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CHAPTER VII CONTROL/MANAGEMENT

1. Allocation of power and control


a. Board of directors and trustees formulate the corporate policies
b. Corporate officers execute policies
c. SHs or members residual powers over corporate changes
2. Who shall exercise corporate powers
a. Board of directors or trustees
Sec 23

Board of directors or trustees


- exercises all corporate powers
- must own at least 1 share of the capital stock

Sec 108

Board of trustees
- the number of trustees of educational institutions shall be 5-15, and in multiples of 5
- for incorporated schools, colleges or institutions of learning, the term of office of 1/5
of trustees shall expire every year

Sec 24

Election of directors or trustees


- there must be present owners/proxies of majority of the outstanding capital stock
- each SH may vote such number of shares for as many persons as there are
directors OR he may cumulate shares
- no delinquent stock shall be voted

Sec 53

Regular and special meetings of directors or trustees


- regular: monthly
- special: at any time upon the call of the President
- may be held anywhere in the Philippines
- notice must be given to every director/trustee 1 day prior
*** in all of the above, unless the by-laws provide otherwise

Sec 101

When a board meeting is unnecessary or improperly held (Close Corporation)


- any action without a meeting is valid if:
a. written consent by all directors prior or after action
b. all SHs/directors have actual or implied knowledge of the action;
c. accustomed to take informal action

b. Corporate officers and agents


Sec 25

Corporate Officers, quorum


A. Board may delegate its functions to individual officers
a. president must be a director
b. treasurer may or may not be a director
c. secretary resident and citien of PH
- no one shall be president/secretary or president/treasurer at the same time
- aside form President, officers need not be a director (VP, secretary, treasurer, GM,
other agents)

B. Quorum
a. election of officers presence of ALL directors; vote by majority of ll
directors; no proxies allowed
b. valid corporate act presence of MAJORITY of directors; vote by
majority of directors
c. Board Committees
Sec 35 Executive Committee
- at least 3 members
- may act by majority vote on any matters delegated by the board, except:
a. filling of vacancies
b. distribution of cash dividends
c. adoption/amendment/repeal of by-laws
d. in all matters where SHs approval is required
d. Stockholders or members
Where 2/3 vote necessary
Sec 16
Sec 28
Sec 32
Sec 34
Sec 37
Sec 38
Sec 39
Sec 40
Sec 42
Sec 43
Sec 44

Sec 48
Sec 77
Sec 118
Sec 119

Amendment of AOI
Removal of directors/trustees
Ratification of contracts of self-dealing directors/trustees/officers
Ratification of action of director in seizing corporate opportunity
Power to extend/shorten corporate term
Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness
Power to deny pre-emptive right in shares issued in exchange for property or as
payment for debt
Sale or other disposition of assets
Power to invest corporate for any purpose other than the primary purpose
Power to declare stock dividends
Power to enter into management contract
where SHs of both managing and managed corporation owns 1/3 shares of the
managing corporation
- where majority of the board are interlocking directors
Power to delegate to the power to adopt/amend/repeal any by-laws
Approval of plan of merger or consolidation
Voluntary dissolution where no creditors are affected
Voluntary dissolution where creditors are affected

Where majority vote necessary


Sec 28
Sec 30
Sec 44
Sec 46
Sec 48

Call for a special meeting for the purpose of removing a director


Fixing the compensation or per diems of directors
Power to enter into management contract
Adoption of by-laws
Amendment/Repeal of by-laws

Sec 62

Set the issued price of no-par value shares

3. Devices Affecting Control/Voting Rights


Sec 58 Proxies
-

in writing, signed by the SH, and filed before the scheduled meeting
for a period not exceeding 5 years at any time, renewable for another 5 years

A. Types of Proxy
- general: any and all matters except AOI amendment/unusual transaction
- limited: specified matters only and manner of voting is specified
B. Nature of Proxy
- GR: Strictly a fiduciary relation, generally revocable despite contrary stipulations
EXC: If coupled with an interest, e.g. where proxy has parted with the value (i.e.
as security for a loan) or incurred liability in favor of the SH
Sec 59

Voting Trusts
- conferring upon a trustee the right to vote and other incidental rights
- GR: for a period not exceeding 5 years at any time
- EXC: if a condition for a loan, shall expire upon full payment
- must be in writing and notarized, and filed with corporation and SEC
- stock certificates shall be cancelled in lieu of voting trust certificates

Sec 100

Agreements by Stockholders (Close Corporation)


- (2) in exercising any voting rights, the shares held by them shall be:
a. voted as provided in the agreement
b. or as they may agree
c. or through a procedure mutually agreed upon (e.g. arbitrator, Ringling v.
Ringling)

TITLE III BOARD OF DIRECTORS/TRUSTEES AND OFFICERS


Sec 30

Compensation of directors
- directors shall not receive compensation except for reasonable per diems,
- unless granted by majority of outstanding capital stock
- yearly compensation shall not exceed 10% of the NIBT

Sec 31

Liability of directors, trustees or officers


- willfully and knowingly votes or assents to patently unlawful acts
- gross negligence in directing the affairs of the corporation i.e. duty of diligence
- acquire personal or pecuniary interest in conflict with their duty i.e. duty of loyalty
- jointly and severally liable
A. Business Judgment Rule
- GR: directors and officers acting within such business judgment cannot be personally
liable for the consequences of such acts
- EXC: Sec. 31

Sec 32

Dealings of directors, trustees or officers with the corporation


- GR: Voidable, at the option of the corporation,
- EXC:
if presence of director in meeting not necessary to constitute quorum
if vote of director not necessary for the approval of the contract
contract is fair and reasonable
in the case of an officer, previously approved by the BOD
if the first 2 are missing, SHs may ratify the contract by 2/3 vote

Sec 33

Contracts between corporations with interlocking directors


- GR: Valid and enforceable, if contract is fair and reasonable
- EXC: In cases of fraud; if the directors share in one corporation exceeds 20%, and
in the other, merely nominal, Sec. 32 applies.

