cases of service contracts or operating agree#ents which relate to the exploitation, develop#ent, exploration or utilization of natural resources, it #ay be entered for such periods as #ay be provided by the pertinent laws or regulations. Q: (he stoc&ho#"ers of Peop#e Po%er. Inc; *PPI4 appro/e" t%o reso#utions in a specia# stoc&ho#"ers< meetin!: a4 Reso#ution increasin! the authori8e" capita# stoc& of PPIL an" b4 Reso#ution authori8in! the +oar" of )irectors to issue. for cash pa$ment. the ne% shares from the propose" capita# stoc& increase in fa/or of outsi"e in/estors %ho are non? stoc&ho#"ers; (he fore!oin! reso#utions %ere appro/e" b$ stoc&ho#"ers representin! 22F of the tota# outstan"in! capita# stoc&; (he so#e "issenter %as Eimm$ 0orato %ho o%ne" 1F of the stoc&;
Q: What are the effects of an u#tra /ires act? A: 1. 9Decuted contract - courts will not set aside or interfere with such contracts;
2. 9Decutory contracts - no enforce#ent even at the suit of either party (void and unenforceable*; 3. 6artly eDecuted and )artly eDecutory principle of +no un ust enrich#ent at expense of another, shall apply; and 9Decutory contracts a))arently authori<ed $ut ultra vires - the principle of estoppel shall apply.
!.
26

Q: What are the "istinctions bet%een u#tra /ires acts an" i##e!a# acts? A:
CL(RA VIRES A'( 1ot necessarily unlawful, but outside the powers of the corporation &an be ratified &an bind the parties if wholly or partly executed ILLEGAL A'(S Jnlawful; against law, #orals, public policy, and public order &annot be ratified &annot bind the parties
Q: In case of conf#ict bet%een the b$?#a%s an" the artic#es of incorporation %hich pre/ai#s? A: 'he A9I prevails because the by/laws is intended #erely to supple#ent the for#er. Q: What is the bin"in! effect of b$?#a%s? A: A. ,s to #e#$ers and cor)oration - 'hey have the force of contract between the #e#bers the#selves. 'hey are binding only upon the corporation and on its #e#bers and those having direction, #anage#ent and control of its affairs. A. ,s to third )ersons - 'hey are not bound to .now the by/laws which are #erely provisions for the govern#ent of a corporation and notice to the# will not be presu#ed. .easonG Ay/laws have no extra/corporate force and are not in the nature of legislative enact#ents so far as third persons are concerned. Q: Gi/e the proce"ures in a"optin! b$?#a%s; A: 'he Ay/laws #ay be adopted before or after incorporation. In all cases, the Ay/laws shall be effective only upon the issuance by the $%& of a certification that the by/laws are not inconsistent with the A9I. 1. 6re - incor)oration - It shall be approved and signed by all the incorporators and sub#itted to the $%&, together with A9I. 2. 6ost - incor)oration a. Kote of the #a ority of the stoc.holders representing the outstanding capital stoc. or #e#bers; b. Ay/laws shall be signed by the stoc.holders or #e#bers voting for the#; c. It shall be .ept in the principal office of the corporation and sub ect to the inspection of the stoc.holders ore #e#bers during office hours d. &opy thereof, duly certified by the A9B or A9' countersigned by the secretary of the corporation, shall be filed with the $%& and shall be attached with the original A9I. (Sec. /!) Q: What are the contents of b$?#a%s?
Q: What are the reme"ies in case of u#tra /ires act? A: 1. State a. 9btain a udg#ent of forfeiture; or b. 'he $%& #ay suspend or revo.e the certificate of registration 2. Stoc=holders a. In unction; or b. Berivative suit 3. Creditors a. 1ullification of contract in fraud of creditors
+6?LAWS
Q: What are b$?#a%s? A: >ules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and of its stoc.holders or #e#bers and directors and officers in relation thereto and a#ong the#selves in their relation to it. Q: What are the re=uisites for the /a#i"it$ of b$? #a%s? A: a. "ust be consistent with the &orporation &ode, other pertinent laws and regulations; b. "ust not be contrary to #orals and public policy; c. "ust not i#pair obligations and contracts or property rights of stoc.holders; d. "ust be consistent with the charter or articles of incorporation. e. "ust be reasonable. f. "ust be of general application and not directed against a particular individual.
27

A: a. b. c. d. e. f. g. h. i. . 'i#e, place and #anner of calling and conducting regular or special #eetings of directors or trustees; 'i#e and #anner of calling and conducting regular or special #eetings of the stoc.holder or #e#bers; 'he re0uired 0uoru# in #eeting of stoc.holders or #e#bers and the #anner of voting therein; 'he for# for proxies of stoc.holders and #e#bers and the #anner of voting the#; 'he 0ualification, duties and co#pensation of directors or trustees, officers and e#ployees; 'i#e for holding the annual election of directors or trustees and the #ode or #anner of giving notice thereof; "anner of election or appoint#ent and the ter# of office of all officers other than directors or trustees; @enalties for violation of the by/laws In case of stoc. corporations, the #anner of issuing certificates; $uch other #atters as #ay be necessary for the proper or convenient transaction of its corporate business and affairs. (Sec. / )
A#ended by a #a ority of the directors7 trustees and stoc.holders representing 273 of the outstanding capital stoc., or 273 of the #e#bers in case of non/stoc. corporations @ower to a#end7repeal articles cannot be delegated by the stoc.holders7 #e#bers to the board of directors7 trustees Articles of Incorporation "ay be a#ended by a #a ority vote of the A9B and #a ority vote of outstanding capital stoc. or a #a ority of the #e#ber in non/stoc. corporation
@ower to a#end or repeal by/laws or adopt new by/ laws #ay be delegated by the 273 of the outstanding capital stoc. or 273 of the #e#bers in the case of non/ stoc. corporation
Q: What are the %a$s of amen"in!. repea#in! or a"optin! ne% b$?#a%s? A: 1. A#end#ent #ay be #ade by stoc.holders together with the Aoard - by #a ority vote of directors and owners of at least a #a ority of the outstanding capital stoc.7#e#bers; or 2. Ay the board only after due delegation by the stoc.holders owning 273 of the outstanding capital stoc.7#e#bers. @rovided, that such power delegated to the board shall be considered as revo.ed whenever stoc.holders owning at least #a ority of the outstanding capital stoc. or #e#bers, shall vote at a regular or special #eeting. (Sec. /') 0EE(INGS Q: What are the re=uirements for a /a#i" meetin! %hether stoc&ho#"ersImembers or the boar"? A: 1. >e0uired notice (Sec. 87 for stoc.holders7#e#bers* and (Sec. 83 for A9B7A9'*
Q: Is a corporation automatica##$ "isso#/e". if %ithin 1 month after receipt of the officia# notice of the issuance of the certificate of incorporation b$ the SE'. it fai#e" to a"opt a co"e of b$?#a%s? A: 1o. 'he incorporators #ust be given chance to explain their neglect or o#ission and re#edy the sa#e. Q: What are the "istinctions bet%een AOI an" +$?#a%s? A:
AOI %ssentially a contract between the corporation and the stoc.holders7 #e#bers; between the stoc.holders7 #e#ber inter se, and between the corporation and the $tate; %xecuted incorporation before +6?LAWS 8or the internal govern#ent of the corporation but has the force of a contract between the corporation and the stoc.holders7 #e#bers, and between the stoc.holders and #e#bers;
1o #eeting can be validly held unless there is notice. )owever it #ay be waived. 2. 3. !. &all by authorized person; @resided by the president unless otherwise provided in the by/laws (Sec. 8/); >e0uired 0uoru# (Secs. 82 ; 83)
"ay be executed after incorporation. $ec. !F allows the filing of the by/laws si#ultaneously with the
28

Q: When %i## stoc&ho#"ersImembers meetin! be he#"? A:
)A(E O@ 0EE(ING 1. Annually on date fixed in the by/laws; or 2. If there is no date in the by/ laws - any date in April as deter#ined by the board. 1. Any ti#e dee#ed necessary; or 2. As provided in the by/laws REQCIRE) *'I++(, NO(I'E 1. 6ithin the period provided in the by/ laws 2. In the absence of provision in the by/ laws - 2 wee.s prior to the #eeting. 1. 6ithin the period provided in the by/ laws 2. If no provision in the by/laws - 1 wee. prior to the #eeting
Q: Where %i## stoc&ho#"ersImembers meetin! be he#"? A: "ay be held anywhere in or outside of the @hilippines, unless the by/laws provide otherwise. (Sec. 83) Q: What is the re=uire" =uorum? A: ,. Luoru# in #eetings o( Stoc=holders GR: $hall consist of the stoc.holders representing #a ority of the outstanding capital stoc. or a #a ority of the #e#bers in the case of non/stoc. corporation. 5PN: 1. A different 0uoru# #ay be provided for in the by/laws 2. 'he corporation code provides for certain resolutions that #ust be approved by at least 273 of the outstanding capital stoc., in which case, #a ority of the outstanding capital stoc. is insufficient to constitute a 0uoru#, presence of the stoc.holders representing 273 of the outstanding capital stoc. is necessary for such purpose. B. Luoru# in #eetings o( Board GR: Quoru# is 172R1 of the total nu#bers of the board as fixed in the A9I. 5PN: A different 0uoru# #ay be provided for in the by/laws.
Note? 'he 0uoru# is the sa#e even if there is vacancy in the board If the re0uired 0uoru# is not satisfied because of the vacancy in the board, the re#edy is for the stoc.holder to fill the vacancy
Note: 6henever for any cause, there is no person authorized to call the #eeting, the $%&, upon petition of any stoc.holder or #e#ber on showing of good cause, #ay issue an order to the petitioning stoc.holder or #e#ber directing hi# to call a #eeting of the corporation by giving proper notice
Q: Where %i## stoc&ho#"ersImembers meetin! be he#"? A: 6hether regular or special, the #eeting shall be held in the city or #unicipality where the principal office of the corporation is located, and if practicable, in the principal office of the corporation. (Sec. 8&)
Note? All proceedings had and any business transacted at any #eeting of the stoc.holders or #e#bers, if within the powers or authority of the corporation, shall be valid even if the #eeting be i#properly held or called, provided all the stoc.holders or #e#bers of the corporation are present or duly represented at the #eeting.
Q: When %i## +O)I+O( meetin!s be he#"? A:

)A(E O@ 0EE(ING 1. 'he date fixed in the by/laws; or 2. If there is no date in the by/laws - shall be held #onthly 1. Any ti#e upon the call of the president; or 2. As provided in the by/laws REQCIRE) *'I++(, -.('/AL NO(I'E 1. 6ithin the period provided in the by/laws 2. In the absence of provision in the by/laws - 1 day prior to the scheduled #eeting 1. 6ithin the period provided in the by/laws 2. If no provision in the by/ laws - 1 day prior to the scheduled #eeting
Q: What shou#" be the basis of =uorum for a stoc&ho#"ersH meetin!Nthe outstan"in! capita# stoc& as in"icate" in the artic#es of incorporation or that containe" in the compan$Hs stoc& an" transfer boo&? A: As held, +0uoru# is based on the totality of the shares which have been subscribed and issued, whether it be founder=s shares or co##on shares. In the instant case, two figures are being pitted against each otherS those contained in the articles of incorporation, and those listed in the stoc. and transfer boo.., (Lanu<a v. C,, *... "o. &3&3%/, ?ar 2', 2778)
29

