LESSON 9 CORPORATE POWERS

200. How are corporate powers classified?

Corporate powers are classified as;

a. those expressly granted or authorized by law

b. those that are necessary to the exercise of the express or incidental powers

c. those incidental to its existence

BP 68 SEC 36 DE LEON, Hector S., Law on Partnership and Private Corporations

201. Give examples of implied powers of corporation.

Implied powers are those which are reasonably necessary to exercise the express powers and to accomplish or carry
out the purposes for which the corporation was formed. Example, if the business is a school, definitely it would
normally need to hire instructors and other facilitators in order to operate in the business although these things would
not be expressed in the articles of incorporation.

BP 68 SEC 36 DE LEON, Hector S., Law on Partnership and Private Corporations

202. Which are the expressed powers of the corporation?

Express powers of a corporation are those expressly conferred upon by law. These can be ascertained from the
special law creating the corporation or from the general incorporation law under which it is created, the general laws
of the land applicable to corporations, and its articles of incorporation.

BP 68 SEC 36 DE LEON, Hector S., Law on Partnership and Private Corporations

203. How much real property or real estate may a corporation hold?

A corporation may as much hold real property or real estate as long as these properties are not alienable lands of
public domain.

Lecture series, http://www.wordiq.com/definition/Bond

204. How much real property may banks acquire, hold or convey?

Under the General Banking Act, commercial banks may purchase and hold such real estate as shall be necessary for
its immediate accommodation in the transaction of its business, but it shall not hold possession of any real estate
under mortgage or trust deed, or the title and possession of any real estate purchased to secure any debt due to it for
a longer period than 5 years.

Lecture series, http://www.wordiq.com/definition/Bond

205. May non-stock corporations incur, decrease or increase bonded indebtedness?

Yes, a non-stock corporation may incur or create bonded indebtedness, or to increase the same, with the approval by
a majority vote of the board of trustees and of at least 2/3 of the members in a meeting duly called for the purpose.

BP 68 SEC 38 DE LEON, Hector S., Law on Partnership and Private Corporations

206. What are the classes of bonds a corporation may issue?
Types of bonds:
a. Convertible bonds or convertible debentures are those that can be converted into some other kind of
securities, usually common stock in the corporation that issued the bonds.
b. Fixed-rate bonds, where the interest rate remains constant throughout the life of the bond.
c. Floating-rate bonds, with a variable interest rate that is tied to a benchmark such as a money market index.
The "coupon" is then periodically reset, normally every three or six months.
d. High-yield bonds are bonds that yield more than investment grade bonds. The usual reason a company has
to pay more interest on their debt is that the company has poor credit rating, which means it is considered a
high risk investment. Bonds with a poor credit rating are sometimes known as junk bonds. Junk bonds of
companies that previously had higher credit ratings are sometimes known as fallen angels. Other
companies have lower credit ratings because they are relatively unknown and haven't established enough of
a track record to qualify for lower interest loans.
e. Zero-coupon bonds, which do not bear interest, as such, but are sold at a substantial discount from their par
value. The bondholder receives the full face value at maturity, and the "spread" between the issue price and
redemption price is the bond's yield. (Series E savings bonds from the U.S. government are zero-coupon
bonds.) Zero-coupon bonds may be created from normal bonds by finance institutions "stripping" the
coupons (the interest part of the bond) from them - that is, they separate the coupons from the principal part
of the bond and sell them independently from each other.
f. Inflation-indexed bonds, in which the principle (or "face" value) is indexed to inflation, which causes higher
interest payments (interest is calculated as the coupon rate multiplied by the principal amount).
g. Securitized bonds whose interest and principal payments are backed by an underlying cash flow from
another asset. For example, if a credit card company needs immediate cash to lend to credit card holders,
they can issue a bond that is backed by the credit card payments. Another large market of securitized bonds
are mortgage backed debt.
h. Subordinated bonds are those that have a lower priority than other debts of the issuing corporation, so if
there is not enough money to pay all the company's debts, the "senior" (higher-priority) bonds are paid first,
and the subordinate bonds are paid out of what money, if any, is left. These priority levels are called
'tranches', and many bonds have more than two. In some cases, the tranches don't determine whether a
bond holder will be paid, but rather how fast they will be paid.