Sec 34

Disloyalty of a director
- acquires for himself a business opportunity which should belong to the corporation
- must refund the profits
- unless the action is ratified by 2/3 vote of the outstanding capital stock

TITLE VIII - CORPORATE BOOKS AND RECORDS


Sec 74

Books to be kept; stock transfer agent


- keep and carefully preserve at its principal office a record of all business transactions
and minutes of all meetings SHs and the board
- shall be open to inspection by any director/SH at reasonable hours on business days
- may demand, in writing, for a copy of excerpts at his expense
- if officer/board shall refuse inspection, they shall be under Sec. 144
- defense: has improperly used any information secured through any prior examination
of the records or minutes of such corporation or of any other corporation, or was not
acting in good faith or for a legitimate purpose in making his demand.

Sec 75

Right to financial statements


- corporation must furnish financial statement within 10 days from receipt of written
request
- if the paid-up capital is less than P50,000, certified under oath by the treasurer or
any responsible
- if the paid-up capital is more than P50,000, duly signed and certified by an
independent certified public accountant.

TITLE IX - MERGER AND CONSOLIDATION


Sec 76

Plan or merger of consolidation


- Two or more corporations may merge into a single corporation, which shall be one of
the constituent corporations
- Two or more corporations may consolidate into a new single corporation. which shall
be the consolidated corporation.

A plan of merger shall include the name, terms, and statement of the changes in the
AOI of the surviving or consolidated corporation

Sec 77

Stockholders or members approval


- 2/3 vote of the outstanding capital stock
- any dissenting SH may exercise his appraisal right

Sec 78

Articles of merger or consolidation


- after the approval of SHs, the President or VP of the each constituent corporations
shall sign the articles of merger or consolidation,
- articles shall set forth the plan, the number of outstanding shares, and the number
of shares voting for and against such plan

Sec 79

Effectivity of merger or consolidation


- upon the issuance of the SEC of a certificate of merger or consolidation

Sec 80

Effects of merger or consolidation


- constituent corporation shall become a single corporation
- constituent corporations shall cease to exist
- the surviving or the consolidated corporation shall be subject to the Corporation code
- the rights/properties/interests of each constituent corporation shall be deemed
transferred to the surviving or consolidated corporation without further act or deed
- the surviving or consolidated corporation shall be responsible and liable for all the
liabilities and obligations of each of the constituent corporations

TITLE XIV - DISSOLUTION


Sec 118

Voluntary dissolution where no creditors are affected


- notice to SHSs at least 30 days prior to the meeting
- publication for 3 consecutive weeks

Sec 119

Voluntary dissolution where creditors are affected


- upon receipt of the petition for dissolution, the SEC shall fix a date on or before
which objections can be made, which shall be 30-60 days after the order
- before such date, publication for 3 consecutive weeks

Sec 120

Dissolution by shortening corporate term


- effected by amending the AOI
- a copy of the amended AOI shall be submitted to the SEC
- dissolution shall be effective upon the approval of the amended AOI

Sec 121

Involuntary dissolution
- dissolved by the SEC upon filing of a verified complaint and after proper notice and
hearing

Sec 122

Corporate liquidation
- every corporation dissolved voluntarily or involuntarily shall continue existing as a
body corporate for 3 years
- for the purpose of prosecuting or defending suits by or against the corporation, to
dispose property and distribute its assets

if the properties are conveyed to trustees anytime during the said 3 years, the trustee
may act for or beyond the corporation beyond that period

TITLE XV FOREIGN CORPORATIONS


Sec 123

Definition and rights of foreign corporations


- formed, organized or existing under any laws other than those of the Philippines
- its laws allow Filipino citizens and corporations to do business in its own country
- has a right to transact business in the Philippines after it shall have obtained a
license to transact business

Sec 133

Doing business without a license


- shall not be permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines
-

such corporation may be sued or proceeded against before Philippine courts or


administrative tribunals on any valid cause of action recognized under Philippine
laws

RA 8799 REVISED SECURITIES REGULATION CODE


Sec 3.1

Definition of Security
participation or interests in a corporation, including equity, debt instruments,
options/warrants, membership certificates
Exempt Securities
- issued by the Government
- issued by any government maintain diplomatic relations with RP
- issued by a receiver in bankruptcy
- issued by a bank, except its own shares of stock
- sale is supervised by Office of Insurance, BIR and HLURB
-

Sec 9.1

Sec 10.1

Exempt Transactions
- judicial sale
- on account of a pledge to liquidate a bona fide debt
- distribution of stock dividend by ant corporation
- sale of capital stock by a corporation to its own SHs
- issuance of bonds secured by mortgage
- subscriptions for shares of the capital stock of a corporation prior to incorporation

Sec 19.1

Tender Offer
- any person or group intending to acquire 15% of equity security of a listed
corporation with at least P50M assets and 200 shares
- any person or group intending to acquire 30% of such equity over a period of 12
months
- must make a tender offer with SEC

Sec 20

Proxy Solicitation
- must be in writing, signed by the SH/representative, and filed before the scheduled
meeting with the corporate secretary.

Sec 22

Full Disclosure

Sec 24-27

Fraud, Manipulation, Insider Trading