Q: Is te#econferencin! or /i"eo?conferencin! /a#i"? A: 5es under >A G342, provided? 1. Birectors #ust express their intent on teleconferencing; 2. @roper identification of those attending; 3. 'he corporate secretary #ust safeguard the integrity of the #eeting by recording it. 'here is no violation of the Anti/6ire 'apping Act (>A !2DD* because all the parties to the board #eeting are aware that all the co##unications are recorded. (?e#o. Cir. "o. &8, &&K27K7&) Q: )o p#e"!ors. an" mort!a!ors of shares of stoc&s ha/e the ri!ht to atten" an" /ote at meetin!s of stoc&ho#"ers? A: GR: 5es. 5PN: If expressly given by the pledgor or #ortgagor such right in writing which is recorded on the corporate boo.s. Q: )o e:ecutors. recei/ers. an" other #e!a# representati/es ha/e the ri!ht to atten" an" /ote at meetin!s of stoc&ho#"ers? A: 5es, as long as they are duly appointed by the court in behalf of the stoc.holders or #e#bers without need of any written proxy. (Sec. 88) Q: What are the ru#es in /otin! %hen there is >oint o%nership of stoc&? A: 1. $hares of stoc. owned ointly by 2 or #ore persons GR: In order to vote the sa#e, the consent of ACC the co/owners shall be necessary; 5PN: If there is a written proxy, signed by all the co/owners, authorizing one or so#e of the# or any other person to vote such shares. 2. $hares are owned in an +and7or, capacity by the holders - any one of the oint owners can vote thereof or appoint a proxy. (Sec. 8!) Q: )o treasur$ shares ha/e /otin! ri!hts? A: 'reasury shares shall have no voting right as long as such shares re#ain in the treasury. (Sec. 8 ) Q: Who has the ri!ht to /ote se=uestere" shares? A: GR: 'he stoc.holder of record is entitled to vote. 5PN: 6hen the se0uestered shares in the na#e of the private individuals or entities are shown, )ri#a (acie, to have been? 1. 9riginally govern#ent shares; or 2. @urchased with public funds or those affected with public interest. In such cases, the govern#ent shall vote the shares. (.e)u$lic o( the 6hili))ines v. Sandigan$ayan, *... "o. &82&8/, >uly, &8, 2773) Q: What is a pro:$? A: A written authorization given by one person to another so that the second person can act for the first such as that given by the shareholder to so#eone else to represent hi# and vote his shares at a shareholders= #eeting. Ay/laws #ay prescribe the for# of proxy. Q: What are the re=uirements for a /a#i" pro:$? A: 1. @roxies shall be in writing and shall be signed by the stoc.holders or #e#bers; 2. 'he proxy shall be filed within 2 days before the scheduled #eeting with the corporate secretary; 3. Jnless otherwise provided (continuing in nature* in the proxy, it shall be valid only for the #eeting for which it is intended; A1B !. 1o proxy shall be valid and effective for a period longer than 2 years at any one ti#e. (Sec.8' B6 !' as a#ended $y Sec.27 S.C)
Note? $toc.holders or #e#bers #ay attend and vote in their #eetings by proxy (Sec.8')F directors cannot do so. Birectors #ust always act in person. (Sec. 28).
Q: Is the po%er to appoint a pro:$ a persona# ri!ht? A: 5es. 'he right to vote is inseparable fro# the right of ownership of stoc.. 'herefore, to be valid, a proxy #ust have been given by the person who
30

is the legal owner of the stoc. and is entitled to vote. (S9C -)inion, Se)t. %, &%%&) Q: What is the "uration of pro:$? Q: What are the specific #imitations on V(A? A: 1. S)eci(ic )roDy - >efers to one where the authority granted the proxy holder is #erely for a particular #eeting on a specific date. Continuing )roDy - Is not li#ited to a specific #eeting and it continues for a certain period but not #ore that 2 years at any one ti#e. A: 1. K'A can be entered into for a period not exceeding 2 years at any one ti#e except when it is a condition in a loan agree#ent but shall auto#atically expire upon full pay#ent of the loan; It #ust be in writing and notarized, and shall specify the ter#s and conditions thereof; (Sec. 8%) shares; and in return, trust certificates are given to the stoc.holder7s, which are transferable li.e stoc. certificates, sub ect, to the trust agree#ent.
2.
2.
3. Ay/laws #ay provide for a shorter duration of a continuing proxy. Q: When ma$ the ri!ht to /ote b$ pro:$ be e:ercise"? A: 1. %lection of the A9B7A9'; 2. Koting in case of oint ownership of 3. Koting by trustee under K'A; !. @ledge or #ortgage of shares; 2. As provided for in its by/laws.
Q: What are the proce"ura# re=uirements for V(A to be /a#i"? A: 1. 2. %xecution and notarization of the K'A stating the ter#s and conditions thereof; A certified copy of such agree#ent shall be filed with the corporation and with the $%&, otherwise, it is ineffective and unenforceable; 'he certificate7s of stoc. covered by the K'A shall be cancelled; A new certificate shall be issued in the na#e of the trustee7s stating that they are issued pursuant to the K'A; 'he transfer shall be noted in the boo.s of the corporation, that it is #ade pursuant to said K'A; 'he trustee7s shall execute and deliver to the transferors voting trust certificates, which shall be transferable in the sa#e #anner and with the sa#e effect as certificates of stoc.; 1o K'A shall be entered into for the purpose of circu#venting the law against #onopolies and illegal co#binations in restraint of trade or used for purposes of fraud. ($ec. 24*
stoc.; 3. !.
Q: What is the e:tent of authorit$ of a pro:$? A: a. *eneral )roDy -A general discretionary power to attend and vote at annual #eeting. Li#ited )roDy - >estrict the authority to vote to specified #atters only and #ay direct the #anner in which the vote shall be cast 2. F.
b.
3.
Q: Do% an" %hen is a pro:$ re/o&e"? A: A proxy #ay be revo.ed in writing, orally or by conduct. GR: 9ne who has given a proxy the right to vote #ay revo.e the sa#e at anyti#e. 5PN: $aid proxy is coupled with interest even if though it #ay appear by its ter#s to be irrevocable. Q: What is a /otin! trust? A: It is an agree#ent whereby one or #ore stoc.holders transfer their shares of stoc.s to a trustee, who thereby ac0uires for a period of ti#e the voting rights (andKor any other rights) over such
Note? Jnless expressly renewed, all rights granted in a voting trust agree#ent shall auto#atically expire at the end of the agreed period, and the voting trust certificates as well as the certificates of stoc. in the na#e of the trustee or trustees shall thereby be dee#ed canceled and new certificates of stoc. shall be reissued in the na#e of the transferors. 'he voting trustee or trustees #ay vote by proxy unless the agree#ent provides otherwise. (Sec. 8%)
Q: What are the "istinctions bet%een a /otin! trust a!reement an" pro:$? A:
31

VO(ING (RCS( 'he agree#ent is irrevocable 'rustee ac0uires legal title to the shares of the transferring stoc.holder 'he trustee votes as owner rather than as #ere agent Qualifies as a director 1ot only right to vote is given, other rights as well 'he trust #ay vote in person or by proxy unless the agree#ent provides otherwise 'he agree#ent #ust be notarized 'rustee is not li#ited to act at any particular #eeting 'he share certificate shall be cancelled and transferred to the trustee A trustee can vote and exercise all the rights of the stoc.holder even when the latter is present "ay not be revo.ed for the duration 'he voting right is divorced fro# the ownership of stoc.s An agree#ent #ust not exceed 2 years at any one ti#e except when the sa#e is #ade a condition of a loan. PRO56 >evocable anyti#e except one with interest @roxy has no legal title to the shares of the principal
2. 3.
'he proxy holder votes as agent 1ot 0ualified director to be a
upon acceptance of the corporation of his offer to subscribe whether the consideration is fully paid or not*, @urchase treasury shares fro# the corporation, or Ac0uires shares fro# existing shareholders by sale or any other contract.
Q: What is a subscription contract? A: It is a contract for the ac0uisition of unissued stoc. in an existing corporation or a corporation still to be for#ed. It is considered as such notwithstanding the fact that the parties refer to it as purchase or so#e other contract. (Sec. !7) Q: What are contracts? A: 1. the &in"s of subscription
9nly right to vote is given 'he proxy #ust vote in person
@roxy need not be notarized @roxy can only act at a specified stoc.holder=s #eeting (if not continuing* 1o cancellation of the certificate shall be #ade A proxy can only vote in the absence of the owners of the stoc.
6re-incor)oration su$scri)tion entered into before the incorporation and irrevocable for a period of six (F* #onths fro# the date of subscription unless all other subscribers consent or if the corporation failed to #aterialize. It cannot also be revo.ed after filing the Articles of Incorporation with the $%& (Sec. !&) 6ost-incor)oration su$scri)tion into after incorporation. entered in a
2.
Q: What are /a#i" consi"erations subscription a!reement?

"ay be revo.ed anyti#e unless coupled with interest 'he right to vote is inherent in or inseparable fro# the right to ownership of stoc. A proxy is usually of shorter duration although under $ec. 2G it cannot exceed 2 years at any one ti#e
A: 1. &ash; 2. @roperty; 3. Cabor or services actually rendered to the corporation; !. @rior corporate obligations; 2. A#ounts transferred fro# unrestricted retained earnings to stated capital (in case of declaration of stoc. dividends*; F. 9utstanding shares in exchange for stoc.s in the event of reclassification or conversion.
Note: @ro#issory notes or future services are not valid considerations;
S(O'MS Q: Do% "oes one become a shareho#"er in a corporation? A: A person beco#es a shareholder the #o#ent he? 1. %nters into a subscription contract with an existing corporation (he is a stoc.holder
Q: Eanice ren"ere" some consu#tanc$ %or& for 567 'orporation; Der compensation inc#u"e" shares of stoc& therein; 'an 567 'orporation issue shares of stoc& to pa$ for the ser/ices of Eanice as its consu#tant? )iscuss $our ans%er;
32

A: 'he corporation can issue shares of stoc. to pay for actually perfor#ed services to the corporation, but not for future services or services yet to be perfor#ed. 1Sec. !2(32) *A33G +ar Question4 Q: What are the "istinctions subscription an" purchase? A:
Subscription "ay be #ade before or after incorporation $ubscriber beco#es a stoc.holder even if he has not fully paid the subscription &annot be released fro# his subscription unless all stoc.holders agree thereto and no creditor is thereby pre udiced &orporate creditors #ay proceed against the subscriber for his unpaid subscription in case the assets f the corporation are not sufficient to pay their clai#s "ay be in any for#, written or oral, express or i#plied, and therefore, not covered by the $tatute of 8rauds $ubscription price are considered assets of the corporation, hence, creditors #ay go after the# Purchase "ay be #ade only after incorporation Auyer does not beco#e a stoc.holder until the fulfill#ent of the ter#s of the sale and registration thereof in the boo.s of the corporation 'he corporation #ay rescind or cancel the contract for non/ fulfill#ent of the contract by the buyer &reditors #ay not proceed against the buyer for the unpaid price as there is no privity of contract between the# In purchase a#ounting to #ore than 2DD pesos, the $tatute of 8rauds shall apply @urchase price does not beco#e assets of the corporation unless fully paid
bet%een
revocation; and 2. Incorporation of said corporation fails to #aterialize within said period or within a longer period as #ay be stipulated in the contract of subscription; )rovided that no pre/incorporation subscription #ay be revo.ed after the sub#ission of the articles of incorporation to the $%&. (Sec. !&) 5PN to 5PN: 6hen creditors will be pre udiced thereby. Q: In case of no?par /a#ue shares. ho% much must be subscribe" an" pai"?up upon incorporation? A: 22I of the total nu#ber of shares #ust be subscribed. (Sec. &3) $ince no/par value shares are dee#ed fully paid and non/assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto, then the subscription of no par value shares #ust be paid in full instead of 22I thereof. Q: Who are re=uire" to pa$ their subscription in fu##? A: 1. 1on/resident foreign subscribers upon incorporation #ust pay in full their subscriptions unless their unpaid subscriptions are guaranteed by a surety bond or by an assu#ption by a resident stoc.holder through an affidavit of liability. 2. In case of no/par value shares, they are dee#ed fully paid and non/assessable. Q: Is a stoc&ho#"er entit#e" to the shares of stoc& subscribe" a#thou!h not fu##$ pai"? A: 5es. As long as the shares are not considered delin0uent, they are entitled to all rights granted to it whether or not the subscribed capital stoc.s are fully paid. Q: What are the "istinctions bet%een capita# stoc& from shares of stoc&? A:
'API(AL S(O'M 'he a#ount paid in or secured to be paid in by the stoc.holders upon which the corporation is to conduct its operation. It is the property of the corporation itself SDARES O@ S(O'M It is an interest or right which an owner has in the #anage#ent of the corporation, and its surplus profits, and, on dissolution, in all of its assets re#aining after pay#ent of its debt. 'he stoc.holder #ay own
Q: What is the )octrine of In"i/i"ua#it$ of Subscription? A: A subscription is one entire and indivisible whole contract. It cannot be divided into portions. (Sec. !/) Q: What is the ru#e on pre?incorporation subscription a!reements? A: GR: $ubscription of shares of stoc. of a corporation still to be for#ed shall be irrevocable for a period of at least F #onths fro# date of subscription. 5PN: 1. ,ll of the other subscribers consent to the
33

