CORPO REVIEWER MIDTERMS

MEETINGS
SEC. 49 Kinds of meetings - meetings of directors. Trustees , stockholders or
members may be REGULAR OR SPECIAL.
SEC. 50 REGULAR AND SPECIAL meeting of STOCKHOLDERS or MEMBERS
1. REGULAR MEETINGS of Stockholders and Members
- held annually on a date fixed in the by-laws
- if not so fixed, on any date in April of every year as determined by the Board of
Directors or
Trustees
- written notice of regular meetings shall be sent AT LEAST 2 WEEKS prior to
the meeting, unless
a different period is required by the by laws
Regular meeting is principally for the purpose of electing another set of
directors or trustees
2. SPECIAL MEETINGS OF STOCKHOLDERS OR MEMBERS
- Held at any time deemed necessary as provided in the bylaws
- Provided, that AT LEAST 1WEEK written notice shall be sent prior, unless
otherwise provided in the by laws
Notice of any meeting MAY BE WAIVED, expressly or impliedly, by any
stockholder or member
For any cause, SEC, upon petition of a stockholder or member on showing of
good cause, may issue an order directing him to call for a meeting.
MEETINGS OF DIRECTORS OR TRUSTEES
1. REGULAR those held by the board MONTHLY, unless the by laws provide
otherwise
2. SPECIAL those held by the board AT ANY TIME UPON THE CALL OF THE
PRESIDENT or as provided in the by-laws
NECESSITY OF MEETINGS
The corporate powers are vested in the board of directors or stockholders AS
A BODY AND NOT AS INDIVIDUALS.
They can act only in meetings properly convened or assembled.
GR: Where the law expressly requires a meeting for a particular transaction, any
action taken by the corporation WITHOUT A MEETING PROPERLY HELD FOR SUCH
PURPOSE IS VOID.
EXCEPTIONS:
1. Amendment of Articles of Incorporation by majority vote of the BD and the
vote or writtem assent of the 2/3 of the stockholders representing at least 2/3
of the outstanding capital stock
2. Unanimous act or agreement of its stockholders

3. In any cases mentioned in Art. 101, any action taken by the directors of a
close corporation without a meeting SHALL BE DEEMED VALID, unless
otherwise provided in the by laws

REQUISITES FOR A VALID MEETING OF STOCKHOLDERS/ MEMBERS

1.
2.
3.
4.
5.

It must be held in a proper place

It must be held at the stated date and appointed time or reasonable time
It must be called by the proper person
There must be previous notice
There must be a quorum

Pres. Decree 902-A, SEC. 6 The SEC has the power to COMPEL THE
OFFICERS OR ANY CORPORATION OR ASSOCIATION REGISTERED BY IT TO
CALL MEETINGS OF STOCKHOLDERS OR MEMBERS THEREOF, under its
supervision

If the meeting is held at an unauthorized place or without proper notice and

not all stockholders are present, THOSE WHO HAVE RIGHT TO COMPLAIN MAY
TAKE STEPS to set aside any action taken at such meetings, even though a
majority of the stockholders or members are present, IN THE ABSENCE OF
WAIVER, ESTOPPEL OR RATIFICATION

SEC. 51 PLACE & TIME OF MEETINGS

STOCKHOLDERS OR MEMBERS shall be held in the CITY OR MUNICIPALITY where
the principal office is
located or if practicable in the principal office of the corporation.

Notice of meetings shall be in WRITING and the TIME AND PLACE thereof shall
be stated therein.
All proceedings had and any business transacted, if within the authority of
the corporation, SHALL BE VALID EVEN IF THE MEETING BE IMPROPERLY HELD
OR CALLED, PROVIDED, all the stockholders are present or duly
represented at the meeting.
The proper place for the holding of stockholders meeting as provided in Sec.
51 IS MANDATORY. The by-laws CANNOT PROVIDE OTHERWISE, EXCEPT by
SEC. 93 with respect to meetings of members of non-stock corporation (at
any place even outside the place where the principal office of the
corp, with date and time and within the Phils.)
DIRECTORS OR TRUSTEES MEETINGS
May be held at ant pace fixed in the by-laws EVEN BEYOND THE BOUNDS OF
THE STATE where the corporation exist.
The directors and Trustees ARE NOT A CORPORATE BODY; they are, when
acting as a board, BUT AGENTS OF THE CORPORATION.

Sec. 51 Metro Manila shall, for purposes of this section, be considered A

CITY OR MUNICIPALITY
EX.) X Corporation City or Municipality Principal Office is at MAKATI, METRO MANILA
Principal Office is located at 1234 Ayala Avenue, Makati Metro Manila

Stockholders meeting may be held ANYWHERE IN METRO MANILA

But if PRACTICABLE, AT 1234 Ayala Avenue, Makati metro manila.
Failure to comply or observe the proper place for holding stockholders
meeting WILL NOT RENDER THE MEETING ILLEGAL, IF ALL THE
STOCKHOLDERS OR MEMBERS ARE PRESENT OR DULY REPRESENTED AT THE
MEETING.
Regular meetings should be held at the APPOINTED TIME, or if not then
held, AT A REASONABLE TIME thereafter
Special Meetings may be held at REASONABLE TIME.

PROPER PERSON TO CALL MEETING

- Exercised by the person who has the power to call the meeting.
1. Person designated by the by-laws have authority to call stockholders or
members meeting
2. In the absence of such provision in by-laws, the meeting may be called by a
director or trustee or by an officer entrusted with the management of
corporation
3. Under Sec. 50, a stockholder or member may make the call on order of the
SEC, wherever for any cause, there is no person authorized to call a meeting.
- This applies only where there is no person authorized to call or the officers
authorized fail or refuse to call a meeting.
4. The special meeting for the removal of directors or trustees may be
called by the secretary of the corporation or by a stockholder as
provided by Sec. 28.

As to regular meetings, NO NOTICE NEED BE GIVEN OTHER THAN THAT

CONTAINED IN THE BY LAWS when the time and place of such meeting is
specially designated therein.
But if the meeting is a special one, NOTICE MUST BE GIVEN.
Whether regular or special, notice must be given when required by the by
laws
The corporate by-laws GOVERN THE PROCEDURE OF SENDING NOTICES OF
MEETINGS.
If the by-laws is silent, the manner prescribed in sec. 50 shall be followed.