http://www.wordiq.com/definition/Bond

207. What are the limitations on the power of the corporation to sell or dispose all or substantially all its corporate
assets including its goodwill?
Nothing in this section is intended to restrict the power of any corporation, without the authorization by the
stockholders or members, to sell, lease, exchange, mortgage, pledge or otherwise dispose of any of its property and
assets if the same is necessary in the usual and regular course of business of said corporation or if the proceeds of
the sale or other disposition of such property and assets be appropriated for the conduct of its remaining business.
BP 68 SEC 40 DE LEON, Hector S., Law on Partnership and Private Corporation

208. What is the test to apply in order to determine whether the disposition is for all or substantially all its corporate
assets of the corporation?
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was
incorporated.
After such authorization or approval by the stockholders or members, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property
and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval
by the stockholders or members.
BP 68 SEC 40 DE LEON, Hector S., Law on Partnership and Private Corporations

209. What may be the consideration for such sale or disposition?

A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if thereby the
corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was
incorporated.
BP 68 SEC 40 DE LEON, Hector S., Law on Partnership and Private Corporations

210. May such disposition after having been approved by the required vote of stockholders or members be
abandoned?
After such authorization or approval by the stockholders or members, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property
and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval
by the stockholders or members.
BP 68 SEC 40 DE LEON, Hector S., Law on Partnership and Private Corporations

211. In cases of disposition of corporate assets in the course of business done by the Board of Directors (or trustees)
do they require the approval of the stockholders or members?
After such authorization or approval by the stockholders or members, the board of directors or trustees may,
nevertheless, in its discretion, abandon such sale, lease, exchange, mortgage, pledge or other disposition of property
and assets, subject to the rights of third parties under any contract relating thereto, without further action or approval
by the stockholders or members.
BP 68 SEC 40 DE LEON, Hector S., Law on Partnership and Private Corporations

212. Suppose all or substantially all the corporate property or assets shall be disposed of, is the corporation
dissolved?
A sale or other disposition shall be deemed to cover substantially all the corporate property and assets if
thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for
which it was incorporated.
BP 68 SEC 40 DE LEON, Hector S., Law on Partnership and Private Corporations

213. When may a corporation be allowed to acquire its own share?

A stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose or
purposes, including but not limited to the following cases, provided, that the corporation has unrestricted retained
earnings in its books to cover the shares to be purchased or acquired.
BP 68 SEC 41 DE LEON, Hector S., Law on Partnership and Private Corporations

214. What basic conditions must be met before a corporation can acquire its own share?
The basic conditions are:

a. that it’s capital is not thereby impaired

b. that it be for a legitimate and proper corporate purpose

c. that there shall be unrestricted retained earnings to purchase the same and its capital is not thereby impaired

d. that the corporation acts in good faith and without prejudice to the rights of creditors and stockholders’ and

e. that the conditions of corporate affairs warrant it

BP 68 SEC 41 DE LEON, Hector S., Law on Partnership and Private Corporations

215. May a corporation invest its corporate funds in another corporation for a purpose other than its main purpose?
Yes, a corporation may invest its funds in any other corporation or business or for any purpose other than the primary
purpose for which it was organized.

BP 68 SEC 42 DE LEON, Hector S., Law on Partnership and Private Corporations

216. May such investment be made even without the approval of the stockholders or members?
No. If the investment’s purpose is other than its primary purpose, it will need the approval of the majority of the board
of directors or trustees and ratification by the stockholders (members if non-stock) representing at least 2/3 of the
outstanding capital stock. If the investment is reasonably necessary to accomplish its primary purpose then definitely
it would not need the approval of the stockholders or members.

BP 68 SEC 42 DE LEON, Hector S., Law on Partnership and Private Corporations

217. May a corporation be managed by another corporation?

Yes, a corporation can enter into a management contract with another corporation whereby “a corporation
undertakes to manage or operate all or substantially all of the business of another corporation, whether such
contracts are called service contracts, operating agreements or otherwise.

BP 68 SEC 44 DE LEON, Hector S., Law on Partnership and Private Corporations

218. What two basic regulatory conditions are required before a corporation conclude a management contract with
another corporation?
The two basic regulatory conditions are:

a. the contract must be approved by a majority of the quorum of the board of directors or trustees or ratified by the
prescribed vote of the stockholders or members ,as the case maybe, of both the managing and the managed
corporations at the meeting duly called for the purpose
b. the period of the contract must not be longer than 5 years for any one term except that contracts which relate to
the exploration, development, exploitation or utilization of natural resources may be entered into for such periods as
may be provided by pertinent laws or regulations.