(#onetary value*. the shares even if he is not holding a certificate of stoc..
possession of sai" certificate to his best frien" B+B %ho borro%e" the sai" en"orse" certificate to support +<s app#ication for passport *or for a purpose other than transfer4; +ut B+B so#" the certificate to B5B. a bona fi"e purchaser %ho re#ie" on the en"orse" certificates an" be#ie/e" him to be the o%ner thereof; 'an BAB c#aim the shares of stoc&s from B5B? E:p#ain; A: 1o. $ince the shares were already transferred to ;A;, ;A; cannot clai# the shares of stoc. fro# ;<;. 'he certificate of stoc. covering said shares have been duly endorsed by ;A; and entrusted by hi# to ;A;. Ay his said acts, ;A; is now estopped fro# clai#ing said shares fro# ;<;, a bona fide purchaser who relied on the endorse#ent by +A, of the certificate of stoc.. Wou#" $our ans%er be the same if BAB #ost the stoc& certificate in =uestion or if it %as sto#en from him? A: 5es. In the case where the certificate of stoc. was lost or stolen fro# ;A;, ;A; has a right to clai# the certificate of stoc. fro# the thief who has no right or title to the sa#e. ;9ne who has lost any #ovable or has been unlawfully deprived thereof, #ay recover it fro# the person in possession of the sa#e.; (Art. 224, 1&&* *A331 +ar Question4 Q: What if there is no certificate of stoc&. ho% can shares be transferre"? A: It can be sale7assign#ent. transferred by deed of
Q: Do% are shares of stoc& transferre"? A: 1. If represented by a certificate, the following #ust be strictly co#plied with? a. Belivery of the certificate; b. Indorse#ent by the owner and his agent; c. 'o be valid to third parties, the transfer #ust be recorded in the boo.s of the corporation (.ural Ban= o( Li)a v. Court o( ,))eals, *... "o. &2/838, Se)te#$er 2', 277&). If not represented by the certificate (such as when the certificate has not yet been issued or where for so#e reason is not in the possession of the stoc.holder*. a. Ay #eans of deed of assign#ent? and b. $uch is duly recorded in the boo.s of the corporation.
2.
Note: registration in the stoc. and transfer boo. is not necessary if the conveyance is by way of chattel #ortgage. )owever, there #ust be due registration with the >egister of Beeeds (Chua *uan v. Sa#ahan, L-
/27%&, "ove#$er 2, &%38) Q: What if the transfer is not recor"e". is it /a#i"? A: 9nly insofar as the parties to the transfer are concerned.
Note: )ence, the corporation has the right to refuse to recognize any transfer of shares which has not been duly registered in the stoc. and transfer boo.. (Sec. !3)
Q: When ma$ a certificate of stoc& be issue"? A: It shall be issued until the full a#ount of his subscription together with interest and expenses has been paid. (Sec. !/) Q: When shou#" the ba#ance of the subscription be pai"? A: It should be paid? a. on the date specified in the subscription contract, without need of de#and or call, or; b. if no date of pay#ent has been specified, on the date specified on the call #ade by the A9B; or, c. when insolvency supervenes upon a corporation and the court assu#es urisdiction to wind it up, all unpaid subscriptions beco#e payable on
Q: When ma$ the corporation /a#i"#$ refuse to re!ister the transfer of shares? A: 1o shares of stoc. against which the corporation holds any unpaid clai# shall be transferable in the boo.s of the corporation. 'he +unpaid clai#, refers to the unpaid subscription on the shares transferred and not to any other indebtedness that the transferor #ay have to the corporation. (Sec. !3) Q: BAB is the re!istere" o%ner of Stoc& 'ertificate No; 333311; De entruste" the
34

de#and, and are at once recoverable, without necessity of any prior call. Q: Wi## the unpai" ba#ance accrue interest? A: $ubscribers for stoc. shall pay to the corporation interest on all unpaid subscriptions fro# the date of subscription, if so re0uired by, and at the rate of interest fixed in the by/laws. If no rate of interest is fixed in the by/laws, such rate shall be dee#ed to be the legal rate. (Sec. !!) Q: What is the effect of fai#ure to pa$ the subscription on the "ate it is "ue? A: It shall render the entire balance due and payable and shall #a.e the $) liable for interest at the legal rate on such balance, unless a different rate of interest is provided in the by/laws. Q: When %i## the share become "e#in=uent? A: If within 3D days fro# the date of pay#ent specified in the contract of subscription or fro# the date stated in the call #ade by the board, no pay#ent is #ade, all stoc.s covered by said subscription shall thereupon beco#e delin0uent and shall be sub ect to sale unless the A9B orders otherwise. Q: What "oes the term unpai" c#aim mean *for purposes of "ec#arin! the shareho#"er of "e#in=uent? A: It refers to any unpaid subscription, and not to any indebtedness which a subscriber or stoc.holder #ay owe the corporation arising fro# any other transaction. (China Ban=ing Cor)oration v. Court o( ,))eals, et. al., *... "o. && !7/, ?arch 2!, &%% ) Q: What are the reme"ies of corporations to enforce pa$ment of stoc&s? A: 1. 9Dtra-3udicial sale at )u$lic auction this re#edy is available upon failure of the stoc.holder to pay the unpaid subscription or balance thereof within the grace period of 3D days fro# the date specified in the contract of subscription, or in the absence of such date, fro# the date stated in the call #ade by the A9B. (Sec. ! ) 2. Nudicial action. (Sec. 7) 3. &ollection fro# cash dividends and withholding of stoc. dividends. (Sec. /3) !. Q: What is the proce"ure for co##ection an" "e#in=uenc$ sa#e? A: 1. 2. &all whenever re0uired #ust be #ade by the Aoard. 1otices of call - 'he stoc.holders are given notice of the board resolution by the corporate secretary, either personally or by registered #ail. If the stoc.holders concerned do not pay within thirty days fro# the date specified in the contract of subscription or in the call, all the stoc.s covered by the subscription shall be declared delin0uent and shall be sub ect to sale under $ec.FG. 1otice of delin0uency served on the subscribers either personally or registered #ail and publication in a newspaper of general circulation in the province or city where principal office is located once a wee. for two consecutive wee.s.
3.
Note: 1otice shall state the a#ount due on each subscription plus accrued interest, and the date, ti#e and place of the sale which shall not be less than 3D days nor #ore than FD days fro# the date the stoc.s beco#e delin0uent.
2.
$ale - such nu#ber of shares as #ay be necessary to pay the a#ount due on subscription, plus interest and other a#ounts due, will be sold at public auction.
Note: 'he highest bidder is the person offering to pay full a#ount of the balance on the subscription and other a#ount that are due for the s#allest nu#ber of shares or fraction of a share. (Secs. ! - 7)
Q: When ma$ "iscontinue"?
"e#in=uenc$
sa#e
be
A: If the delin0uent $) pays the unpaid balance plus interest, costs and expenses on or before the date specified for the sale or when the A9B orders otherwise. Q: What are the effects of stoc& "e#in=uenc$? A: Beprives the stoc.holder the right? 1. 2. 3. 'o be voted for; or 'o be entitled to vote; or 'o representation at any stoc.holdersM #eeting.
Belin0uent stoc.holder shall not be entitled to any of the rights of a stoc.holder but he shall still be entitled to receive dividends.
35

Note: If the delin0uent stoc.holder is a director, he shall continue be a director but he cannot run for re/election.
the underwriting agree#ent, if such securities are not ta.en by those to who# they are first offered. Q: What are the "istinctions bet%een un"er%ritin! a!reement an" stoc& subscription a!reement? A:
CN)ERWRI(ING AGREE0EN( 'he signers obligate the#selves to ta.e the shares of stoc. which cannot be sold. Jnderwriters are usually allowed a co##ission. In pure underwriting agree#ent, the signer can refuse to beco#e a stoc.holder7 #e#ber of the co#pany in pursuance of his contract with the pro#oter. S(O'M SC+S'RIP(ION AGREE0EN( 'he obligation of the signer to the purchasers and to the public is absolute. 'here is no co##ission. )e beco#es a stoc.holder of the co#pany and is liable to pay the a#ount due on the stoc..
Q: Are "e#in=uent shares entit#e" to "i/i"en"s? A: 5es, provided that any cash dividends due on delin0uent stoc.s shall first be applied to the unpaid balance on the subscription plus costs and expenses while stoc. dividends shall be withheld fro# the delin0uent stoc.holder until his unpaid subscription is fully paid. (Sec. /3 )ar. &) Q: Ace 'ru8 subscribe to 133.333 shares of stoc& of EP )e/e#opment 'orporation. %hich has a par /a#ue of P1 per share; De pai" PAG.333 an" promise" to pa$ the ba#ance before )ecember J1. A33-; EP )e/e#opment 'orporation "ec#are" a cash "i/i"en" on October 1G. A33-. pa$ab#e on )ecember 1. A33-; @or ho% man$ shares is Ace 'ru8 entit#e" to be pai" cash "i/i"en"s? E:p#ain; A: Ace is entitled to be paid in cash dividends to the extent of his 1DD,DDD shares of stoc.. $hares of stoc. beco#e delin0uent if the stoc.holder fails to pay within 3D days fro# the date provided in the subscription contract. Aefore the stoc.s are declared delin0uent, he is entitled to the exercise of all his rights including the right to receive cash dividends. On )ecember 1. A33-. can Ace 'ru8 compe# EP )e/e#opment 'orporation to issue to him the stoc& certificate correspon"in! to the PAG.333 pai" b$ him? A: 1o. 'he stoc. certificates will be issued only if and when the full a#ount of his subscription together with interests if any has been paid. *A33+ar Question4 Q: Who is the hi!hest bi""er in a pub#ic auction sa#e of "e#in=uent sa#e? A: 'he one who offers to pay the full a#ount of the balance of the subscription together with accrued interest, costs, and expenses of sale, for the s#allest nu#ber of shares. Q: What is an un"er%ritin! a!reement? A: It is an agree#ent between a corporation and a third person, ter#ed the +underwriter,, by which the latter agrees, for a certain co#pensation, to ta.e a stipulated a#ount of stoc.s or bonds, specified in
S(O'MDOL)ERS Q: What are the ri!hts of a stoc&ho#"er? A: 1. 'o vote at the stoc.holders= #eetings either in person or by proxy; (Sec. 8') 2. 'o receive his proportionate share of the profits of the corporation by way of dividends; (Sec. /3) 3. 'o approve the declaration of stoc. dividends; (Sec. /3) !. @re/e#ptive right; (Sec. 3%) 2. 'o inspect corporate boo.s and records; (Sec. / )ar. 2) F. 'o financial state#ents; (Sec. 8) 3. Appraisal right; (Sec. '&) G. 'o participate proportionately in the distribution of the corporate assets upon corporate li0uidation following the dissolution and winding up; (Sec. &22) 4. 'o file a derivative actions. 1D. 'o the issuance of a certificate of stoc. upon co#pliance with the conditions which entitle hi# to one. (S9C -)inion >anuary ', &%' ) Q: Gi/e the summar$ of /ote re=uirements for stoc&ho#"ers A: 1. 273 of 9utstanding $toc. along with #a ority of the board? a. A#end#ent of A9I;
36

b. c. d. e. f. g. h. %xtending and $hortening &orporate 'er# Increasing 7 Becreasing capital stoc. 7 bonded indebtedness; $ale or disposition of all, substantially all of corporate assets; Invest#ent of corporate funds in another corporation or for a purpose other than #ain purpose; Issuance of stoc. dividends; &orporate #ergers or consolidation; Koluntary dissolution of the corporation whether or not creditors are pre udiced. pursuant to $ec.F, non/voting shares are not entitled to vote except as provided for in the last paragraph of $ec.F. @referred or redee#able shares #ay be deprived of the right to vote unless otherwise provided in the &ode. (Sec. !) 8ractional shares of stoc. cannot be voted unless they constitute at least one full share. (Sec. /&) 'reasury shares have no voting rights as long as they re#ain in the treasury (Sec. 8 ) )olders of stoc. declared delin0uent by the board of directors for unpaid subscription are not entitled to vote or a representation at any stoc.holder=s #eeting. (Sec. ! ) A transferee of stoc. cannot vote if his transfer is not registered in the stoc. and transfer boo. of the corporation. (Sec. !3) $toc. held in escrow cannot be voted until the perfor#ances of a certain condition or the happening of a certain event as contained in the agree#ent. (S9C -)inion)
b. c. d. e.
2.
273 of outstanding stoc.s a. >e#oval of directors; b. >atification of contract with director or officer where first two re0uisites of $ec. 32 are lac.ing; c. 6here stoc.holders of #anaged corporation own #ore than 173 of outstanding capital stoc. entitled to vote of the #anaging corporation are also the #a ority of the board of #anaged corporation, such 273 vote is re0uired to approve #anage#ent contract; d. Belegation to the board to a#end, repeal by/laws or adopt new by/laws. "a ority of 9utstanding stoc.s with #a ority of the board a. Approval of #anage#ent contract; b. A#end#ent to by/laws, repeal of by/ laws, adoption of new by/laws. "a ority of outstanding stoc. a. 8or 0uoru# in electing #e#bers of the board by cu#ulative voting; b. Erant of co#pensation to #e#bers of the board; c. Adoption of original by/laws; d. >evocation of delegated authority to the board of directors to a#end or repeal or adopt new by/laws. 'he right to vote of non/voting stoc.holders #ay be li#ited or broadened to the extent specified in the AI or by/laws, however, they #ay still vote in instances specified in the code. on the
f. g.
Q: What is a poo#in! a!reement? A: 'his is an agree#ent, also .nown as voting agree#ent, entered into by and between 2 or #ore stoc.holders to #a.e their shares vote in the sa#e #anner. 'his usually relates to election of directors where parties often provide for arbitration in case of disagree#ent. 'his does not involve a transfer of stoc.s but is #erely a private agree#ent. (Sec. &77)
Note: @arties thereto re#ain the legal owners of their stoc.s with the right to vote the#, although contractually they each have bound the#selves to vote in accordance with the decision of the #a ority in the pool.
3.
!.
Q: When are poo#in! a!reements /a#i"? A: As long as they do not li#it the discretion of the A9B in the #anage#ent of corporate affairs or wor. any fraud against stoc.holders not party to the contract. Q: What is a pre?empti/e ri!ht? A: It is the right of $) to subscribe to the issuance or disposition of shares in proportion to their respective shareholding so that their interest in the corporation will be #aintained, before said shares are offered to a non/stoc.holder. Q: When is the pre?empti/e ri!ht not a/ai#ab#e?
2.
Q: A:
What are the #imitations stoc&ho#"erHs ri!ht to /ote? a.
6here the articles of incorporation provides for classification of shares
37