STATEMENT AND PURPOSE OF MEETING (READ P. 485)

- The objection that NO NOTICE WAS GIVEN or that the notice given was
defective, CANNOT BE RAISED BY THIRD PERSONS WHO HAVE NOT BEEN
INJURED.
REQUISITES OF NOTICE OF MEETING (READ P. 486)

The notice must comply with any other requriements prescribed by the law or
by laws
1. Sec. 77 requires that the notice of meeting for the approval of merger or
consolidation, SHALL STATE THE PURPOSE OF THE MEETING AND SHALL
INCLUDE A SUMMARY OF THE PLAN OF MERGER OR CONSOLIDATION
2. SEC. 118 prescribes the the notice of meeting for VOLUNTARY DISSOLUTION,
shall be made by publication, in addition to written notice, which shall be sent
by registered mail or personal delivery.
A substantial compliance as to notice will be sufficient
A special meeting may NOT CONSIDER BUSINESS OTHER THAN THOSE LISTED
in the notice of meetings, UNLESS THERE IS UNANIMOUS WAIVER.
FAILURE TO COMPLY WITH REQUISITES FOR MEETING

Under Sec. 51, all proceedings had and any business transacted at any
meeting of the stockholders SHALL BE VALID, EVEN IF THE MEETING BE
IMPROPERLY HELD OR CALLED provided the two requisites are present:

1. That the proceedings had and the business transacted are within the power
or authority of the corporation, that is, THEY ARE NOT ULTRA VIRES ACT
2. That all the stockholders or members of the corporation are present or duly
represented in the meeting.
Without signature of the secretery of the meeting, an alleged minute taken
by a mere clerk has neither probative value nor credibility.
SEC. 52 QUORUM
- Consist of the stockholders representing a majority of the outstanding capital
stock or a majority of the members in case of non-stock corp.
- In the absence of the quorum, no action can be taken except to adjourn.
- Only those who are actual, living members with voting rights shall be counted
in determining the existence of a quorum during members meeting. DEAD
MEMBERS SHALL NOT BE COUNTED
EFFECT OF DEATH OF A STOCKHOLDER
- Shareholders may generally transfer their shares.
- On the death of the shareholder, the executor or administrator duly
appointed by the court is vested with the legal title to the stock and entitled
to vote it.
- For NON-STOCK CORP membership and all rights are NOT TRANSFERRABLE
since it is PERSONAL.
POSTPONEMENT OF STOCKHOLDERS OR MEMBERS ANNUAL MEETING
GR : Where the date of annual meeting is fixed in the by-laws, the board of
directors/ trustees CANNOT CHANGE THE DATE, so as to lengthen their term of
office.
EXCEPTION: 1. Where the annual meeting cannot be held on the date fixed for some
VALID REASON. (EX. ERRONEOUS

In such case- postponement is allowed, provided proper notice of the change

of date is given to the member

PAYMENT OF COMPENSATION FOR ATTENDANCE

-

Stockholders exercise of the right as members when he attends a corporate

meeting, hence, they have no compensation
Sec. 47 (5) od he Corporation code authorizes by-laws to provide
compensation directors or trustees, officers and employees
Stockholders DO NOT RENDER SERVICE, but exercise rights personal to
themselves in the corp.

MATTERS IN WHICH THE LAW REQUIRES MINIMUM VOTE (READ P. 491)

PLACE AND TIME OF MEETINGS OF DIRECTORA OR TRUSTEES
-

Regular or special meetings may be held ANYWHERE IN OR OUTSIDE THE

PHILS., unless the by-laws provide otherwise.
Regular meetings shall be held MONTHLY
Special Meetings may be held AT ANY TIME, upon the call of the President or
as provided in the by-laws
Notice of every meeting whether regular or special, stating the date, time
and place must be sent to every director or trustee AT LEAST ONE DAY PRIOR
TO THE SCHEDULED MEETING
NOTICE of regular meeting NEED NOT BE GIVEN if the articles of incorporation
or by-laws specify the time of the meeting (except if it is to be held at
another place)
A meeting held in the absence of some of the directors and without notice to
them is ILLEGAL, and the action at such meeting, although by a majority of
the directors, IS INVALID, unless subsequently RATIFFIED OR WAIVED,
EXPRESSLY OR IMPLIEDLY by the absent directors, or unless RIGHTS HAVE
BEEN ACQUIRED BY INNOCENT 3RD PERSON, as against whom the corporation
must be held ESTOPPED to set up the failure to observe formalities.

RA 8792 Electronics Commerce Act allows televideo conferencing

SEC. 54 The PRESIDENT shall preside at all meetings of the directors or trustees as
well as of the stockholders or members, unless the by laws provide otherwise.
- The by-laws may provide that the chairman, instead of the President shall
preside at board meetings.
-

Stockholder or member in a temporary capacity in the absence of the

president pending the selection of a presiding officer

Stockholder or member chosen where for any cause no person is authorized

to call a meeting, the petitioning stockholder or member authorized by SEC
shall preside thereat until at least the majority of stockholders have chosen.

SEC. 55 right to vote of pledgors, mortgagors, and administrators

- The pledgor or mortgagor shall have the right to attend and vote at meetings
of stockholder, UNLESS the pledgee or mortgagee is expressly given by the
pledgor or mortgagor such right in wrting which is recorded on appropriate
books.
-

Executors, administrators, receivers and other legal representatives duly

appointed by the court MAY ATTEND AND VOTE in behald of the stockholders
WITHOUT NEED OF ANY WRITTEN PROXY.

Oustanding is used instead of SUBSCRIBED so as NOT TO INCLUDE TREASURY

SHARES IN VOTING.

Voting is based on the number of shares of stock standing at the time fixed in
the by laws.

A transferee of stock cannot vote upon it if his transfer is not registered in the
books of the corporation.