BP 68 SEC 44 DE LEON, Hector S., Law on Partnership and Private Corporations

219. When shall a bigger vote of stockholders or members be required to approve such management contract?
A bigger vote of stockholders or members are required to approve such management contract which is 2/3 of the
total outstanding capital stock entitled to vote where a majority of the members of the BOD of the managing
corporation also constitute a majority of the members of the BOD of the managed corporation.

BP 68 SEC 44 DE LEON, Hector S., Law on Partnership and Private Corporations

220. What is the vote required in the above two cases?

In either of the 2 cases mentioned, the management contract must be approved by the stockholders of the managed
corporation owning at least 2/3, not merely a majority, of the total outstanding capital stock entitled to vote(members
for non-stock corporations).

BP 68 SEC 44 DE LEON, Hector S., Law on Partnership and Private Corporations

221. What is an ultra-vires act?

An ultra vires act is one not within the express, implied, and incidental powers of the corporation. It is an act impliedly
forbidden, because it is not expressly or impliedly authorized/necessary/incidental in the exercise of the powers so
conferred.

DE LEON, Hector S., Law on Partnership and Private Corporations

222. Is an ultra-vires act necessary illegal?

An ultra vires act is an act which is beyond the conferred powers of a corporation or the purposes for it was created.
It is not necessarily illegal. On the contrary it may be lawful and moral.

DE LEON, Hector S., Law on Partnership and Private Corporations

223. What is an intra-vires act?

Intra vires acts simply means acts which are within the legitimate powers of the corporation.

DE LEON, Hector S., Law on Partnership and Private Corporations

224. What is the effect if an ultra-vires act is executory on both sides?

An ultra vires act, as long as it is executor on both sides, cannot be enforced by either party involved. It is in the
public interest that corporations do not exceed the powers granted to them and their assets be not subjected to risks
created by forbidden acts.

DE LEON, Hector S., Law on Partnership and Private Corporations

225. Can an ultra-vires act be ratified?

It depends. If the contract is illegal per se, it is wholly void or inexistent therefore it cannot be ratified or validated.
Where the contract is not illegal per se but merely beyond the power of the corporation, the same is merely voidable
and may be enforced by performance or ratification.

DE LEON, Hector S., Law on Partnership and Private Corporations

LESSON 10 STOCKHOLDERS’ RIGHTS

PRE-EMPTIVE RIGHT

226. What is meant by the stockholder’s pre emptive right?

Stockholder’s pre-emptive right is a matter of their absolute right to subscribe to all issues or disposition of shares of
any class, in proportion to their respective shareholdings, unless such right is denied by the articles of incorporation
or an amendment thereto.

BP 68 SEC 39 DE LEON, Hector S., Law on Partnership and Private Corporations

227. What are the purpose of the pre emptive right of stockholders?
The purpose of pre-emptive right is to safeguard the right of a stockholder to preserve his proportionate influence
and interest in the corporation and the relative value of his holdings. Basically it is their protection from impairment
and dilution the basic rights of the stockholder in the corporation to voting control, dividend payments etc.

BP 68 SEC 39 DE LEON, Hector S., Law on Partnership and Private Corporations

228. To what cases may a stockholder exercise his pre emptive right?
a. right to vote

b. right to net earnings as dividends

c. right to net corporate assets after liquidation

BP 68 SEC 39 DE LEON, Hector S., Law on Partnership and Private Corporations

229. To what cases is the pre emptive right not applicable?

a. shares specified by law
-shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the
public
-shares to be issued in good faith with the approval of the majority stockholders in exchange for property
needed for corporate purposes
-shares to be issued in good faith with the approval of the majority stockholders of the outstanding capital
stock in payment of previously contracted debt.
b. remaining unsubscribed shares- if the shares corresponding to one stockholder are not subscribed or purchased
by him w/in the period fixed for the exercise of his pre-emptive right, it does not follow that said shares should again
be offered on a pro rata basis to stockholders who took advantage of their right of pre-emption.
BP 68 SEC 39 DE LEON, Hector S., Law on Partnership and Private Corporations

230. Do stockholders of close corporations enjoy the same pre emptive right?
Yes. In close corporations, the preemptive right of stockholders extends to all stock to be issued, including
reissuance of treasury shares, whether for money or for property or personal services, or in payment of corporate
debts, unless the articles of incorporation provides otherwise.