A: a. b. 'o shares to be issued in co#pliance with laws re0uiring stoc. offerings or #ini#u# stoc. ownership by the public; 1ot extend to shares to be issued in good faith with the approval of the stoc.holders representing 273 of the outstanding capital stoc., in exchange for property needed for corporate purposes or in pay#ent of a previously contracted debt; $hall not ta.e effect if denied in the Articles of Incorporation or an a#end#ent thereto. It does not apply to shares that are being reoffered by the corporation after they were initially offered together with all the shares. (Benito v. S9C, L-8!!88, >uly 28, &%'3) Q: A+' 'orporation has an authori8e" capita# stoc& of One 0i##ion *P1.333.333;334 Pesos "i/i"e" into G3.333 common shares an" G3.333 preferre" shares; At its inception. the 'orporation offere" for subscription a## the common shares; Do%e/er. on#$ K3.333 shares %ere subscribe"; Recent#$. the "irectors thou!ht of raisin! a""itiona# capita# an" "eci"e" to offer to the pub#ic a## the authori8e" shares of the 'orporation at their mar&et /a#ue; Wou#" 0r; 5. a stoc&ho#"er ho#"in! K.333 shares. ha/e pre?empti/e ri!hts to the remainin! 13.333 shares? A: 5es. "r. <, a stoc.holder holding !,DDD shares, has pre/e#ptive right to the re#aining 1D,DDD shares. All stoc.holders of a stoc. corporation shall en oy pre/e#ptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings. 'he ruling in Benito v. 4atu and Tan v. S9C to the effect that pre/ e#ptive right applies only to issuance of shares in connection with an increase in capital is no longer a valid rule under the &orporation &ode. 'he facts in those cases happened during the regi#e of the old &orporation Caw. A#ternati/e ans%er: 1o, "r. < does not have pre/e#ptive right over the re#aining 1D,DDD shares because these shares have already been offered at incorporation and he chose not to subscribe to the#. )e, therefore, has waived his right thereto and the corporation #ay offer the# to anyone. Wou#" 0r; 5 ha/e pre?empti/e ri!hts to the G3.333 preferre" shares? A: 5es. "r. < would have pre/e#ptive rights to the 2D,DDD preferred shares. All stoc.holders of a stoc. corporation shall en oy pre/e#ptive right to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings. A#ternati/e ans%er: 5es, "r. < has pree#ptive right over the 2D,DDD preferred shares because they were not offered before by the corporation for subscription. Assumin! that the e:istin! stoc&ho#"ers are entit#e" to pre?empti/e ri!hts. at %hat price %i## the shares be offere"? A: 'he shares will be offered to existing stoc./ holders, who are entitled to pre/e#ptive right, at a
c. d.
Note: Includes not only new shares in pursuance of an increase of capital stoc. but would cover the issue of previously unissued shares which for# part of the existing capital stoc. as well as treasury shares. (S9C 2777 -)inion).
Q: Suppose that B5B 'orporation has a#rea"$ issue" the 1333 ori!ina##$ authori8e" shares of the corporation so that its +oar" of )irectors an" stoc&ho#"ers %ish to increase B5<sB authori8e" capita# stoc&; After comp#$in! %ith the re=uirements of the #a% on increase of capita# stoc&. B5B issue" an a""itiona# 1333 shares of the same /a#ue; Assume that stoc&ho#"er BAB present#$ ho#"s A33 out of the 1333 ori!ina# shares; Wou#" BAB ha/e a pre?empti/e ri!ht to A33 of the ne% issue of 1333 shares? Wh$? A: 5es, ;A; would have a pre/e#ptive right to 2DD of the new issue of 1DDD shares. ;A; is a stoc.holder of record holding 2DD shares in ;<; &orporation. According to the &orporation &ode, each stoc.holder has the pre/e#ptive right to all issues of shares #ade by the corporation in proportion to the nu#ber of shares he holds on record in the corporation. When shou#" stoc&ho#"er BAB e:ercise the pre? empti/e ri!ht? A: @re/e#ptive right #ust be exercised in accordance with the Articles of Incorporation or the Ay/Caws. 6hen the Articles of Incorporation and the Ay/Caws are silent, the Aoard #ay fix a reasonable ti#e within which the stoc.holders #ay exercise the right.
38

price fixed by the Aoard of Birectors, which shall not be less than the par value of such shares. Assumin! a stoc&ho#"er "isa!rees %ith issuance of ne% shares an" the pricin! for shares. ma$ the stoc&ho#"er in/o&e appraisa# ri!hts an" "eman" pa$ment for shareho#"in!s? the the his his In right o( (irst re(usal, it is the $) who shall offer his shares to the other $) before the sa#e are offered to the public or non/stoc.holders. It is a right available to $) to be offered the shares of another $) before it is offered to other party. 'he right to be exercised #ust be indicated in the A9I and printed in the stoc. certificate. Q: Is there pre?empti/e ri!ht on the re?issuance of treasur$ shares? A: 5es. 6hen a corporation reac0uires its own shares which thereby beco#e treasury shares, all shareholders are entitled to pre/e#ptive right when the corporation reissues or sells these treasury shares. 'he re/issuance of treasury shares is not a#ong the exception provided by $ec. 34 when pre/e#ptive right does not exist. Q: 0a$ pre?empti/e ri!ht be %ai/e" b$ the stoc&ho#"er? A: 5es when the stoc.holder fails to exercise his pre/e#ptive right after being notified and given an opportunity to avail of such right.
Note: 'he shareholder #ust either exercise the right and increase the invest#ent, or dispose of the right by sale or it will lapse and the shareholder=s proportionate interest will be diluted.
A: 1o, the stoc.holder #ay not exercise appraisal right because the #atter that he dissented fro# is not one of those where right of appraisal is available under the &orporation &ode. *1222 +ar Question4 Q: (he +oar" of )irectors of A+'. Inc;. a "omestic corporation. passe" a reso#ution authori8in! a""itiona# issuance of shares of stoc&s %ithout notice nor appro/a# of the stoc&ho#"ers; )5. a stoc&ho#"er. ob>ecte" to the issuance. conten"in! that it /io#ate" his ri!ht of pre?emption to the unissue" shares; Is his contention tenab#e? E:p#ain brief#$; A: 5es. B<=s contention is tenable. Jnder $ec.34 of the &orporation &ode, all stoc.holders of AA&, Inc. en oy pre/e#ptive right to subscribe to all issues of shares of any class, including the reissuance of treasury shares in proportion to their respective shareholdings. *A33K +ar Question4 Q: What is the ri!ht of first refusa#? A: A stoc.holder who #ay wish to sell or assign his shares #ust first offer the shares to the corporation or to the other existing stoc.holders of the corporation, under ter#s and considerations which are reasonable, and only when the corporation or the other stoc.holders do not or fail to exercise their option, is the offering stoc.holder at liberty to dispose of his shares to third parties. Q: What is the ri!ht of first option? A: A right that grants to the corporation the right to buy the shares at a fixed price and only valid if #ade on reasonable ter#s and consideration. Q: What is the "ifference bet%een pre?empti/e ri!ht an" ri!ht of first refusa#? A: In )re-e#)tive right, it is the corporation that offers the shares to stoc.holders. It is exercised with or without a provision in the A9I. 'he ob ective is to preserve and #aintain uni#paired and undiluted the $)=s relative and proportionate voting strength and control.
Q: Is a pro/ision statin! that the consent of the boar" must be obtaine" before transfer of shares /a#i"? A: 1o. A provision that re0uires any stoc.holder who wishes to sell, assign or dispose of his shares in the corporation to first obtain the consent of the board of directors or other stoc.holders of the corporation is void as it unduly restrains the exercise of the stoc.holder of his right to transfer. Q: What is a bu$?bac& a!reement? A: 'his exists in situations when shares are given or assigned to officers or e#ployees under the condition that should they resign or be ter#inated fro# e#ploy#ent, the corporation shall be granted the right to buy/bac. the shares. It is valid only on reasonable ter#s and consideration. Q: 0a$ a pro/ision in the artic#es of incorporation /a#i"#$ !rant a ri!ht of first refusa# in fa/or of other stoc&ho#"ers? A: 5es, the $%&, as a #atter restrictions on transfer of shares incorporation if the sa#e is convenient to the attain#ent of of policy, allows in the articles of necessary and the ob ective for
39

which the co#pany was incorporated, unless palpably unreasonable under the circu#stances. (S9C -)inion, Fe$ruary 27, &%%8* Q: What is the basis inspection? of SDHs ri!ht of Q: Who ma$ ma&e proper entries? A: 'he obligation and duty to #a.e entries on the $'A falls on the &orporate $ecretary. If the corporate secretary refuses to co#ply, the stoc.holder #ay rightfully bring suit to co#pel perfor#ance. 'he stoc.holder cannot ta.e the law on to his hands; otherwise such entry shall be void. (Torres, >r. v. Court o( ,))eals, *... "o. &27&3', Se)te#$er 8, &%% ) Q: What is the probati/e /a#ue of the stoc& an" transfer boo&? A: 'he stoc. and transfer boo. is the best evidence of the transactions that #ust be entered or stated therein. )owever, the entries are considered )ri#a (acie evidence only and #ay be sub ect to proof to the contrary (Bitong v. Court o( ,))eals, *... "o. &23883, >uly &3, &%%). Q: What is appraisa# ri!ht? A: 'he right to withdraw fro# the corporation and de#and pay#ent of the fair value of his shares after dissenting fro# certain corporate acts involving funda#ental changes in corporate structure. (Sec. '&) Q: In %hat instances ma$ the ri!ht of appraisa# be e:ercise"? A: In case any a#end#ent to the articles of incorporation which has the effect of? a. &hanging or restricting the rights of any stoc.holder or class of shares; or b. Authorizing preferences in any respect superior to those of outstanding shares of any class; or c. %xtending or shortening the ter# of corporate existence; d. In case of sale, lease, exchange, transfer, #ortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the &ode; and e. In case of #erger or consolidation f. %xtension or shortening of the ter# of the corporation; (Sec. 3 ) g. In case of invest#ent of corporate funds in another corporation or business or for any other purpose; (Sec. /2) h. In cases of close corporations. Q: What are the re=uirements for successfu# e:ercise of appraisa# ri!ht? A: the
A: 'heir ownership of the assets and property of the corporation whether this ownership or interest be ter#ed e0uitable, beneficial or 0uasi/ownership. It is predicated upon the necessity of self/ protection. Q: What boo&s are re=uire" to be &ept b$ a corporation? A: 1. 2. 3. !. Aoo. for the #inutes of $) and A9B #eetings >ecord of transactions $toc. and transfer boo. 9ther boo.s re0uired to be .ept
Q: What are the contents of a stoc& an" transfer boo&? A: 1. 2. 3. !. All stoc.s in the na#e of the stoc.holders alphabetically arranged; A#ount paid and unpaid on all stoc.s and the date of pay#ent of any install#ent; Alienation, sale or transfer of stoc.s; 9ther entries as the by/laws #ay prescribe.
Q: What are the #imitations on the ri!ht of inspection of a stoc&ho#"er? A: 1. 2. 3. !. 2. F. 'he inspection should only be for a purpose ger#ane to his interest as a $). It #ust be exercised in good faith. It should be done during reasonable office hours on business days. It should follow the for#alities that #ay be re0uired in the by/laws. 'he right does not extend to trade secrets. It is sub ect to li#itations under special laws. ex. $ecrecy of Aan. Beposits.
Q: Who is authori8e" to ma&e entries in the stoc& an" transfer boo&? A: 'he corporate secretary. )ence, entries #ade by the &hair#an or @resident are invalid. (Torres, >r. v. Court o( ,))eals, *... "o. &27&3', Se)te#$er 8, &%% )
40