Except as otherwise provided in the articles of inc. and stated in the cert. of
stock, HOLDERS OF PREFERRED SHARES HAVE THE RIGHT TO VOTE.

Common shares may not be deprived of voting rights, but preferred and
redeemable shares may be deprived of the right to voye.

Delinquent shares not entitled to vote or to representation at any

stockholders meeting. But they may act as PROXIES FOR STOCKHOLDERS
whose shares are not delinquent.

Treasury shares they have no voting rights. Fractional shares of stock

cannot also be voted, UNLESS THE CONSTUTE AT LEAST ONE FULL SHARE.

Shares not fully paid holders of subscribed shares not fully paid which are
not delinquent are entitled to vote.

In stock corporation, voting is based on the number of shares owned and not
on the number of stockholders or per capita.

INTRA-CORPORATE DISPUTES controversies involving the right to vote and

the election or appointment of directors, etc. RTC JURISDICTION (RA 8799)
MANNER OF VOTING

A stockholder or member may vote:

1.
2.
By
By
By

Directly (in person) or

Indirectly through a representative
means of a proxy
a trustee under a voting trust agreement
executors, admin, receivers or other legal rep duly appointed by the court
o This is an exception to the rule sec. 24 that only stockholders of record
may vote. Because they have legal title to the stock of the deceased
owner or their principal
o They have to show first judicial appointment

SEC. 56 VOTING IN CASE OF JOINT OWNERSHIP OF STOCK

- SEC. 56 requires CONSENT OF ALL THE CO-OWNERS in order to vote such
stock.
- Such consent is NOT NECESSARY where;
1. There is a written proxy executed by the joint-owners authorizing one or
some of them, or any other person to vote for all.
2. The shares are owned in an and/or capacity by the holders thereof, in which
case any one of the joint owners can vote said shares or appoint a proxy
therefpre.
- Where the property relation between husband and wife is governed by the
system of absolute community of property, the same shall be governed by
the rules on co-ownership. Consequently, as co-owners of shares of stock,
they shall be considered as ONE STOCKHOLDER.
VOTING RIGHT FOR TREASURY SHARES Treasury shares shall have no voting right,
as long as such stock remains in the treasury
SEC. 58 PROXIES - LIMITATION
- 1. Proxies shall be in writing, signed by the stockholder or member and filed
before the scheduled meeting with the corporate secretary.
- 2. Unless otherwise provided, it shall be VALID ONLY FOR THE MEETING FOR
WHICH IT IS INTENDED. The authority may be general or limited.
- 3. NO PROXY SHALL BE VALID and effective for a period longer thaan 5 YEARS
at any one time.
-

Proxy is a special form of agency.

The proxy holder is in the eye of law, an agent and as such a fiduciary.
Purpose and Rights of Proxies
1. Presence of quorum meetings
2. Exercise of right to vote though absent
3. Voting and management control

WHO MAY BE PROXY no limitations as to persons who may be appointed as proxy

- A proxy who is disqualified to vote on his own right for being delinquent, may
represent and vote for another whose share is not delinquent
- The same person may act as proxy for one or several stockholders or
member

Directors and Trustees CANNOT ATTEND OR VOTE BY PROXY AT BOARD

MEETINGS, but they may act as proxies in stockholders meetings.
Nature of proxy is purely personal.
The Code does not contain express provisions, other than that provided in
SEC. 58 on the FORM OF PROXIES OF STOCKHOLDERS
THERE IS A PRESUMPTION OF REGULARITY in the execution of proxies

EXTENT OF AUTHORITY OF PROXY

1. GENERAL PROXY confers a general discretionary power of attorned, with ALL
THE POWERS THE UNDERSIGNED WOULD POSSESS IF PERSONALLY PRESENT.
- It is NO AUTHORITY however to vote for a fundamental change in the
corporate charter or other unusual transactions such as a merger or
consolidation.
2. LIMITED PROXY limits the power conferred. It may restrict the authority to
vote to specified matters.
DENIAL OF RIGHT TO VOTE BY PROXY IN THE BY LAWS
1. In stock corp., the appointment of proxy is purely personal and an incident of
ownership, therefore, BY LAWS PROVISION PROHIBITING THE USE OF PROXY
BY STOCKHOLDERS IS CONTRARY TO LAW AND HENCE, NULL AND VOID.
2. In non-stock corp, however, the right to vote by proxy, or even the right to
vote itself, MAY BE DENIED TO MEMBERS IN THE ARTICLES OF
INCORPORATION OR BY LAWS AS LONG AS THE DENIAL IS NOT
DISCRIMINATORY.
RESTRICTIONS ON THE RIGHT TO VOTE BY PROXY IN THE BY-LAWS so long as the
restrictions do not conflict with the law or deprive the stockholders of the right
given him and it does not operate unjustly and oppressively.
- Example of restriction the by laws may provide a deadline for the
submission of proxies before scheduled meeting
PROXY GIVEN TO TWO OR MORE PERSON
REVOCATION OF PROXIES
- Generally, proxies even those with irrevocable terms, have always been
considered as REVOCABLE, unless coupled with an interest, and their
revocation may be by formal notice, orally or by conduct as by the
appearance of the stockholder.
- Last proxy given revokes all previous proxies.
- Where proxies undated where a corp receives more than one proxy, from
the same stockholders and they are all undated, the postmark dates become
important.
o If both were mailed on same day, the latest is counted
o If the proxies were not mailed, then the time of their actual
presentation is considered.
DURATION OF PROXY
1. Limited and specific proxy it cannot be exceeded or extended if given, and a
specific proxy, when required cannot be implied.

2. Continuing proxy One which authorizes the holder thereof to vote for the
absent stockholder for a fixed or an indefinite period of time. But it shall be
valid only for 5 years from its date.
SEC. 59 VOTING TRUST
- Stockholders confer upon a trustee the right to vote and other rights
pertaining to the shares for a period NOT EXCEEDING 5years at any time.
- LOAN AGREEMENT exceeding 5 yrs but automatically expires upon full
payment of the loan.
- A voting trust agreement must be in writing, notarized and shall specify the
terms and conditions thereof.
- A certified copy of such agreement shall be filed with corp and sec,
otherwise, said agreement is ineffective and unenforceable.
- The trustee or trustees shall execute and deliver to the transferors voting
trust certificates, which shall be transferable in the same manner and with
the same effect as cert of stock.
- The viting trustee or trustees may vote by proxy unless the agreement
provides otherwise.