BP 68 SEC 39 DE LEON, Hector S., Law on Partnership and Private Corporations

231. To what cases shall such pre emptive right in close corporation extended? The pre-
emptive right of stockholders extends to all stock to be issued, whether common or preferred, voting or non-voting,
newly authorized shares or newly issued balance of originally authorized shares including treasury shares. BP 68
SEC 39 DE LEON, Hector S., Law on Partnership and Private Corporations

232. May the pre emptive right of stockholders in close corporation be limited?
Yes it can be limited by the provisions of the articles of incorporation.
BP 68 SEC 39 DE LEON, Hector S., Law on Partnership and Private Corporations

DIVIDEND RIGHT

ALL ANSWERS ON QUESTIONS 233-248 BASED ON BP 68 SEC 43 (DE LEON, Hector S., Law on Partnership
and Private Corporations)

233. Define dividend.

Dividend is the portion or part of the profits of a corporation that is set aside , declared, and ordered by the directors
to be paid ratably to the stockholders on demand or at a fixed time. It is a payment to the stockholders as a return on
their investment in proportion to the respective amounts of stocks which they hold.
234. Who has the power to declare dividends in a corporation?
The Board of Directors has the power to declare dividends.

235. From what source shall dividends be declared?

The dividends are declared from unrestricted retained earnings meaning those earnings appropriated or set aside for
future or specific purposes are not included from declaration.

236. In what forms shall dividends be declared?

a. cash dividends
b. property dividends
c. stock dividends- it shall not issued w/out the approval of stockholders representing at least 2/3 of the capital stock
then outstanding at a regular/ special meeting.
d. liquidating dividends-actually, these are distributions of the assets of the corporation upon dissolution or winding
up of business
e. optional dividends- dividends giving the stockholder the right to receive cash or stock dividend.
f. composite dividends-partly in cash, partly in stocks
g. scrip dividends-certificate issued to a stockholder entitling him to the payment of money etc
h. bond dividends

237. Which stockholders are entitled for stock dividends?

All stockholders are entitled to dividends on the basis of outstanding stock held by them.

238. May delinquent stocks earn dividends?

Any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs
and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is
fully paid.

239. Can the Board alone declare stock dividends?

No, the BOD alone cannot declare stock dividends. It can only be if issued upon the approval of stockholders
representing not less than 2/3 of the capital stock then outstanding at a regular/ special meeting.

240. May stock corporation retain surplus profits without declaring them into dividends?
It depends. Stock corporations are prohibited from retaining surplus profits in excess of 100% of their paid-in capital
except when justified by any reasons.

241. When may SEC compel corporations to declare dividends.

If the requirement regarding prohibitions on retaining surplus profits is violated, SEC may compel a corporation to
declare dividends.

242. What are the valid reasons acceptable to the SEC for retaining surplus profit in excess of 100% of paid – in
surplus without having to declare said excess into dividends?
a. when justified by definite corporate expansion projects or programs approved by the BODs

b. when the corporation is prohibited under any loan agreement with any financial institution or creditor (local or
foreign) from declaring dividends w/out its secured consent.

c. when it can be clearly shown that such retention is necessary under special circumstances obtaining in the
corporation etc
243. Is stock dividend taxable income to the stockholder?

If dividends paid are in the form of cash, those dividends are taxable. When a company issues a stock dividend,
rather than cash, there usually are not tax consequences until the shares are sold.

244. Can stock dividends be issued to a person who is not a stock holder in payment for services rendered?

No stock dividend shall be issued without the approval of stockholders representing not less than two-thirds (2/3) of
the outstanding capital stock at a regular or special meeting duly called for the purpose.

245. Can dividends be declared out of capital?

A capital dividend is a dividend paid out of capital profits. Note however, that a capital dividend is not the same thing
as a capital distribution for chargeable gain purposes. Not all dividends are paid in cash.

246. Can dividends be declared out of re – appraisal surplus?

When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the
business called retained earnings, or it can be paid to the shareholders as a dividend.

247. May cash dividends be declared out of paid – in or premium surplus?

Yes, Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their
paid-in capital stock.

248. May dividend declaration be revoked?

Yes. Dividend declaration may be revoked.