1. "ust have dissented fro# the proposed corporate act so such dissenting stoc.holder #ust be present in the $) #eeting where the corporate act was proposed. "a.e a written de#and on the corporation within 3D days after the date on which the vote was ta.en for pay#ent of the fair value of his shares. 8ailure to #a.e the de#and within such period shall be dee#ed a waiver of the appraisal right. %xistence of unrestricted retained earnings or surplus profits. 5PN: In case of a close corporation which only re0uires that it has assets and the pay#ent of the fair value of the shares to the dissenting $) will not result to its insolvency. 6ithin ten (1D* days after de#anding pay#ent for his shares, a dissenting stoc.holder shall sub#it the certificates of stoc. representing his shares to the corporation for notation thereon that such shares are dissenting shares. (Sec. '!) )is failure to do so shall, at the option of the corporation, ter#inate his rights. After pay#ent, certificate of stoc. of said shares shall be cancelled and ac0uired as treasury shares. three (3* disinterested persons one of who# shall be na#ed by the stoc.holder, another by the corporation, and the third by the two thus chosen. 'he findings of the #a ority of the appraisers shall be final. 'he award shall be paid by the corporation within thirty (3D* days after such award is #ade 1o pay#ent shall be #ade to any dissenting stoc.holder unless the corporation has unrestricted retained earnings in its boo.s to cover such pay#ent Jpon pay#ent by the corporation of the agreed or awarded price, the stoc.holder shall forthwith transfer his shares to the corporation. Q: What is the effect of the "eman" an" termination of ri!ht? A: 8ro# the ti#e of de#and for pay#ent of the fair value of a stoc.holderMs shares until either the abandon#ent of the corporate action involved or the purchase of the said shares by the corporation, all rights accruing to such shares, including voting and dividend rights, shall be suspended, eDce)t the right of such stoc.holder to receive pay#ent of the fair value thereof, )rovided, if the dissenting stoc.holder is not paid the value of his shares within 3D days after the award, his voting and dividend rights shall i##ediately be restored. (Sec.'3) Q: When %i## the ri!ht to pa$ment of the fair /a#ue be #ost? A: It ceases in the following instances? 1. If such de#and for pay#ent is withdrawn with the consent of the corporation; 2. If the proposed corporate action is abandoned or rescinded by the corporation; 3. If the proposed corporate action disapproved by the $%& where such approval is necessary; !. If the $%& deter#ines that such stoc.holder is not entitled to the appraisal right. (Sec. '/)
Note: In such instances, his status as a stoc.holder shall thereupon be restored, and all dividend distributions which would have accrued on his shares shall be paid to hi#.
2.
3.
!.
2.
Q: When %i## the "issentin! stoc&ho#"er #ose his ri!ht of appraisa#? A: 1. If the dissenting stoc.holder fails to #a.e a written de#and on the corporation within 3D days after the date on which the vote was ta.en for pay#ent on the fair value of his shares. $uch failure shall be dee#ed to be a waiver of his appraisal right. 6hen the dissenting stoc.holder fails to sub#it his certificates of stoc. representing his shares for notation thereon that such shares are dissenting shares, within 1D days after de#and for pay#ent for his shares. 6hen the shares of the dissenting stoc.holder are transferred and the certificates covering said shares are conse0uently cancelled.
2.
3.
Q: What are the ru#es in case of "isa!reement on the fair /a#ue of shares? A: If within a period of sixty (FD* days fro# the date the corporate action was approved by the stoc.holders, the withdrawing stoc.holder and the corporation cannot agree on the fair value of the shares, it shall be deter#ined and appraised by
Q: Who bears the cost of appraisa#? A? GR: &osts of appraisal shall be borne by the corporation
41

2. 5PN: 'he costs shall be borne by the stoc.holder, when the fair value ascertained by the appraisers is approxi#ately the sa#e as the price which the corporation #ay have offered to pay the stoc.holder. (Sec. '8)
Note: In the case of an action to recover such fair value, all costs and expenses shall be assessed against the corporation, unless the refusal of the stoc.holder to receive pay#ent was un ustified.
3.
)e has exhausted intra/corporate re#edies; and 'he cause of action actually devolves on the corporation, the wrongdoing or har# having been caused to the corporation and not to the particular stoc.holder bringing the suit.
Note: A person who is #erely holding in trust the shares of stoc. in her na#e cannot file a derivative suit, since she is not a stoc.holder in her own right. (Bitong v. Court o( ,))eals, *... "o. &23883, >uly &3, &%%') @ersonal in ury suffered by the stoc.holders cannot dis0ualify the# fro# filing a derivative suit on behalf of the corporation. It #erely gives rise to an additional cause of action for da#ages against the erring directors. (*ochan v. Moung, *... "o. &3&''%, ?arch &2, 277&)
Q: What is the effect of the transfer from the "issentin! stoc&ho#"er? A: 1. 2. 3. 'he rights of the transferor as a dissenting stoc.holder shall cease; 'he transferee shall have all the rights of a regular stoc.holder; and All dividend distributions which would have accrued on such shares shall be paid to the transferee.
Q: What are in"i/i"ua# actions? A: 'hose brought by the shareholder in his own na#e against the corporation when a wrong is directly inflicted against hi#. Q: What are representati/e actions? A: 'hese brought by the stoc.holder in behalf of hi#self and all other stoc.holders si#ilarly situated when a wrong is co##itted against a group of stoc.holders. Q: AA. a minorit$ stoc&ho#"er. fi#e" a suit a!ainst ++. ''. )). an" EE. the ho#"ers of ma>orit$ shares of 0OP 'orporation. for a##e!e" misappropriation of corporate fun"s; (he comp#aint a/erre". inter a#ia. that 0OP 'orporation is the corporation in %hose beha#f an" for %hose benefit the "eri/ati/e suit is brou!ht; In their capacit$ as members of the +oar" of )irectors. the ma>orit$ stoc&ho#"ers a"opte" a reso#ution authori8in! 0OP 'orporation to %ith"ra% the suit; Pursuant to sai" reso#ution. the corporate counse# fi#e" a 0otion to )ismiss in the name of the 0OP 'orporation; Shou#" the motion be !rante" or "enie"? Reason brief#$; A: 1o. 'he re0uisites for a valid derivative suit exist in this case. 8irst, AA was exe#pt fro# exhausting his re#edies within the corporation and did not have a de#and on the Aoard of Birectors for the latter to sue. )ere, such a de#and would be futile, since the directors who co#prise the #a ority (na#ely AA, &&, BB and %% are the ones guilty of the wrong co#plained of. $econd, AA appears to be a stoc.holder at the ti#e of the alleged #isappropriation of corporate funds. 'hird,
Q: A "issentin! stoc&ho#"er transfers his shares of stoc& an" his certificate of stoc& bearin! the notation that such shares are "issentin! shares. are conse=uent#$ cance##e"; Wi## the transferee ac=uire the ri!ht of the transferor to "eman" from the corporation the pa$ment of the fair /a#ue of the shares? A: 1o, because upon transfer of the shares of the dissenting stoc.holder, his right as a dissenting stoc.holder shall cease and the transferee shall have all the rights of a regular stoc.holder and all dividend distributions which would have accrued on such shares shall be paid to the transferee. 'he transfer of shares is an abandon#ent by the dissenting stoc.holder of his appraisal right. Q: What are "eri/ati/e actions? A: 'hose brought by one or #ore stoc.holders7#e#bers in the na#e and on behalf of the corporation to redress wrongs co##itted against it, or protect7vindicate corporate rights whenever the officials of the corporation refuse to sue, or the ones to be sued, or has control of the corporation. Q: What are the re=uisites of a "eri/ati/e action? A: 1. 'he party bringing suit should be a shareholder as of the ti#e of the act or transaction co#plained of;
42

the suit is brought on behalf and for the benefit of "9@ &orporation. In this connection, it was held in &on#art (@hils.* Inc. vs $%&, 14G $&>A 33 that to grant to the corporation concerned the right of withdrawing or dis#issing the suit, at the instance of the #a ority stoc.holders and directors who the#selves are the persons alleged to have co##itted the breach of trust against the interests of the corporation would be to e#asculate the right of the #inority stoc.holders to see. redress for the corporation. 8iling such action as a derivative suit even by a lone stoc.holder is one of the protections extended by law to #inority stoc.holders against abuses of the #a ority. Q: What is the nature of a certificate of stoc&? A: A certificate of stoc. is the paper representative or tangible evidence of the stoc. itself and of the various interests therein. (Tan v. S9C, *... "o. %8!%!, ?arch 3, &%%2)
of the owner or where the corporation was organized. (see also sec. &7/ o( ..,. "o. '/2/) b. 'o register the chattel #ortgages over the shares of stoc. the situs is the duty7pro#ise in which the corporation has its principal place of business. c. 8or purposes of execution, it is the do#icile of the corporation. do#iciled elsewhere.
Q: What are uncertificate" shares? A: $ecurity evidenced by electronic or si#ilar records.

Note: 'he $%& #ay, by specific rule or regulation, allow corporations to provide in their A9I and by/laws for the use of uncertified securities. (Sec./3.2 o( ., ' %% (?ay 2777) also =no:n as the Securities .egulation Code)
Q: What are shares of stoc&? A: It is an interest or right which an owner has in the #anage#ent of the corporation and its surplus profits, and, on dissolution, in all of its assets re#aining after the pay#ent of its debt. 'he stoc.holder #ay own the share even if he is not holding a certificate of stoc. Q: What are the "istinctions bet%een shares of stoc& from certificates of stoc&? A:
SDARE O@ S(O'M Jnit of interest corporation in a 'ER(I@I'A(E O@ S(O'M %vidence of the holder=s ownership of the stoc. and of his right as a shareholder and of his extent specified therein. It is concrete and tangible It #ay be issued only if the subscription is fully paid. !. 'he situs #ay be the place where it is located or at the do#icile of the owner even though the do#icile of the owner, except when corporation is
Q: What are the specia# ru#es on re!istere" or #iste" shares? A: 1otwithstanding $ec. F3 of the &orporation &ode, under $ec. !3.1 of the $ecurities >egulation &ode, a corporation whose shares of stoc. are registered pursuant to the &ode or listed on a stoc. exchange #ay? a. If so resolved by its A9B and agreed by a shareholder, issue shares to, or record the transfer of so#e or all of its shares into the na#e of said shareholders, investors or, securities inter#ediary in the for# of uncertificated securities; b. 'he use of uncertificated securities shall be without pre udice to the rights of the securities inter#ediary subse0uently to re0uire the corporation to issue a certificate in respect of any shares recorded in its na#e; and c. If so provided in its articles of incorporation and by/laws, issue all of the shares of a particular class in the for# of uncertificated securities and sub ect to a condition that investors #ay not re0uire the corporation to issue a certificate in respect of any shares recorded in their na#e. Q: Is a stoc& certificate ne!otiab#e? A: 1o. It is regarded as 0uasi/negotiable in the sense that it #ay be transferred by endorse#ent, coupled with delivery.
It is an incorporeal intangible property
or
It #ay be issued by the corporation even if the subscription is not fully paid. $itus is generally the state where the corporation has its do#icile a. 8or purposes of taxation, situs is the state in which they are per#anently .ept regardless of the do#icile
43