Status of voting trustee A voting trust agreements transfers only voting or

other rights pertaining to the shares subject of the agreement or control over
the stock, not the properties or assets of the corp.
Status of transferring stockholder a voting trust agreement results in the
separation of the voting rights of a stockholder from his other rights. He
retains the equitable or beneficial ownership of the stock.

POWERS OR RIGHTS OF VOTING TRUSTEES

1. Right to vote and other rights pertaining to the shares so transferred and
registered in his or their names
2. The trustee may vote in person or by proxy unless the agreement provides
otherwise
3. They may exercise like the transferor, the rights of inspection of all corporate
books and records
4. The trustee is the legal title holder or owner of the shares so transferred
under the agreement.
He is therefore qualified to be a director
PURPOSE OF VOTING TRUST AGREEMENT
- Makes possible a unified control of the affairs of the coporation and a
consistent policy by binding stockholders to vote as a unit.
- It also makes possible for a majority group of stockholders to dispose of their
share and still retain control of the corporation through the voting trustee
who shall then have the power to vote as a unit the shares thus pooled.
- To prevent a rival concern from acquiring control of the corp
- To aid a financially embarrassed corp to obtain a loan and protect its
creditors.
LIMITATIONS ON VOTING TRUST AGREEMENT
1. No voting trust shall be entered into:

a. For a period exceeding 5years at any one time (except loan agreement)
b. For the purpose of circumventing the law against monopolies and illegal
combinations in restraint of trade
2. The agreement must not be used for purposes of fraud
3. The agreement must be in writing and notarized
4. A certified copy of said agreement must be filed with the Corp and with SEC,
otherwise, it is INEFFECTIVE and UNENFORCEABLE
5. The agreement shall be subject to examination by any stockholder of the
corp in the same manner as any other corp book or record
6. Unless expressly renewed, all rights granted shall automatically expired at
the end of the agreed period.
PD 902-A empowers the SEC to pass upon the validity of the issuance and use
of proxies and voting trust agreements for absent stockholders or members.
PROXY VS VOTING TRUST
1. A Proxy has no legal title to the shares of the stockholder giving the agency
-A trustee acquires legal titles to the shares of the transferring stockholder
(The proxy votes as a mere agent while the trustee as owner)
2. A proxy, unless coupled with interest, IS REVOCABLE ANYTIME
-While a voting trust agreement, if validly executed, is intended to be
irrevocable for a definite and limited period of time.
3. A proxy can only act at a specified stockholders meeting (if the proxy is not in
continuing nature)
- WHILE A trustee is not limited to a particular meeting
4. A proxy votes in the absence of the owner of the stock
- While a trustee can vote and exercise all the rights of the transferring
stockholder even when the latter is present
5. A proxy is usually of shorter duration than a voting trust agreement although
under the law the maximum duration of both cannot exceed 5yrs
6. A proxy need not be notarized nor a copy filed with CHED, while it is a must
for VOTING TRUSTEE
7. A proxy does not have a right of inspection of corporate books, while a
trustee has such a right.

SEC. 36 POWERS OF CORPORATON

1.
2.
3.
4.

To sue and be sued in its corp name

Power of succession
To adopt and use corporate seal
To amend its articles of incorporation in accordance with the provisions of this
code
5. To adopt by laws not contrary to law, morals, or to amend or repeal the same
in accordance with this code.
6. In case of stock corp., to issue or sell stocks to subscribers and to sell
treasury stocks in accordance with provisions of the code
7. To purchase, sell, receive, take , grant, hold, convey, deal with such personal
or real property, including securities and bonds of other corp
8. To enter into merger or consolidation
9. To make reasonable donations to charitable inst. but NOT TO POLITICAL
PARTIES
10.To establish pension, retirement for the benefit of its directors, trustees,
officers and employees

11.To exercise such other powers as may be essential

DOCTRINE OF LIMITED CAPACITY the enumeration of corporate powers implies the
exclusion of all other powers. A corporation owes its existence to the State, and
therefore, it has only such powers as are expressly and impliedly granted by law.
CLASSIFICATION OF CORP POWERS
1. EXPRESS POWERS expressly granted by law
2. IMPLIED POWERS Those that are necessary to the exercise of the express or
incidental powers
3. Those incidental to its existence
IMPLIED POWERS
1.
2.
3.
4.
5.

Acts in the usual course of business

Acts to protect debts owing to a corporation
Embarking in different business
Acts in part or wholly to protect or aid employees
Acts to increase business

INCIDENTAL POWERS which can be exercised without the express grant

1. Power of succession
2. Power to sue and be sued
3. To have corporate name
4. To purchase and hold real and personal property
5. To adopt and use a corporate seal
6. To make by-laws
CONSTRUCTION OF POWERS GRANTED- construed STRICTLY; any ambiguity in the
terms of the corporate charter must operate against the corporation and in favor of
the public.

RATIFICATION OF CORP ACTS

1. By stockholders or members they may ratify and render valid acts done or
authorized by the BD
2. By board of Directors
o Donations for political purposes are beyond the power of a corp and
cannot be ratified, as they are expressly prohibited by law.
EFFECT OF RATIFICATION retroactive
POWER TO SUE OR BE SUED
1. Dissolved Corp after the expiration of 3 year winding up period CEASES TO
EXIST DE JURE OR DE FACTO. It cannot sue or be sued.
Corporations de facto may sue or be sued.