CORPORATION BOOKS-INSPECTION RIGHT

ALL ANSWERS ON QUESTIONS 249-256 BASED FROM BP 68 SEC 74-75 (DE LEON, Hector S., Law on
Partnership and Private Corporations)

249. What are the books to be kept by the corporation under the code?

a. a record of all business transactions

b. minutes of all meetings of stockholders or members

c. minutes of all meetings of directors or trustees

d. stock and transfer book, in the case of stock corporations

250. Can the stockholders or members examine these books?

Yes. The right of inspection of corporate books is granted by the express provision of the corporation law by which it
says “the record of all business transactions of the corporation and the minutes of any meeting shall be open to
inspection of any director, trustee, or stockholder or member of the corporation at reasonable hours on business
days.
251. What are the incidents to the right of a stockholders to inspect the corporate books and the records?

a. Copies, abstracts and memoranda- the stockholder or member can inspect it provided it has the order of the court
the permission to take books from the office of the corporation

b. Agent or representative- the right may be exercised by director, trustee, stockholder or member himself or by any
proper representative or attorney-in-fact

c. All pertinent books, papers etc- this right is for protection of their interest

252. When may the right of inspection be not availed of owned subsidiary of the corporation in which he is a
stockholder?
a. Purpose of inspection- the right is denied on the ground that the person demanding to examine or copy excerpts
from the corporation’s records and minutes has improperly used information secured through any prior examinations
of such, or was not acting in good faith or for a legitimate purpose in making his demand
b. Books of foreign corporation- the right does not apply where the corporation is not organized under the Philippine
law. The right of the stockholder is governed by the inspection requirements in the jurisdiction in which the
corporation was organized
c. Trade secrets- the corporation or its board may properly adopt the measures for the protection of such purposes
because there are some things that corporations may undoubtedly keep.
d. Reasonable hours- the right is only exercised at reasonable hours on business days

253. May a stockholder examine the books of records of wholly-owned subsidiary of the corporation in which he is a
stockholder?

Yes. The rights of the stockholder does not only pertain to records , it includes a voting trust certificate holder . They
can inspect for the protection of their interests in wholly-owned subsidiaries.

254. May a stockholder or member ask for a financial statement from the corporation? Yes,
stockholders or members can ask for financial statements from the corporation as it enforces their right to inspection
and examination or corporate books and records.

255. How soon shall corporation furnish the demanding stockholder with a copy of the financial statements? The
corporation shall furnish the demanding stockholders or members with its most recent financial statements within 10
days from receipt of their written request.

256. What are the rights of the holders of shares unpaid but not declared delinquent? Holders
of subscribed shares not fully paid which are not delinquent shall have all the rights of a stockholder.

APPRAISAL RIGHT

ALL ANSWERS BASED FROM BP 68 SEC 81-86 (DE LEON, Hector S., Law on Partnership and Private
Corporations)

257. What is meant by the appraisal right of the stockholder?

Appraisal Right of stockholders refers to his right to demand payment of the fair value of his shares, after dissenting
from a proposed corporate action, in the cases provided by law.
258. Who may exercise the right?

Any stockholder may exercise this appraisal right.

259. Under what instances may a stockholder exercise the right of appraisal?
a. in case any amendment to the A/I has the effect of changing or restricting the rights of any stockholders or class of
shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of
extending/ shortening the term of corporate existence
b. in case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the
corporate property and assets
c. in case of merger or consolidation.

260. What is the procedure of the exercise of the right of appraisal?

a. dissenting stockholder make a written demand on the corporation w/in 30 days after the date on w/c the vote was
taken for payment of the fair value of his shares.
b. if proposed action is effected, corporation shall pay to such stockholder, upon surrender of the corresponding
certificate(s) of stock w/in 10 days after demanding payment
c. upon payment of agreed price, stockholder shall transfer his shares to the corporation.

261. Is the corporation bound to pay the agreed or the awarded price of the shares of the withdrawing stockholder?
Yes the corporation is bound to pay it upon proper exercise of right,if the proposed action is effected.

262. What is the effect of a demand for appraisal and payment upon the rights of the withdrawing stockholder?
From the time of demand for payment of the fair value of a stockholder's shares until either the abandonment 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 in accordance with the provisions of this Code, except the
right of such stockholder to receive payment of the fair value thereof.