Q: Wh$ is a stoc& certificate not ne!otiab#e? A: Aecause the holder thereof ta.es it without pre udice to such rights or defenses as the registered owners or transferor=s creditor #ay have under the law, except insofar as such rights or defenses are sub ect to the li#itations i#posed by the principles governing estoppel. (4e los Santos v. .e)u$lic, L-/'&', Fe$ruary 2', &%88)
Note: A sale of shares of stoc., even when coupled with endorse#ent and delivery of the covering stoc. certificates, shall not be valid, eDce)t as between the parties, until it is entered and noted upon the boo.s of the corporation and that such sale is absolutely void and hence as good as non/existent, as far as third parties and the corporation is concerned.
A: $ince certificates of stoc. are only 0uasi/ negotiable, they do not afford the sa#e protection to a holder in good faith and for value who receives the# in the course of their being negotiated, and that the ownership of the true owner would be preferred, eDce)t only when the circu#stances showed that the true owner was guilty of negligence in causing the loss. Q: @our months before his "eath. P5 assi!ne" 133 shares of stoc& re!istere" in his name in fa/or of his %ife an" his chi#"ren; (he$ then brou!ht the "ee" of assi!nment to the proper corporate officers for re!istration %ith the re=uest for the transfer in the corporation<s stoc& an" transfer boo&s of the assi!ne" shares. the cance##ation of the stoc& certificates in P5<s name. an" the issuance of ne% stoc& certificates in the names of his %ife an" his chi#"ren as the ne% o%ners; (he officers of the 'orporation "enie" the re=uest on the !roun" that another heir is contestin! the /a#i"it$ of the "ee" of assi!nment; 0a$ the 'orporation be compe##e" b$ man"amus to re!ister the shares of stoc& in the names of the assi!nees? E:p#ain brief#$; A: 5es. 'he corporation #ay be co#pelled by #anda#us to register in the shares of stoc. in the na#e of the assignee. 'he only legal li#itation i#posed by $ec. F3 of the &orporation &ode is when the &orporation holds any unpaid clai# against the shares intended to be transferred. 'he alleged clai# of another heir of @< is not sufficient to deny the issuance of new certificates of stoc. to his wife and children. It would be otherwise if the transferee=s title to the shares has no pri#a facie validity or is uncertain. Q: What is the ru#e %ith re!ar" to #ost or "estro$e" 'ertificates? A: 6hile $ec. 33 of the &orporation &ode appears to be #andatory, the sa#e ad#its of exceptions, such that a corporation #ay voluntarily issue a new certificate in lieu of the original certificate of stoc. which has been lost without co#plying with the re0uire#ents under $ec. 33 of the &orporation &ode, provided that the corporation is certain as to the real owner of the shares to who# the new certificate shall be issued. It would be an internal #atter for the corporation to find #easures in ascertaining who are the real owners of stoc. for purposes of li0uidation. It is well/settled that unless proven otherwise, the $'A of the corporation is the best evidence to establish stoc. ownership. (S9C -)inion, >anuary 2', &%%%*
Q: 0a$ a stoc&ho#"er brin! suit to compe# the corporate secretar$ to re!ister /a#i" transfer of stoc&s? (o be /a#i" an" bin"in! on the corporation an" thir" parties. is the attachment or mort!a!e of shares of stoc& re=uire" to be re!istere" in the corporationHs stoc& an" transfer boo&? A: 5es, it is the corporate secretary=s duty and obligation to register transfers of stoc.s.
Note: An attach#ent or #ortgage of shares of stoc. need not be registered in the corporations stoc. and transfer boo. inas#uch as a chattel #ortgage over shares of stoc. does a +transfer of shares, and that only a$solute trans(ers o( shares o( stoc= are re0uired to be recorded in the corporation=s stoc. and transfer boo. in order to have +force and effect as against third persons,.
(Che#)hil 9D)ort and I#)ort Cor)oration v. Court o( ,))eals, *... "os. &&2/3'-3%, 4ece#$er &2, &%%8) Q: What is the ru#e on ri!ht to issuance? A: A corporation #ay now, in the absence of provisions in their by/laws to the contrary, apply pay#ents #ade by subscribers/stoc.holders, either as? a. Full )ay#ent for the corresponding nu#ber of shares of stoc., the par value of each of which is covered by such pay#ent; or b. 6ay#ent )ro-rata to each and all the entire nu#ber of shares subscribed for. (Balta<ar v. Lingayen *ul( 9lectric 6o:er Co., Inc, L-&!23!-3', >une 37, 14F2* Q: What is the ru#e on i##e!a# transfer?
44

Q: What is the proce"ure for the issuance of ne% certificate of stoc& for certificate that %as #ost. "estro$e" or sto#en? A: 1. 'he registered owner #ust #a.e an affidavit in triplicate stating the circu#stances as to how it was lost, stolen or destroyed, nu#ber of shares represented by the certificate, serial nu#ber of the certificate, and na#e of the corporation that issued it. 'he corporate secretary shall verify the sa#e. A notice shall also be published once a wee. for 3 consecutive wee.s in a newspaper of general circulation. If after 1 year fro# the last publication, no contest has been presented or #ade against the issuance of new certificate, the old certificates shall be cancelled and new ones be issued. %xception to the 1 year period? if the registered owner files a bond or other security effective for period of 1 year, in which case, new certificate #ay be issued even before expiration of 1 year but still upon the discretion of the corporation. been presented to said corporation regarding said certificate, the right to #a.e such contest has been barred and said corporation already cancelled in its boo.s the certificate which have been lost, stolen, or destroyed and issued in lieu thereof new certificate. Q: What if there are oppositions on the issuance of ne% certificates. %hat ma$ the corporation "o? A: 'he corporation #ay file an interpleader proceeding to co#pel the parties to litigate a#ong the#selves. Q: 0a$ the corporation be sue" for the issuance of ne% certificates of stoc&? A: 1o action shall prosper against the corporation for the issuance of new certificates unless there is bad faith, fraud or negligence present. Q: When %i## the issuance of ne% certificate of stoc& in #ieu of the one #ost be suspen"e"? A: a. Q: A stoc&ho#"er c#aime" that his stoc& certificate %as #ost; After !oin! throu!h %ith the proce"ure for the issuance of #ost certificate. an" no contest %as presente" %ithin 1 $ear from the #ast pub#ication. the corporation issue" a ne% certificate of stoc& in #ieu of the suppose" #ost certificate; (he stoc&ho#"er imme"iate#$ so#" his shares an" en"orse" the rep#acement certificate to a bu$er; It turne" out that the ori!ina# certificate %as not #ost. but so#" an" en"orse" to another person; *a4 0a$ the corporation be ma"e #iab#e b$ the a!!rie/e" part$? *b4 Who %i## ha/e a better ri!ht o/er the shares. the en"orsee of the ori!ina# certificate or the en"orsee of the rep#acement certificate? A: a. 1o, the corporation cannot be #ade liable. %xcept in cases of fraud, bad faith, or negligence on the part of the corporation and its officers, no action #ay be brought against any corporation which have issued certificates of stoc. in lieu of those lost, stolen, or destroyed pursuant to the procedure prescribed by law. 'he endorsee of the replace#ent certificate has a better right to the shares. After expiration of 1 year for# he date of the last publication, and no contest has F. b. if a contest has been presented to the corporation; or if an action is pending in court regarding the ownership of the lost certificate. (Sec. 3 )ar. 2)
2.
3.
Q: What are the ob#i!ations of stoc&ho#"ers? A: 1. 2. 3. !. 2. Ciability to the corporation for unpaid subscription; (Secs. ! - 7) Ciability to the corporation for interest on unpaid subscription if so re0uired by the by/laws; (Sec. !!) Ciability to the creditors of the corporation for unpaid subscription; (Sec. !7) Ciability for watered stoc.; (Sec. !8) Ciability for dividends unlawfully paid; (Sec. /3) Ciability for failure to create corporation. (Sec. &7) 0ERGER AN) 'ONSOLI)A(ION Q: What is mer!er? A: 9ne where a corporation absorbs the other and re#ains in existence while others are dissolved. (Sec. !) Q: What is conso#i"ation?
b.
45

A: 9ne where a new corporation is created, and consolidating corporations are extinguished. (Sec. !) Q: What are the "istinctions bet%een mer!er an" conso#i"ation? A: In both #erger and consolidation, 2 or #ore corporations are involved and #erged or consolidated into one corporation. 'heir distinctions are as follows? 0er!er All of the constituent corporations involved are dissolved except one 1o new corporation is created 'he surviving corporation ac0uires all the assets, liabilities, and capital stoc. of all constituent corporations 'onso#i"ation All consolidated corporations are dissolved without exception A single new corporation e#erges All assets, liabilities, and capital stoc. of all consolidated corporations are transferred to the new corporation F. 2. corporations, or 273 of the #e#bers of a non/stoc. corporation shall be re0uired. Bissenting stoc.holders #ay exercise the right of appraisal. Aut if Aoard abandons the plan to #erge or consolidate, such right is extinguished. Any a#end#ent to the plan #ust be approved by the sa#e votes of the board #e#bers of trustees and stoc.holders or #e#bers re0uired for the original plan. After such approval, Articles of "erger or Articles of &onsolidation shall be executed by each of the constituent corporations, signed by president or K@ and certified by secretary or assistant secretary, setting forth? a. @lan of #erger or consolidation b. In stoc. corporation, the nu#ber of shares outstanding; in non/stoc., the nu#ber of #e#bers c. As to each corporation, nu#ber of shares or #e#bers voting for and against such plan, respectively 8our copies of the Articles of "erger or &onsolidation shall be sub#itted to the $%& for approval. $pecial corporations li.e ban.s, insurance co#panies, building and loan associations, etc., need the prior approval of the respective govern#ent agency concerned. If $%& is satisfied that the #erger or consolidation is legal, it shall issue the &ertificate of "erger or the &ertificate of Incorporation, as the case #ay be. If the $%& is not satisfied, it shall set a hearing, giving due notice to all the corporations concerned. (Secs. !- %)
3.
G.
Q: What is the proce"ure for mer!er or conso#i"ation? A: 1. Aoard of each corporation shall draw up a plan of #erger or consolidation, setting forth? a. 1a#es of corporations involved (constituent cor)orations) b. 'er#s and #ode of carrying it out c. $tate#ent of changes, if any, in the present articles of surviving corporation; or the articles of the new corporation to be for#ed in case of consolidation. 2. @lan for #erger or consolidation shall be approved by #a ority vote of each board of the concerned corporations at separate #eetings. 3. 'he sa#e shall be sub#itted for approval by the stoc.holders or #e#bers of each such corporation at separate corporate #eetings duly called for the purpose. 1otice should be given to all stoc.holders or #e#bers at least two (2* wee.s prior to date of #eeting, either personally or by registered #ail. !. Affir#ative vote of 273 of the outstanding capital stoc. in case of stoc. 4.
1D.
Q: When sha## the mer!er or conso#i"ation become effecti/e? A: Jpon issuance by the $%& of the certificate of #erger and consolidation. In the case of #erger or consolidation of ban.s or ban.ing institutions, building and loan associations, trust co#panies, insurance co#panies, public utilities, educational institutions and other special corporations governed by special laws, the favorable reco##endation of the appropriate govern#ent agency shall first be obtained. Q: (%o corporations a!ree" to mer!e; (he$ then e:ecute" an a!reement specif$in! the sur/i/in! corporation an" the absorbe" corporation; Cn"er the a!reement of mer!er "ate" No/ember G. 122-. the sur/i/in! corporation ac=uire" a## the ri!hts. properties an" #iabi#ities of the absorbe" corporation;
46