2. Unregistered corp has no legal capacity to sue

3. Foreign Corp If without necessary license from the SEC, they cannot sue in
the Phil Courts
4. Right to Claim Moral Damages Art. 2217 of Civil Code & Mambulao vs PNB
5. Real party in Interest Right to sue must be brought by the BD that exercises
its corporate powers on behalf of the corp or by any of its duly authorized
officer or agent.
6. A GOCC can act only through its duly authorized representative
RIGHTS OF SHAREHOLDERS TO INTERVENE their interest being inchoate or
beneficial in nature, not direct and immediate in character, hence, THEY HAVE NO
RIGHT TO INTERVENE IN AN ACTION FOR OR AGAINST A CORP. (SAW VS CA)

The use of corporate seal in certificates of stock must be deemed merely

directory rather than mandatory. A corporation may exist even without a seal.
While a corporation may appoint agents to negotiate for the purchase of real
property needed by the corp., the final say will have to be with the BD whose
approval will finalize the transaction.
Property obtained by a corporation which is foreign to the purposes for which
is was organized is an UNLAWFUL ACQUISITION.
Under the Constitution, no private corporation or association may hold
alienable lands of the public domain except by lease for a period for a period
not exceeding 25yrs, renewable for not more than 25yrs and not to exceed
1000 hectares in area.
The corporation may purchase its own stocks, however, only when it has
unrestricted retained earnings to cover the shares to be purchased.
The corporation may become a member of another corporation.

POWER TO ACT AS GUARANTOR gr: No corporation has the power, by any form of
contract or endorsement to become a guarantor or surety or otherwise lend its
credit to another person.
EXCEPTION:
1. Where Corporate Business will advance
2. Where risk considerable and benefit remote or disproportionate.
POWER TO EXTEND OR SHORTEN CORPORATE TERM when approved by a
MAJORITY VOTE of the BD and ratified at a meeting by the stockholders
representing at least 2/3 of the outstanding capital stock or 2/3 of the members for
non-stock.
- Written notice and of the time and place shall be addressed to each
stockholder AT HIS PLACE OF RESIDENCE as shown on the books of inc. and
deposited to the addresse in the post office, with postage prepaid, or served
personally.
- PROVIDED, that in the case of EXTENSION of corporate term, any dissenting
stockholder may exercise his appraisal right under the conditions provided in
this code.
- A voluntary dissolution of a corporation may be effected BY AMENDING THE
ARTICLES OF INCORPORATION to SHORTEN THE CORP. TERM.

APPRAISAL RIGHT OF DISSENTING STOCKHOLDERS right of a stockholder in the

cases provided by law to demand payment of the fair value of his shares IN CASE
OF EXTENSION OR SHORTENING OF THE CORPORATE TERM.
POWER TO INCREASE OR DECREASE CAPITAL STOCK must be EXPRESSLY
conferred.
- The notice requirement is mandatory
- The corp code contains no prohibition for a corporation to increase its
authorized capital stock, even of the same has not yet fully subscribed.
- GR : a corporation cannot lawfully DECREASE its capital stock, if such
decrease will have the effect of relieving existing subscribers from the
obligation of paying for their unpaid subscription without a valuable
consideration.
- The corporation must submit proof to the SEC that such decrease will NOT
PREJUDICE the rights of creditors.
- A corporation cannot issue stock in excess of the amount limited by its
articles of inc., such is T.
ULTRA VIRES ACT
NECESSITY FOR INCREASING CAPITAL STOCK
1. Increase of corporate assets
2. Issuance of stock dividends

An increase in the authorized capital stock CANNOT BE LAWFULLY

ACCOMPLISHED without an increase in the assets of the corporation and
additional subscriptions EXCEPT WHEN SUCH INCREASE IS FOR THE PURPOSE
OF EFFECTING A STOCK DIVIDEND.

EFFECTIVITY OF INCREASE OR DECREASE only FROM AND AFTER approval

and issuance by the SEC of its certificate of filing of increase or decrease of
capital stock.

OVER-ISSUE OF SHARES it is ULTRA VIRES, and the stock so issued IS VOID

even in the hands of the bonafide purchaser for value. IT IS ALSO KNOWN AS
SPURIOUS STOCK.
UNAUTHORIZED INCREASE OF CAPITAL STOCK

An attempted unauthorized increase of capital stock amounts to an OVERISSUE and such stock is therefore ABSOLUTELY VOID AND CANNOT BE
VALIDATED by application of the doctrine of estoppel.
It necessarily follows that:
1. Subscriptions for such stock are likewise void
2. Subscribers acquire none of the rights of stockholders
3. Subscribers for or purchases of such shares do not become liable to
creditors of the corp

That the SEC shall not accept for filing any certificate of increase of capital
stock unless accompanied by the sworn statement of the treasurer of the
corporation SHOWING AT LEAST 25% OF such increased capital stock has
been subscribed and that AT LEAST 25% OF THE AMOUNT SUBSCRIBED HAS
BEEN PAID EITHER in actual cash
NO treasurers affidavit is required to be attached in case of DECREASE OF
CAPITAL STOCK.

Ways of INCREASING (DECREASNG) AUTHORIZED CAPITAL STOCKS

1. By increasing (decreasing) the number of shares authorized to be issued
without increasing the par value thereof
2. By increasing (decreasing) the par value of each share without increasing the
number thereof
3. By increasing both the number of shares authorized to be issued and the par
value thereof.

Under the prohibitions in Sec. 62, the unissued shares cannot be sold for less
than the par value
Stock dividends are ordinarily declared out of the authorized but unissued
shares of corp.