263. What is the effect of the failure of the corporation to pay the dissenting stockholder within 30 days from the date
of award?
That if the dissenting stockholder is not paid the value of his shares within 30 days after the award, his voting and
dividend rights shall immediately be restored.

264. Who bears the cost of appraisal?

The costs and expenses of appraisal shall be borne by the corporation, unless the fair value ascertained by the
appraisers is approximately the same as the price which the corporation may have offered to pay the stockholder, in
which case they shall be borne by the latter. 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 stockholder to receive payment was
unjustified.

265. Can the demand for appraisal and payment be withdrawn?

No demand for payment under this Title may be withdrawn unless the corporation consents thereto.

266. Under what instances shall the right of withdrawing stockholder to payment of the fair value of his
shares cease?
If, such demand for payment is withdrawn with the consent of the corporation, or if the proposed corporate action is
abandoned or rescinded by the corporation or disapproved by the Securities and Exchange Commission where such
approval is necessary, or if the Securities and Exchange Commission determines that such stockholder is not entitled
to the appraisal right, then the right of said stockholder to be paid the fair value of his shares shall cease, his status
as a stockholder shall thereupon be restored, and all dividend distributions which would have accrued on his shares
shall be paid to him.

267. What is the duty of a withdrawing stockholder from the time he files the written demand for appraisal and
payment?
No demand for payment under this Title may be withdrawn unless the corporation consents thereto. If, however, such
demand for payment is withdrawn with the consent of the corporation, or if the proposed corporate action is
abandoned or rescinded by the corporation or disapproved by the Securities and Exchange Commission where such
approval is necessary, or if the Securities and Exchange Commission determines that such stockholder is not entitled
to the appraisal right, then the right of said stockholder to be paid the fair value of his shares shall cease, his status
as a stockholder shall thereupon be restored, and all dividend distributions which would have accrued on his shares
shall be paid to him.

268. What is the effect, should the dissenting stockholder fail to submit his certificate of stock within ten days from
demand to the corporation?
His failure to do so shall, at the option of the corporation, terminate his rights under this Title. If shares represented
by the certificates bearing such notation are transferred, and the certificates consequently cancelled, the rights of the
transferor as a dissenting stockholder under this Title shall cease and the transferee shall have all the rights of a
regular stockholder; and all dividend distributions which would have accrued on such shares shall be paid to the
transferee.

269. What are the rights of a transferee of shares represented by a certificate bearing the notation that such shares
are dissenting?
If shares represented by the certificates bearing such notation are transferred, and the certificates consequently
cancelled, the rights of the transferor as a dissenting stockholder under this Title shall cease and the transferee shall
have all the rights of a regular stockholder; and all dividend distributions which would have accrued on such shares
shall be paid to the transferee.

SALE OF DELINQUENT STOCK

ALL ANSWERS BASED FROM BP 68 SEC 67-68 (DE LEON, Hector S., Law on Partnership and Private
Corporations)

270. Who may order the sale of delinquent stock?

The BOD may, by resolution, order the sale of delinquent stocks.

271. Within what period shall the sale be held?

The sale shall not be less than 30 days nor more than 60 days from the date the stocks become delinquent.

272. How shall delinquent stocks be sold?

a. the BOD passes a resolution declaring payable the whole or a certain percentage of unpaid subscriptions.
b. stockholders are given notice of the resolution by the corporation secretary. If they do not pay w/in 30 days from
the date specified therein, all the stocks covered by the subscription shall become delinquent and be subject to sale.
c. the BOD by resolution orders the sale of the delinquent stocks stating the informations with notice to the delinquent
stockholders which shall be published
d. on the date of sale, so many shares of the stock as maybe necessary to pay the amount due on subscription w/
accrued interest, cost of advertisement, and expenses of sale, will be sold at public auction to the highest bidder for
cash
273. Can such sale be stopped?
Yes, it can be stopped provided that the delinquent stockholder pays to the corporation on or before the date
specified for the sale of the delinquent stock or unless the BOD orders otherwise.

274. Who is considered the highest bidder in such sale?

The highest bidder in the sale is the person who pays the full amount of the balance on subscription together with
accrued interest, cost of advertisement, and expenses of sale, for the smallest number of shares or fraction of a
share.

