Professional Documents
Culture Documents
Corporation - (sec 2)
Incorporators
Corporators
Stockholders
Members
Stock Corporation (2 requirements)
Non-stock Corporation (absence of any of the 2 requirements)
Hence, if a corporation has capital stock divided into shares, but is not authorized to declare dividends, it is a non-stock
corporation.
Forming a Corporation
File with the SEC the AOI and other required documents
Stock Corporations
1. Name Verification Slip
2. AOI
3. Treasurer’s Affidavit
4. Bank Certificate of Deposit
5. Authority to Inspect Bank Deposit
6. Undertaking to Change Corporate Name
7. Registration Data Sheet
8. Favorable endorsement from proper government agency in case of special corporations
Non-Stock Corporations
1. Name Verification Slip
2. AOI
3. Undertaking to Change Corporate Name
4. Registration Data Sheet
5. Modus Operandi (document which states how a non-stock corporation would operate)
Contents of AOI
1. Corporate Name (must not be similar or confusingly similar with the name of an existing partnership or corporation)
SEC Rule: Words that cannot be used as the first word of a corporate name:
1. Philippine
2. Republic
3. National
4. State
These words are already reserved for use of GOCCs.
If your corporation is not supervised by the monetary board, you cannot add the words “Bank” or “Banking” in your corporate
name
If your corporation is not supervised by the Insurance Commissioner, you cannot add the words “Insurance” or “Insurer” in your
corporate name
Article 2
Purposes of the Corporation
A corporation can have only one primary purpose although it may have any number of secondary purposes for as long as they
are compatible with the primary and with one another.
Example:
Incompatible
Banking is very incompatible with insurance because banking should as much as possible be risk free, insurance is assumption
of risk.
Article 3
Term of the Corporation
Article 4
Principal Place of Business
Exact address
Article 5
NNR of the Incorporators
Article 6
Number of Directors, NNR of the Incorporating Directors
Incorporating Directors - first set of directors of the corporation whose names appear in the AOI
Article 7
First Part: Amount of authorized capital stock, number of shares, value assigned to each share (PAR value)
Minimum par value: 1 centavo because that is the lowest denomination in our currency system
Second part: Full name of subscribers, nationality, number of shares subscribed, value of subscription
Article 8
Name of Subscibers, the amount individually paid
Article 9
Name of the Treasurer
Article 10
Pre-emptive Rights
Exceptions:
New shares are issued to pay for a property that the corporation needs but for which the owner wants payment in shares
New shares are issued to comply with the legal requirement when the corporation go public
New shares are issued pursuant to a Stock Option Plan for officers/employees of the corp
Watered Stocks
Delinquency of shares
1. file a case in court to recover deliquency/specific performance (in the RTC because it is an intra-corporate dispute)
2. sell the delinquent shares in a public auction (the corporation may bid only if it has sufficient surplus)
*every subscription agreement is one indivisible contract
A corporation may not bid for its own shares in a delinquency sale if it does not have sufficient surplus because there’llbe a
violation of the Trust Fund Doctrine
All subscriptions, both paid up and unpaid portions, constitute a trust fund for the benefit of the creditors of the corporation.
if the corporation had bid for its own shares, those shares become treasury shares.
It is a right to demand payment of the fair value of his shares under certain conditions.
Conditions:
Treasury Shares
1. Delinquency Sale
2. Appraisal Right
3. Elimination of fractional shares in stock dividends
4. when the corporation buy back from stockholders or from the open market
5. when the corporation receives the shares in a donation
6. when the corporation redeems its redeemable preferred shares (exception to the trust fund doctrine)
Fractional share - a share less than one whole share
Example: Corporation declared 10% stock dividend, you have 128 share, you are entitled to 12.8 shares
The corporation will pay for the fractional share, hence, it will become a treasury share
Treasury shares do not have voting rights and are not entitled to any form of dividends
are considered properties of the corporation and may be used in payment of dividends (property dividends)
Stock dividends are taken from the unissued shares of the corporation
Surplus profits - net profits after income tax without impairment of the paid-up capital
Merger - the union of 2 or more corporations where one survives and the other or others are dissolved
Consolidation - the union of 2 or more corporations where all will be dissolved but a new one created
Steps:
Exploratory Talks/Courtship
Resolution of the Board of Directors
Ratification by the Stockholders (2/3 votes of all outstanding shares)
Preparation of Articles of Merger/Consolidation
which shall state:
a. the name of the surviving corporation
b. the amount of capitalization (par value)
c. the number of directors
d. the valuation of shares
In the case of ordinary corporations, the articles of merger/consolidation is filed right away with SEC.
if a corporation is licensed by another government regulator, the articles shall first be filed with that govt regulator which shall
endorse the same to the sec
Dissolution of Corporations
What do you call the share in the residual assets received by the stockholders?