EFFECT OF REDUCTION ON LIABILITY FOR UNPAID SUBSCRIPTION

1. As against corporate creditors if prejudicial, shall be wholly ineffective
2. As between the corp and the stockholders failure to give the prescribed
notice will not invalidate the reduction

GR: Where capital stock is impaired and a reduction is made merely to meet
that impairment, there will be no distribution of assets among the
shareholders
Distribution NOT MANDATORY The distribution to stockholders of surplus
remaining after a reduction of capital stock is authorized by the code

PERSONS ENTITLED TO QUESTION INCREASE OR DECREASE OF CAPITAL STOCK

1. By the corporation, by dissenting stockholders in the absence of estoppel, or
by creditors or by assignee or receiver in so far as the transaction affects
their rights
POWER TO INCUR, CREATE OR INCREASE BONDED INDEBTEDNESS a business corp
may borrow money
CORPORATE BOND an obligation to pay a definite sum of money at a future time at
fixed rate of interest
PROCEDURE AND FORMALITIES

same as increasing or decreasing the capital stock except that the certificate
NEED NOT STATE THE MATTERS SET FORTH AND IS NOT REQUIRED TO BE
ACCOMPANIED BY SWORN STATEMENTS OF THE TREASURER OF THE CORP
Prior approval of and registration of bonds with SEC

TYPES OF BONDS
1. THEY may be SECURED OR UNSECURED
2. Major type of secures bonds are:
1. Mortgage bonds
2. Collateral trust bonds
3. Equipment obligations
3 . Examples of UNSECURED BONDS
A. Straight debentiture bonds or general credit bonds
B. Guaranteed Bonds
C. Subordinated debentiture bonds
SEC. 39 POWER TO DENY PRE-EMPTIVE RIGHT
PRE-EMPTIVE RIGHT whenever the capital stock of the corporation is increased and
new shares of stocks are issued, the new issue must be offered first to the
stockholders who are as such at the time the increase was made in proportion to
their EXISTING SHAREHOLDINGS
- This right extends only to new issues of shares
- It extends to the unsubscribed portion of the capital stock and even to the
treasury shares
- This right is not absolute as it admits of certain excemption
- The purpose of the right is to protect from impairment and dilution the basic
rights of the existing stockholders in the corporation.
POWER TO DENY PRE-EMPTIVE RIGHT may be denied by the articles of
incorporation
A stockholder whose pre-emptive right is violated may maintain an action to
compel the corp to give him that right
If denial is by an amendment to the artices of incorporation, he may exercise
his APPRAISAL RIGHT
Time within which the right may be exercised is generally fixed in the
resolution authorizing the increase of capital stock
SEC. 40 POWER TO SELL, LEASE, ETC ALL OR SUBSTANTIALLY ALL CORPORATE
ASSETS INCLUDING ITS GOODWILL
- By the action of majority vote of board of directors or trustees supported by
tast 2/3 of the outstanding capital stock
REQUISITES FOR THE VALIDITY OF SALE:
1. The sale etc., must be approved by the BD
2. The action of the board must be authorized by the vote of stockholders
representing 2/3 of the outstanding capital stock including holders of nonvoting shares

3. The authorization must be done at stockholders or members meeting duly

called for the purpose after WRITTEN NOTICE.

As a safeguard against abuse of power, SEC 40 provides that the sale, etc.
SHALL BE SUBJECT TO THE PROVISIONS OF EXISTING LAAWS ON ILLEGAL
COMBINATION AND MONOPOLIES.
SALE OF ALL ASSETS WITHOUT DISSOLUTION if such sale is made to
another corporation and there is no intent to combine, the selling corp may
continue in a SUSPENDED ANIMATION, subject to the effect of NON-USE OF
CORP POWERS AND continued inoperation of the corporation

SEC. 41 POWER TO ACQUIRE OWN SHARES- a stock corporation shall have the
power to purchase or acquire its own shares for a legitimate corporate purpose,
PROVIDED, THAT the corporation has UNRESTRICTED RETAINED EARNINGS IN ITS
BOOKS TO COVER THE SHAREs to be purchased :
1. To eliminate fractional shares arising out of stock dividends
2. To collect or to compromise an indebtedness to the corporation, arising out of
unpaid subscription
3. To pay dissenting or withdrawing stockholders
UNRESTRICTED RETAINED EARNINGS - not appropriated for a particular purpose.
CONDITIONS FOR THE EXERCISE OF THE POWER
1. That its capital is not thereby impaired
2. That it be for a legitimate and proper corporate purpose
3. That there shall be unrestricted retained earnings
4. That the corporation acts on good faith and w/o prejudice to the rights of
creditors
5. That the conditions of corporate affairs warrant it.
TRUST FUND DOCTRINE
- Holds that the assets of the corporation as represented by its capital stock
are trust funds to be maintained unimpaired and to be used to pay
corporate creditors
- There can be no distribution of such assets among stockholders without
provison being first made for the payment of corporate debts.
- Corporation generally without power to purchase its own shares, as
repayment to stockholders constitute a fraud on corporate creditors
- A corporation has UNRESTRICTED RETAINED EARNINGS BEFORE ITS MAY
ACQUIRE its own shares
EFFECTS OF PURCHASE ON CORPORATE CREDITORS it will impair capital, hence,
prejudice the creditors who are preferred over stockholders in the distribution of
corporate assets
EFFECTS OF PURCHASE ON REMAINING STOCKHOLDERS - it injures remaining
shareholders rights, although it may be advantageous to those who do not sell.
SEC. 42 POWERS TO INVEST CORP FUNDS IN ANOTHER CORPORATION OR BUSINESS
FOR ANY OTHER PURPOSE OTHER THAN THE PRIMARY PURPOSE
- When approved by a majority of the board of directors or trustees

Ratified by the stockholders representing at least 2/3

At a stockholders or members meeting duly called for the purpose
Written notice with date and place shall be addressed to each stockholder as
shown on the books of corporation
Provided that any dissenting stockholder shall have the appraisal right
That where the investment by the corporation is reasonably necessary to
accomplish its primary purpose, THE APPROVAL OF THE STOCKHOLDERS
SHALL NOT BE NECESSARY