What %ou#" happen to the absorbe" corporation? 0ust the absorbe" corporation un"erta&e "isso#ution an" the %in"in! up proce"ures? E:p#ain $our ans%er; A: 1o. 'here is no need for the absorbed corpo/ ration to underta.e dissolution and winding up procedure. As a result of the #erger, the absorbed corporation is auto#atically dissolved and its assets and liabilities are ac0uired and assu#ed by the surviving corporation. Pen"in! the appro/a# of the mer!er b$ the Securities an" E:chan!e 'ommission. ma$ the sur/i/in! corporation a#rea"$ institute suits to co##ect a## recei/ab#es "ue to the absorbe" corporation from its customers? E:p#ain $our ans%er; A: 1o. 'he #erger does not beco#e effective until and unless approved by the $ecurities and %xchange &o##ission. Aefore the approval by the $%& of the #erger, the surviving corporation has no legal personality with respect to receivables due to the absorbed corporation. A case %as fi#e" a!ainst a customer to co##ect on the promissor$ note issue" b$ him after the "ate of the mer!er a!reement; (he customer raise" the "efense that %hi#e the recei/ab#es as of the "ate of the mer!er a!reement %ere transferre" to the sur/i/in! corporation. those recei/ab#es %hich %ere create" after the mer!er a!reement remaine" to be o%ne" b$ the absorbe" corporation; (hese recei/ab#es %ou#" be "istribute" to the stoc&ho#"ers conformab#$ %ith the "isso#ution an" #i=ui"ation proce"ures un"er the Ne% 'orporation 'o"e? )iscuss the merits of this ar!ument; A: 6hether the receivable was incurred by the absorbed corporation before or after the #erger agree#ent, or before or after the approval thereof by the $%&, the said receivable would still belong to the surviving corporation under $ec.GD of the &orporation &ode which does not #a.e any distinction as to the assets and liabilities of the absorbed corporation that the surviving corporation would inherit. *1222 +ar Question4 Q: What are the #imitations on corporate combinations? A: 1. $hould not create #onopolies 2. $hould not eli#inate free and healthy co#petition 3. $hould not create illegal co#binations such as ban.s co#bined with insurance co#panies Q: What are conso#i"ation? A: 1. Trans(er o( Legal Title to cor)orate )ro)erty / Bissolution results in the transfer of legal title to properties in the stoc.holder who beco#e co/owners thereof; -n Continuation o( Cor)orate Business 'he corporation ceases as a body corporate to continue the business for which it was established; Creation o( a "e: Cor)oration - 'he stoc.holders are not prevented fro# conveying their respective shareholdings toward the creation of a new corporation to continue the business of the old; .eincor)oration o( 4issolved Cor)oration/ 'hough dissolved a corporation cannot be revived, those interested #ay reincorporate by re re/filing the new Articles of Incorporation and by/laws; Continuation o( a Body Cor)oration - 'he corporation continues as a body corporate for 3 years for purposes of winding up or li0uidation; Cessation o( Cor)orate 9Distence (or ,ll 6ur)oses - Jpon the expiration of the 3 year/winding up period, the corporation ceases to exist for all purposes. the effects of mer!er or
2.
3.
!.
2.
F.
Q: What if there are properties un"er the absorbe" corporationHs name an" the sur/i/in! corporation %ants to se## the same. is there a nee" to obtain a ne% tit#e or si!n a "ee" of sa#e bet%een the t%o corporations? A: 1o. 'he surviving corporation ac0uires the property without need of further act. )ence, it #ay sell said property even without obtaining a new title or signing a deed of sale. Q: What happens to the emp#o$ees of the absorbe" corporation? Is the sur/i/in! corporation "ut$?boun" to absorb the formerHs emp#o$ees? A: 5es, because e#ploy#ent agree#ents or contracts are liabilities. All liabilities of the
47

absorbed corporation are ac0uired by the surviving corporation. )owever, this is without being sub ect to giving the# the sa#e positions. Q: What are the t$pes of ac=uisitions an" transfers? A: 1. ,ssets--nly Trans(ers / 'he purchaser is only interested in the raw assets and properties of the business. 'he transferee is not liable for the debts and liabilities of his transferor, eDce)t where the transferee expressly or i#pliedly agrees to assu#e such debts. 2. Business-9nter)rise Trans(ers / 'he purchaser=s interest goes beyond the assets of the business enterprise. 'he pri#ary interest is essentially to obtain the earning capability of the venture. 'he transferee is liable for the debts and liabilities of his transferor. 90uity Trans(ers / 'he transferee is not liable for the debts and liabilities of the transferor, except where the transferee expressly or i#pliedly agreed otherwise. 6hat the purchaser has actually purchased is the ability to elect the #e#bers of the board of the corporation who run the business. 1. Aoluntary a. 6here no creditors are affected 6rocedureG 1. "a ority vote of the board of directors or trustees; and 2. >esolution duly adopted by the affir#ative vote of the stoc.holders owning at least 273 of the outstanding capital stoc. or at least 273 of the #e#bers at a #eeting duly called for that purpose. 3. A copy of the resolution authorizing the dissolution shall be certified by a #a ority of the board of directors or trustees and countersigned by the secretary of the corporation. !. $uch copy shall be filed with $%&. (Sec. &&') b. 6here creditors are affected 6rocedureG 1. 8iling a petition for dissolution with the $%& 2. $uch petition #ust be signed by #a ority of the board of directors or trustees 3. "ust also be verified by the president or secretary or one of its directors !. 'he dissolution was resolved upon by the affir#ative vote of the stoc.holders representing at least 273 of the outstanding capital stoc. or at least 273 of the #e#bers at a #eeting duly called for that purpose. 2. If there is no sufficient ob ection, and the #aterial allegations of the petition are true, a udg#ent shall be rendered dissolving the corporation and directing such disposition of its assets as ustice re0uires, and #ay appoint a receiver to collect such assets and pay the debts of the corporation. (Sec. &&%) Ay shortening the corporate ter# / A voluntary dissolution #ay be effected by a#ending the A9I to shorten its corporate ter# pursuant to the provisions of the &ode. A copy of the a#ended A9I shall be sub#itted to the $%&. Jpon approval of the a#ended A9I of the expiration of the shortened ter#, the corporation shall be dee#ed dissolved without any further
3.
Q: What is a spin?off? A: It has the opposite effect of #erger or consolidation, whereby a depart#ent, division or portions of the corporate business enterprise is sold/off or assigned into a new corporation that will arise by the process which #ay constitute it into a subsidiary of the original corporation. 'he validity of spin/offs depends upon valid business cause and good faith. (San ?iguel Cor). 9#)loyees 5nion-6T*B- v. Con(esor, *. .. "o. &&&2!2, Se)te#$er &%, &%%!) LIQCI)A(ION an" )ISSOLC(ION Q: What is meant b$ "isso#ution? c. A: It is the extinguish#ent of the franchise of a corporation and the ter#ination of its corporate existence. Q: What are the mo"es of "isso#ution of a corporation? A:
48

proceedings, sub ect to the provisions of the &ode on li0uidation. As an additional re0uire#ent, the $%& re0uires to sub#it the final audited financial state#ent not older than FD days before the application for shortening the corporate ter#. d. In case of a corporation sole, by sub#itting to the $%& for approval, a verified declaration of dissolution (Sec.&&8). 'his #erely needs the affidavit of the presiding elder. 1o need for a board resolution. Ay #erger or consolidation, whereby the constituent corporations auto#atically cease upon issuance by the $%& of the certificate of #erger or consolidation, except the surviving or consolidated corporation which shall continue to exist. (Secs. % and '7) %xpiration of the corporate ter# (Sec. &&). 1. Koluntary Bissolution where no creditors are affected. 'his Is done by a #a ority vote of the directors, and resolution of at least 273 vote of stoc.holders, sub#itted to the $ecurities and %xchange &o##ission. Koluntary dissolution where creditors are affected. 'his Is done by a petition for dissolution which #ust be filed with the $ecurities and %xchange &o##ission, signed by a #a ority of the #e#bers of the board of directors, verified by the president or secretary, and upon affir#ative vote of stoc.holders representing at least 273 of the outstanding capital stoc.. Bissolution by shortening of the corporate ter#. 'his is done by a#end#ent of the articles of incorporation. *A33A +ar Question4
2.
3.
e.
Q: What are the effects of "isso#ution of a corporation? A: 1. It shall be continued as a corporate body for 3 years after dissolution, for the purpose of li0uidation but not for continuing the business for which it was established. At any ti#e during said 3 years, the corporation is authorized and e#powered to convey all of its properties to trustees for the benefit of stoc.holders, #e#bers, creditors, and other interested persons. After conveyance of corporate property, all interests the corporation had in the said property ter#inates, and legal title shall vest in the transferee. Jpon winding up of the corporate affairs, any asset distributable to any creditor or stoc.holder or #e#ber who is un.nown or cannot be found shall be escheated to the city or #unicipality where such assets are located. Bistribution of its assets or property shall be done only after pay#ent of all its debts and liabilities. (Sec. &22)
f.
2. Involuntary a. 8ailure to organize and co##ence transaction of its business within 2 years fro# date of incorporation. (Sec. 22) b. c. &ontinuous inoperation for a period of at least 2 years.
2.
3. 8ailure to file by/laws within the re0uired period but, according to a $%& 9pinion, $%& will give it the opportunity to explain such failure an not auto#atically dissolve the corporation. Ay order of the $%& upon a verified petition and after proper notice and hearing on the ground of serious #isrepresentation as to what the corporation can do or is doing to the great pre udice of or da#age to the general public. >evocation or forfeiture of the franchise or certificate of incorporation due to its #isuse or non/use pursuant to 0uo warranto proceedings filed by the $olicitor Eeneral.
!.
d.
2.
e.
Q: Name three *J4 metho"s b$ %hich a stoc& corporation ma$ be /o#untari#$ "isso#/e"; E:p#ain each metho"; A:
Q: 567 'orporation entere" into a contract of #ease %ith A+'. Inc;. o/er a piece of rea# estate for a term of A3 $ears. rene%ab#e for another A3 $ears. pro/i"e" that 567<s corporate term is e:ten"e" in accor"ance %ith #a%; @our $ears after the term of 567 'orporation e:pire". but sti## %ithin the perio" a##o%e" b$ the #ease contract for the e:tension of the #ease perio". 567 'orp; notifie" A+'. Inc;. that it is e:ercisin! the option to e:ten" the #ease; A+'. Inc;. ob>ecte" to the propose" e:tension. ar!uin! that since the corporate #ife of 567
49

'orp; ha" e:pire". it cou#" no #on!er opt to rene% the #ease; 567 'orp; countere" that %ithstan"in! the #apse of its corporate term it sti## has the ri!ht to rene% the #ease because no =uo %arranto procee"in!s for in/o#untar$ "isso#ution of 567 'orp; has been institute" b$ the Office of the So#icitor Genera#; Is the contention of 567 'orp; meritorious? E:p#ain brief#$; A: <5T &orporation=s contention is not #eritorious based on the ruling of the $upre#e &ourt in @1A v. &8I of >izal, 2D4 $&>A. <5T &orp. was dissolved ipso facto upon the expiration of its original ter#. It ceased to be a body corporate for the purpose of continuing the business for which it was organized, except only for purposes connected with its winding up or li0uidation. %xtending the lease is not an act to wind up or litigate <5T=s affairs. It is contrary to the idea of winding up the affairs of the corporation. *A33K +ar +uestion4 Q: What is #i=ui"ation? A: It is the process by which all the assets of the corporation are converted into li0uid assets (cash* in order to facilitate the pay#ent of obligations to creditors, and the re#aining balance if any is to be distributed to the stoc.holders. Q: What are the mo"es of #i=ui"ation? A: 1. 2. 3. Ci0uidation by a duly appointed receiver; (Sec. &&%) Ci0uidation by the corporation itself or its board of directors; (Sec. &22) Ci0uidation by trustees to who# the assets of the corporation had been conveyed. (Sec. &22)F (Board o( Li0uidators v. @ala:, L-&''78, ,ugust &/, &%! ) pursue" be$on" 0a$ J3. 122O. %hat %ou#" ha/e been $our a"/ice? A: 'he cases can be pursued even beyond "ay 3D. 1443, the last day of the corporate existence of E)Q &orporation. 'he &orporation is not actually dissolved upon the expiration of its corporate ter#. 'here is still the period for li0uidation or winding up. *A333 +ar Question4 Q: B5B 'orporation shortene" its corporate #ife b$ amen"in! its artic#es of incorporation; It has no "ebts but o%ns a prime propert$ #ocate" in Que8on 'it$; Do% %ou#" the sai" propert$ be #i=ui"ate" amon! the fi/e stoc&ho#"ers of sai" corporation? )iscuss t%o metho"s of #i=ui"ation; A: 'he pri#e property of ;<; &orporation can be li0uidated a#ong the five stoc.holders after the property has been conveyed by the corporation to the five stoc.holders, by dividing or partitioning it a#ong the#selves in any two of the following ways? 1. Ay physical division or partition based on the proportion of the values of their stoc.holdings; or 2. Ay selling the property to a third person and dividing the proceeds a#ong the five stoc.holders in proportion to their stoc.holdings; or 3. after the deter#ination of the value of the property, by assigning or transferring the property to one stoc.holder with the obligation on the part of said stoc.holder to pay the other four stoc.holders the a#ount7s in proportion to the value of the stoc.holding of each. *A331 +ar Question4 Q: What are the conse=uences if the #i=ui"ation is not terminate" %ithin the J?$ear perio"? A: 1. @ending suits for or against the corporation which were initiated prior to the expiration of the 3/year period shall continue. (*elano v. C,, L-3%787, Fe$ruary 2/, &%'&) 2. 1ew actions #ay still be filed against the trustee of the corporation even after the expiration of the 3/year period but before the affairs of said corporation have been finally li0uidated or settled by the trustee . (.e)u$lic v. ?ars#an, Co. // SC., /37) 3. A corporation which has a pending action which cannot be finished within the 3/year period is authorized to convey all its property, including pending choses of action,
Q: (he Securities an" E:chan!e 'ommission appro/e" the amen"ment of the artic#es of incorporation of GDQ 'orporation shortenin! its corporate #ife to on#$ AG $ears in accor"ance %ith Sec;1A3 of the 'orporation 'o"e; As shortene". the corporation continue" its business operations unti# 0a$ J3. 122O. the #ast "a$ of its corporate e:istence; Prior to sai" "ate. there %ere a number of pen"in! ci/i# actions. of /ar$in! nature but most#$ mone$ c#aims fi#e" b$ cre"itors. none of %hich %as e:pecte" to be comp#ete" or reso#/e" %ithin fi/e $ears from 0a$ J3. 122O; If the cre"itors ha" sou!ht $our professiona# he#p at that time about %hether or not their cases cou#" be
50