Liquidating dividends (to the extent of the return of mere capital, no income tax; any amount in excess of capital is subject to
income tax)
Classification of Corporations
Domestic - organized according to Philippine Law regardless of the nationality of the incorporators
Foreign - organized according to foreign law
Yes, but it should first register with the SEC as a foreign corporation
It needs to file certified true copies of incorporation documents in the country of origin
If not in english, an official translation of these documents in english
It must appoint a resident agent so that there would be somebody to receive summons and
other court processes
It must bring into the Philippines at least $200,000.00
May a foreign corp not registered as a foreign corp in the SEC sue before the Philippine courts?
Yes, only in isolated transactions, for the protection of its intellectual property rights (Lacoste v. Sujanani case)
Educational Corporations
May be stock or non-stock
By reason of the principle of vested rights, educational stock corporations may remain as stock corporations
Corporation Sole - religious corp organized by the head of the religious sect or denomination
Close corporations
The affairs of the close corporation, management may be by board of directors or the stockholders themselves
Securities - shares, participation or interests in a corporation or in a commercial enterprise or profit-making venture and
evidenced by a certificate, contract, instruments, whether written or electronic in character.
Promissory Note - if repayment period is more than 5 years, it is called a “bond”; if further backed up by a mortgage, it is called
“debenture”
Before a corporation could offer its securities to the public, it should first register its securities with the SEC
Upon approval by the SEC, if the securities would consist of certificates of stock for shares of stock (equity participation), those
shares should be listed with the Philippine Stock Exchange.
Is registration with the SEC an assurance that the shares would be listed in the PSE?
Backdoor Listing
A corporation merges with a dormant corporation whose shares are already listed in the PSE. The dormant corporation
survives.
Exempt Securities - those enumerated in the law that don’t require prior registration with the SEC
Exempted Securities - those which apply with the SEC for exemption
Exchange - a corporation licensed by the SEC for the purpose of putting up and maintaining the facilities for the trading of
securities (PSE)
Example:
Public market
Broker - person engaged in the business of buying and selling securities for the account of others (for licensing purposes, it is
the corporation)
Dealer - person who buys and sells securities for his/her own account in the ordinary course of business
Associated person of a broker or dealer" - employee therefor whom, directly exercises control of supervisory authority, but
does not include a salesman, or an agent or a person whose functions are solely clerical or ministerial
Salesman - natural person, employed as such as an agent, by a dealer, issuer or broker to buy and sell securities.
License issued to a salesman is only for the broker he specified in his application.
If he resigns or is terminated, he needs to apply for another license for a new broker. However, he needs clearance from his
former broker before getting a new license.
Purchase Confirmation - document issued by the broker to a client who is buying shares through the exchange, which shall
state the number of shares purchase, the unit price, the rate of commission, and the total amount to be paid by the client who
is buying
Margin Trading - purchase of shares partly financed by an amount advanced by the broker
Sales Confirmation - document issued by the broker to a client who is selling shares through the exchange, which shall state
the number of shares purchase, the unit price, the rate of commission
Over-the-Counter transaction - the sale of listed shares made directly between the buyer and seller and no longer coursed
through the exchange.
Advantages of Over-the-Counter
1. the buyer/seller does not pay commission to his broker
2. any transaction through the exchange is subject to tax at .5%
3. if the seller profits, the profit is subject to capital gains tax at 5% (for the 1st 100k) or 10% (excess) of the actual gain;
if seller wont make any profit, no tax
Disadvantages
1. you make all the documents
2. you make all the legwork
3. you might be buying counterfeit/fake certificates
Tender Offer - done when a person or group of persons representing the same interest would like to acquire at least 15% of a
listed company or 15% of a company that is not listed but with assets worth not less than 50million and with no less than 200
stockholders each owning no less than 100 shares. that person or group of persons file with SEC a formal offer stating the
number of shares that they intend to acquire, and the price they are wiling to pay for said shares, and the manner of payment
for said price.
Why 15%?
There is likelihood that you will get a seat in the board.
Derivatives - rights that are related to stock ownership. Includes options and warrants.
Wash Sales - form of stock price manipulation. illegal. (BW Resources Case)
Short Sales - the sale of shares by a person who does not own yet the shares when the prices are high. And when the prices
have gone down, he buys shares so he could deliver later on what he had sold. Legal. See civil code basis.
Section 25
Call - not the same meaning as in corporation law. Its a contract that gives the holder of the contract the right to sell a certain
number of particular securities at a given price and within a certain period.
Put - Its a contract that gives the holder of the contract the right to buy a certain number of particular securities at a given price
and within a certain period.
Straddle - Its a contract that gives the holder of the contract the right to buy/sell a certain number of particular securities at a
given price and within a certain period.
Ultra-vires Acts - acts not authorized by the AOI. May be corrected by ratification by the stockholders.
Stock Split - 1 share is divided into more shares. Par value decreases.
Reverse Stock Split - several shares are made into 1. Par value goes up.
Market value