PURPOSE OTHER THAN THE PRIMARY PURPOSE

1. SECONDARY PURPOSE Funds may be invested without amending the
articles of incorporation must be among those enumerated in the articles of
incorporation
2. NOT AMONG THE SECONDARY PURPOSES a corporation is not allowed to
engage in a business distinct from those enumerated in the articles of
incorporation without amending the purpose clause.
CORPORATE FUNDS MAY BE TEMPORARILY LOANED EVEN TO STOCKHOLDERS,
PROVIDED:
1. The funds are not presently used by the corp and the loaning is not made on
regular basis
2. By lending the funds, the corp will make them productive instead of allowing
them to remain idle
3. There is NO EXPRESS RESTRICTION IN THE articles of inc or by laws
4. There must be a collateral or assurance that the borrower is capable of
paying
5. The lending is not used as a scheme to prejudice corp creditors or result in
the infringement of Trust Fund doctrine
INCIDENT TO PRIMARY PURPOSE a corporation may invest its fund in another
business which is incident or auxiliary to its primary purpose. In such case, A
DISSENTING STOCKHOLDER HAS NO APPRAISAL RIGHT. It does not need the
approval of stockholders
RATIFICATION OF DEFECTIVE INVESTMENT
Sec. 43 POWER TO DECLARE DIVIDENDS out of UNRESTRICTED RETAINED
EARNINGS which shall be payable IN CASH, PROPERTY, OR in STOCKS to all
stockholders on the basis of outstanding stock held by them
- Provided, that any cash dividends due on DELINQUENT STOCK shall FIRST BE
APPLIED TO THE UNPAID BALANCE
- WHILE STOCK DIVIDENDS shall be withheld from the delinquent stockholders
representing not less than 2/3 of the outstanding capital stock at a REGULAR
OR SPECIAL MEETING CALLED FOR THE PURPOSE.
- STOCK CORP are PROHIBITED from retaining SURPLUS PROFITS in excess of
100% of their paid in capital stock, EXCEPT:
1. When justified by definite corp expansion projects
2. When the corp is prohibited under any loan agreement with any financial
inst or creditor

3. When it can be clearly shown that such retention is necessary under

special circumstances obtaining in the corp
DIVIDEND that part or portion of the profits of a corporation set aside, declared
and ordered by the directors to be paid RATABLY to the stockholders ON DEMAND
OR AT A FIXED TIME
PROFIT means RETURN TO CAPITAL
DIVIDENDS VS PROFITS OR EARNINGS
1. Dividend that portion of the profits which the corp has set aside for ratable
distribution among stockholders. Dividends come from profits, while profits
are the source of dividends
2. Profits are not dividends until so decared or set aside by the corp.
3. All profits are a part of the assets of the corp and do not belong to the
stockholders individually.

Dividends cannot be declared and paid on the basis of the paid up stock. The
basis is the number of shares held by the stockholders, not the amount paid.

RULE AS TO NO PAR VALUE STOCK the entire consideration (including paid in

surplus) received from the sale shall be treated AS CAPITAL and shall not be
available for distribution as dividends.
WASTING BUSINESS even W/O RETAINED EARNINGS, you can already declare
dividends
WASTING ASSETS DOCTRINE the capital of which is necessarily exhausted in the
carrying on of its operations
EX. ) MINING OR TIMBER CUTTING.
UNRESTRICTED RETAINED EARNINGS the difference between the total present
value of its assets after deducting losses and liabilities and the amount of its capital
stock.
RETAINED ASSETS = ASSETS liabilities and legal capital

A corp cannot declare dividend when it has zero or negative retained

earnings

DECLARATION OF DIVIDENDS requires concurrence of two things:

a.) The existence of unrestricted retained earnings
b.) A corporate resolution of the board of directors
-

Cash dividends require ONLY APPROVAL of the BD

Stock dividends are issued by resolution of the BD and approval of resolution
by stockholder

DISCRETION OF THE BD TO DECLARE DIVIDENDS- and determine the timing as well

as their amount, so long as they ACT IN GOOD FAITH.
JUSTIFICATION FOR NON-DISTRIBUTION OF DIVIDENDS
1. The corp has definite expansion plans approved by the proper govt authority
2. The corp is prohibited under any loan agreement with any financial inst or
creditor, from declaring dividend w/o his consent.

Under NIRC, sec 29 of Tax Code imposes a 10% surtax on corp impropery
accumulating profits or surpluse
ACTION TO ENFORCE DECLARATION OF DIVIDENDS a stockholder cannot
maintain an action at law to recover his share of the accumulated profits.
Mandamus IS NOT A PROPER REMEDY.

TIME FOR DECLARATION OF DIVIDENDS

- At the END OF THE YEAR
- If the company earned profits during the past year, it may deckare the same
as dividends, BUT IT DOES NOT, THE PROFITS ARE CARRIED OVER TO THE
NEXT FISCAL YEAR.
PAYMENT OF SUBSCRIPTION FROM DIVIDENDS
It has been held that a stipulation to the effect that the subscription is
payable from 1st dividends declared on any and all shares is ILLEGAL for it
obligates the subscriber to pay nothing
A stockholders indebtedness to a corp under a subscription agreement
CANNOT BE COMPENSATED with the amount of his shares in the same corp,
THERE BEING NI RELATION OF CREDITO AND DEBTOR with regard to such
shares.
IT IS NOT ALLOWED to apply stock dividends to unpaid subscription
LIABILITY OF STOCKHOLDERS AND DIRECTORS FOR ILLEGALLY RECEIVED DIVIDENDS
-

LIABILITY OF STOCKHOLDERS TO REFUND THEM TO CORP OR ITS CREDITORS

If the directors acted in good faith, they are not liable to the corp or to
creditors for declaring and paying dividends

REMEDIES OF COPORATE CREDITORS P418

If dividends are improperly declared and paid when there are no net earnings,
THEY MAY BE RECLAIMED BY THE CORPORATE CREDITORS or by a receiver or
assignee
If the capital stock is wrongfully paid away by the directors, it may be
pursued by the creditors into the hands of any one WHO IS NOT AN
INNOCENT PURCHASER
If such a wrong is threatened, a CREDITOR MAY MAINTAIN A SUIT FOR
INJUNCTION.