of a trustee to enable it to prosecute and defend suits by or against the corporation beyond the 3/year period. 6here no trustee is appointed, its counsel who prosecuted and represented the interest of the corporation #ay be considered as trustee of said corporation, at least with respect to the #atter in litigation (*elano v. C,, L-3%787, Fe$ruary 2/, &%'&). 'he directors #ay also be per#itted to continue as trustees to co#plete the li0uidation. (Cle#ente v. C, , *... "o. '2/7 , ?arch 2 , &%%8) !. 'he creditors of the corporation who were not paid #ay follow the property of the corporation that #ay have passed to its stoc.holders unless barred by prescription or laches or disposition of said property in favor of a purchaser in good faith. Q: 0a$ the corporation. throu!h its presi"ent con"one pena#ties an" char!es after it ha" been p#ace" un"er recei/ership? A: 1o. 'he appoint#ent of receiver operates to suspend the authority of a corporation and of its directors and officers over its property and effects, such authority being reposed in the receiver. (Ma# v. C,, *... "o. &7/ 2! Fe$ruary &&, &%%%) @OREIGN 'ORPORA(ION Q: What is a forei!n corporation? A: It is a corporation for#ed, organized or existing under any law other than those of the @hilippines, and whose laws allow 8ilipino citizens and corporation to do business in its own country or state. (Sec. &23) Q: 0a$ a forei!n corporation sue in the Phi#ippines? A: 1o. 'he foreign corporation transacting business in the @hilippines without a license to do business shall not be per#itted to #aintain or intervene in any action, suit or proceeding in any court or ad#inistrative agency. Q: 0a$ a forei!n corporation be sue" in the Phi#ippines? A: 5es. Any foreign corporation transacting business in the @hilippines whether or not with a license, #ay be sued against7before @hilippine courts or ad#inistrative tribunals on any valid cause of action recognized under @hilippines laws. (Boctrine of Quasi/%stoppel Ay Acceptance of Aenefits* Q: What constitutes P"oin! businessQ in the Phi#ippines for forei!n corporations? A: Jnder the Continuity Test, doing business i#plies a continuity of co##ercial dealings and arrange#ents, and conte#plates to so#e extent the perfor#ance of acts or wor.s or the exercise of so#e functions nor#ally incident to and in progressive prosecution of, the purpose and ob ect of its organization. Jnder the Su$stance Test, a foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was organized. Q: )oes an Piso#ate" transactionQ b$ a forei!n corporation =ua#if$ as P"oin! businessQ in the Phi#ippines? A: It depends. If a single or isolated transaction is incidental and casual transaction, it cannot 0ualify as doing business, since it lac.s the ele#ent of continuity. )owever, where a single or isolated transaction is not #erely incidental or casual but indicates the foreign corporation=s intention to do business in the @hilippines, said single act or transaction constitutes +doing business, in the @hilippines. Q: What are the re=uisites for obtainin! #icense to "o business? A: 1. 2. 'he foreign corporation should file a verified application containing and together with the following? Besignated resident agent (who will receive su##ons and notices for the corporation; a special power of attorney should also be sub#itted for such purpose; An agree#ent that if it ceases to transact business or if there is no #ore resident agent, su##ons shall then be served through $%&; 9ath of >eciprocity. &ertificate under 9ath of the authorized official of the foreign corporation=s country that allows 8ilipino citizens and corporations to do business in said country. 6ithin FD days fro# issuance of license, the corporation should deposit at least @1DD, DDD.DD (cash, property or bond* for the benefit of creditors sub ect to further deposit every six #onths. the re=uirements for c#ose
3.
!.
2.
Q: What are corporations?
51

A: 1. 2. 'he Articles of Incorporation #ust state that the nu#ber of stoc.holders shall not exceed 2D; 'he Articles of Incorporation #ust contain restriction on the transfer of issued stoc.s (which #ust appear in the Articles of Incorporation, Ay/laws and &ertificate of $toc.*. >estrictions on the transfer #ust not be #ore than onerous than granting the existing $) or corporation the option to purchase the shares; 'he stoc.s cannot be listed in the stoc. exchange nor publicly offered. 2. c. 'he stoc.holders are liable for tort. Bespite the presence of the re0uisites, the corporation shall not be dee#ed a close corporation if at least 273 of the voting stoc.s or voting rights belong to a corporation which is not a close corporation. NON?S(O'M 'ORPORA(ION
J;
Q: What is a non?stoc& corporation? A: It is a corporation organized pri#arily for charitable, religious, educational, fraternal, literary, trade, industry and agriculture cha#bers or any co#bination thereof. It cannot be organized for political purposes. 'he inco#e of which cannot be distributed as dividends to its #e#bers, trustees or officers. Q: What are the "istinctions bet%een a stoc& corporation an" a non?stoc& corporation? A:
S(O'M 9rganized for profit Eoverned by A9B "e#bership is transferable >ight to resort to cu#ulative voting A9B? not #ore than 12 @lace of #eeting? within the city or #unicipality where the place of business is located 'er# of A9B? 1 year >ight to vote can be denied except in cases stated in $ec. FD Assets are distributed according to interest &apital stoc. is divided into shares 9fficers are elected directly by A9B $toc.holders #ay vote personally or by proxy Assets are distributed to the stoc.holders after pay#ent of corporate obligations NON?S(O'M 1ot organized for profit Eoverned by A9' "e#bership is non/ transferable. It Is personal. It #ust be provided in the by/laws A9'? #ore than 12 but divisible by 3 Any place outside the place of business but #ust be within the @hilippines 'er# of A9'? 3 years but on a staggered basis >ight to vote #ay be denied as provided in the by/laws Assets are distributed as provided by law 1o capital stoc. divided into shares 9fficers are elected by the #e#bers "e#bers #ay vote by e#ail Assets are distributed to #e#bers provided? a. 9bligations and duties were paid. b. @roperties received but
3.
Note: 'he corporation is not a close even if the shares belong to less than twenty if not all the re0uisites are present. (San >uan Structural and Steel Fa$ricators, Inc. v. Court o( ,))eals, *... "o. &2%/8%, Se)te#$er 2%, &%%')
'LOSE 'ORPORA(ION Q: What cannot be a c#ose corporation? A: 1. 2. 3. !. 2. F. 3. G. "ining co#panies; 9il co#panies; $toc. exchanges; Aan.s; Insurance co#panies @ublic utility %ducational institutions 9ther corporation declared to be vested with public interest.
Q: What is the reme"$ in case of "ea"#oc&s in a c#ose corporation? A: 'he $%& #ay be as.ed to intervene and the $%& #ay perfor# such actions that #ay be necessary under the circu#stances including the appoint#ent of a provisional director who, as an i#partial person will have all the powers of a duly elected director (not a receiver*. Q: What are the characteristics of a c#ose corporation? A: 1. 'he stoc.holders the#selves can directly #anage the corporation and perfor# the functions of directors without need of election a. 6hen they #anage, stoc.holders are liable as directors; b. 'here is no need to call a #eeting to elect directors;
52

burdened with li#itation that it can=t be dispensed unless these li#itations were co#plied with c. @lan of dissolution #ust be approved by the #a ority vote of A9' and 273 #e#bers "e#bers are called +#e#bers, 'er#ination? governed by the A9I
3.
organize a stoc. corporation. )owever, there is a resulting new corporation. (S9C -)inion, ?ay &3, &%%2) A stoc. corporation #ay be converted into a non/stoc. corporation by #ere a#end#ent provided all the re0uire#ents are co#plied with. Its rights and liabilities will re#ain.
Q: What is the or"er of "istribution of assets on "isso#ution of non?stoc& corporations? A: 1. 2. 3. All its creditors shall be paid; Assets held sub ect to return on dissolution, shall be delivered bac. to their givers; Assets held for charitable, religious purposes, etc., without condition for their return on dissolution, shall be conveyed to one or #ore organizations engaged in si#ilar activities as dissolved corporation; and All other assets shall be distributed to #e#bers, as provided for in the Articles or Ay/laws. (Sec. %/)
"e#bers are called +corporators, 'er#ination? according to stoc.holders
Q: What the ri!hts of members? A: a. .ight to vote - A #e#ber is entitled to one (1* vote. )owever, such right #ay be broadened, li#ited or denies in the Articles of Incorporation or A5/Caws. ($ec.G4* thus, the A5/laws of a non/stoc. corporation #ay provide for the desired voting rights of #e#bers, including the nu#ber of votes. (S9C -)inion, -cto$er &7, &%'%) .ight to trans(er #e#$ershi) / As a general rule, a #e#ber cannot transfer his #e#bership (and the rights arising therefro#* in a non stoc. corporation. )owever, by way of exception, the Articles on Incorporation or A5/laws #ay provide for their transferability. (Sec. %7)
!.
Q: 'an a non?stoc& corporation offset unuse" contributions of members a!ainst the ba#ance of recei/ab#es from the same members? A: 1o. 'he unused contributions of #e#bers cannot be offset against the balance of receivables because this would a#ount to distribution of the capital of the corporation. "e#bers of 1on/stoc. &orporation are not entitled to distribution of capital. 'hey are only entitled to distribution of capital upon dissolution when it is provided for in the Articles of Incorporation or by/laws. (S9C -)inion, "ove#$er 2 , &%'8) Q: What is the nationa#it$ of a corporation so#e? A: A corporation sole does not have any nationality but for purposes of applying nationalization laws, nationality is deter#ined not by the nationality of its but by the nationality of its #e#bers, constituting the sect in the @hilippines. 'hus, the >o#an &atholic &hurch can ac0uire lands in the @hilippines even if it is headed by the @ope. (.o#an Catholic ,)ostolic Church v. Land .egistration Co##ission, L-'/8&, 4ece#$er 27, &%8 )
Note: 'he opinion of the $%& is that for registered corporation sole, it can ac0uire lands if its #e#bers constitute at least FDI 8ilipinos (S9C -)inion, ,ugust ', &%%/)
b.
Q: What are the ru#es re!ar"in! con/ersion? A: 1. A non/stoc. corporation cannot be converted into a stoc. corporation through #ere a#end#ent of its Article of Incorporation. 'his would violate $ec.G3 which prohibits distribution of inco#e as dividends to #e#bers. Eiving the #e#bers shares is tanta#ount to distribution of its assets or inco#e. ( S9C -)inion, ?arch 27, &%%8) A non/stoc. corporation can be converted into a stoc. corporation only if the #e#bers dissolve it first and then
2.
53

Q: Do% is a corporation so#e "isso#/e"? A: Ay filing a verified declaration of dissolution stating? 1. 'he na#e of the corporation; 2. >eason for dissolution; 3. Authorization for the dissolution by the particular religious deno#ination, sect or church; !. 1a#es and addressed of the persons who will supervise the dissolution and winding up.
54

Orporation ODE OF THE Hilippines: General Provisions

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CORPORATION CODE OF THE PHILIPPINES

'ORPORA(ION 'O)E *+P ,-. effecti/e 0a$ 1. 12-34

Q: Are corporate propert$ stoc&ho#"ers or members?

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

Note: 8raud is not an ele#ent in these cases.

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

Q: What are the "istinctions partnership an" corporation?

CORPORATION CODE OF THE PHILIPPINES

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

Q: What are the "istinctions bet%een >oint account an" partnership? A:

CORPORATION CODE OF THE PHILIPPINES

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

Q: What are the "istinctions corporators an" incorporators? A:

CORPORATION CODE OF THE PHILIPPINES

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

IN'ORPORA(ION AN) ORGANI7A(ION O@ PRIVA(E 'ORPORA(ION

Q: What are the #imitations on e:tension of corporate term?

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

1. 'he proposed na#e is identical or

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

B. Trustee 1. "ust be a #e#ber of the non/stoc. corporation.

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

5PN: If A9I or the by/laws provide for a greater nu#ber.

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

Q: Do% are "irectors compensate"? A:

CORPORATION CODE OF THE PHILIPPINES

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

Q: 'an a corporation %ith shareho#"in!s ac=uire rea# propert$?

Q: 'an a !uarantor? A: GR: 1o.

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

office with postage prepaid, served personally. (Sec. /7)

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

Q: When %i## +O)I+O( meetin!s be he#"? A:

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil

UST GOLDEN NOTES 2009

CORPORATION CODE OF THE PHILIPPINES

UNIVERSITY OF SANTO TOMAS Facultad de Derecho Civil