PERSON ENTITLED TO DIVIDENDS

The stockholder of record as of the date of the declaration of dividends or

holders of record on a certain future date.
Dependent on the Creator of the trust
The transferor
The pledgee
Stockholders of record ONLY at the time of the approval of said increase by
the SEC
Not yet recorded on book, NOT ENTITLED

RIGHT OF STOCKHOLDERS AFTER DECLARATION OF DIVIDENDS

CASH DIVIDENDS -As soon as the cash dividend are declared, they have the
right to the PRO RATA SHARES
STOCK DIVIDENDS Since the declaration of stock dividend gives the stock
holder nothing until all the formalities necessary to a valid increase of stock
are complied with, ITS REVOCATION therefore, TAKES AWAY NOTHING. Unless
rescinded, the shareholders have absolute right to their respective shares.
SUBSCRIBERS are considered stockholders NOT FROM THE TIME they are
issued certificates of stock, but from the time their subscriptions are
accepted by the corporation.
CLASSES OF DIVIDENDS
1. CASH DIVIDENDS dividends payable in cash
2. PROPERTY DIVIDEND dividend payable in property, real or personal, such as
warehouse receipts, or shares of stock of another corp. It is actually a cash
dividend
3. STOCK DIVIDEND dividends payable in unissued or increased or additional
shares of the corporation instead of in cash or property out of the
unrestricted retained earnings of the corp.
- May be declared only to the extent of the maximum number of shares
authorized in the Art. Of iNc.
4. OPTIONAL DIVIDEND gives the stockholder option to receive cash or stock
dividend
5. COPMPOSITE DIVIDEND partly in cash and partly in stocks, no option
involved.
6. PREFERRED OR PREFERENTIAL DIVIDEND payable, by virtue of contract, to
one class of stockholders in priority to that to be paid to another class
7. CUMULATIVE DIVIDENDS contracted to be paid at a certain rate at stated
times
8. SCRIP DIVIDENDS dividend in a form of a writing or certificate issued to a
stockholder
9. BOND DIVIDEND dividend distributed in bonds of the corporation to the
stockholders
10.LIQUIDATING DIVIDENDS actually distributions of the assets of the corp
upon dissolution or winding up
EFFECT OF DECLARATION OF CASH DIVIDEND

The assets of the corp diminish and correspondingy the property of the
individual stockholder increases

EFFECT OF DECLARATION OF STOCK DIVIDENDS

The declaration of a stock dividend is akin to a forced purchase of stocks.
The declaration adds nothing to and takes nothing from the corporation. The
corp merely trasfers the surplus to a capital account and issues shares of
stock to represent the same.
The declaration of stock dividend is advantageous to the existing creditors to
the extent that corporate earnings are capitalized.
TAX TREATMENT OF STOCK DIVIDENDS
Stock dividends are NOT TAXABLE INCOME because they merely represent an
unrealized gain to the stockholder who receives nothing
CASH DIVIDEND VS STOCK DIVIDEND
1. Cash involves a disbursement to the stockholder of accumulated earnings,
while stock dividend does not involve any disbursement
2. Cash dividend declared and paid becomes the absolute propertu of the
stockholder and cannot be reached by the creditors in the absence of fraud,
while stock dividend, being still part of corp property, may be reached by
corporate creditors
3. Cash dividends is declared only by the board of directors at its discretion,
while stock dividend is declared by the board with the concurrence of the
stockholder representing at least 2/3 of the outstanding capital stock.
4. Cash dividend does not increase the corporate capital, while it is increased by
a stock dividend.
5. The declaration of cash dividend creates a debt from the corp to each of its
stockholders while no debt from the corp to the stockholder is created by the
declaration of stock dividend.
6. Cash dividend is taxable as income to the stockholder, while stock dividend is
generally not subject to income tax.
SEC.

44 POWER TO ENTER INTO MANAGEMENT CONTRACT

With another corporation
With parent corporation
With a natural person

LIMITATIONS OF THE POWER

1. Ratification of the contract the contract must be approved by a majority of
the quorum of the BD and ratified by the prescribed vote of the outstanding
capital stock
- The management contract must be approved by the stockholders of the
managed corp owing at least 2/3, NOT MERELY A MAJORITY, of the total
outstanding capital stock entitled to vote.
2. PERIOD OF CONTRACT must not be longer than 5years for any one term
except those contracts which relate to exploration, development ,

exploitation or utilization of natural resources that may be entered into for

such periods as may be provided by pertinent laws
3. MANAGERIAL POWER UNDER THE CONTRACT the management contract
must always be subject to the superior power of the board
ULTRA VIRES ACTS- one not within the express, implied and incidental powers of the
corporation conferred by the corp code or art. Of inc.
RATIFICATION OF ULTRA VIRES ACTS
Where the contract or act is illegal per se it is wholly void or inexistent
Where the contract or act is NOT ILLEGAL perse but merely beyond the power
of corp, the same is merely VOIDABLE, and may be enforced by performance,
ratification or estoppel.
The doctrine of ultra vires cannot be invoked when it would defeat the ends
of justice or work a legal wrong.
ACTS PRESUMED TO BE WITHIN THE CORPORATE POWERS
1. Where private rights only are involved
2. Where act clearly beneficial to the corporation
ULTRA VIRES AS ACTS OF CORP
1. Conveyance or transfer of property to or by corporation, though the corp has
no power to hold or transfer property
2. When ultra vires contract with a corp is fully executed by both parties
3. Actons quasi ex contractu
4. When the ultra vires has been fully performed by one of the parties and the
other has received the benefit of such performance
5. Torts and crimes are always ultra vires
WHO MAY INVOKE ULTRA VIRES
1. One who is invoking ultra vires acts
2. STATE
3. STOCKHOLDERS
4. STRANGERS
5. COMPETITORS IN BUSINESS
6. CREDITORS
ESTOPPEL TO DENY CORPORATE POWER TO CONTRACT
1. GR: An association which assumes to exercise corp powers and enters into
contract as a corp and persons are estopped, to deny its corp existence
2. Where power to enter into contract in issue
3. Where contract wholly executory
4. Where contract apparently ultra vires
5. Where contract has been performed on one side

CORPORATE LIABILITY FOR TORTS, CRIMES AND OTHER VIOLATIONS

GR: A Corporation being a juridical entity, can only act as such through its officers
and agents. This being the case, it is responsible for the tortuious acts of the latter
done in the scope of their authority.
Penalties Imposable while a corporation cannot be arrested, imprisoned, it may be
summoned, fined or ousted by QUO WARRANTO from the unlawful exercise of its
powers.
- For violations of any of the provisions of the Corp Code a corporation is
subject to fine and/or dissolution without prejudice to the institution of
appropriate action against the guilty officer.