275. Suppose, there is only one bidder who responded to the bid, may the corporation accept the bid?

Delinquent stock shall be sold at public auction to such bidder who shall offer to pay the full amount of the balance on
the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number
of shares or fraction of a share. The stock so purchased shall be transferred to such purchaser in the books of the
corporation and a certificate for such stock shall be issued in his favor. The remaining shares, if any, shall be credited
in favor of the delinquent stockholder who shall likewise be entitled to the issuance of a certificate of stock covering
such shares.

276. How shall delinquent stocks be disposed if there is no bidder in the auction sale?

In the absence of any bidders, the corporation may purchase for itself the delinquent stock. In such case, the
delinquent subscriber shall also be released from the liability with regards to his subscription which is deemed fully
paid.

277. What conditions must be present before any action to recover delinquent stock can be sustained?

No action to recover delinquent stock sold can be sustained upon the ground of irregularity or defect in the
notice of sale.

278. What are the effects when the stocks become delinquent?

No delinquent stock shall be voted for be entitled to vote or to representation at any stockholder's meeting, nor shall
the holder thereof be entitled to any of the rights of a stockholder except the right to dividends in accordance with the
provisions of this Code, until and unless he pays the amount due on his subscription with accrued interest, and the
costs and expenses of advertisement, if any.

279. Enumerate and discuss the other stockholder’s right.

(a) The right to vote;

(b) The right to dividends (Sec. 43);
(c) The right to inspect corporate books and records (Sec. 74-75);
(d) The right to elect and remove directors. (Sec. 24, 28);
(e) the right to stock certificate (Sec. 64);
(f) the right to preemption (Sec. 39);
(g) the right to enter voting trust agreements (Sec. 59);
(h) the right to ask for the dissolution of the corporation in proper case;
(i) the right to bring derivative suit – a suit fled by stockholder in the name and in behalf of the corporation to protect
corporate rights or redress wrongs committed against the corporation, whenever corporate officers refuse to bring
such actions or such officer are the one to be sued or held liable.
 LESSON 11 – MERGER/CONSOLIDATION

ALL ANSWERS BASED FROM BP 68 SEC 76-80 (DE LEON, Hector S., Law on Partnership and Private
Corporations)

280. Define Merger.

Merger is the combining of two or more companies, generally by offering the stockholders of one company securities
in the acquiring company in exchange for the surrender of their stock. One corporation which remains in being,
absorbing or merging in itself the other which disappears as a separate corporation

281. Define Consolidation.

Consolidation refers to a process by which two or more corporations join together into one corporation dissolving the
constituent corporations as separate corporations

282. Distinguish consolidations and merger for reorganization.

In the case of merger or consolidation of banks or banking institutions, building and loan associations, trust
companies, insurance companies, public utilities, educational institutions and other special corporations governed by
special laws, the favorable recommendation of the appropriate government agency shall first be obtained. If the
Commission is satisfied that the merger or consolidation of the corporations concerned is not inconsistent with the
provisions of this Code and existing laws, it shall issue a certificate of merger or of consolidation, at which time the
merger or consolidation shall be effective.

283. How are the corporations, parties to a merger or consolidation, called?

The board of directors or trustees of each corporation, party to the merger or consolidation, shall approve a
plan of merger or consolidation setting forth the following:
1. The names of the corporations proposing to merge or consolidate, hereinafter referred to as the
constituent corporations;
2. The terms of the merger or consolidation and the mode of carrying the same into effect;
3. A statement of the changes, if any, in the articles of incorporation of the surviving corporation in case of
merger; and, with respect to the consolidated corporation in case of consolidation, all the statements required to be
set forth in the articles of incorporation for corporations organized under this Code; and
4. Such other provisions with respect to the proposed merger or consolidation as are deemed necessary or
desirable.
LESSON 12-DISSOLUTION

ALL ANSWERS ON QUESTIONS 284-292 BASED FROM BP 68 SEC 43 (DE LEON, Hector S., Law on Partnership
and Private Corporations)

284. Define Dissolution as applied to a corporation.

The dissolution of a partnership is the end of the relationship that exists among the partners as a result of any partner
discontinuing his or her involvement in the partnership, as distinguished from the winding up of the outstanding
obligations of the business.

285. In how many ways may a corporation be dissolved?

There are 2 ways. A corporation formed or organized under the provisions of this Code may be dissolved voluntarily
or involuntarily.
286. What are the two legal steps involved in corporate dissolution?
a. The termination of the corporate existence at least as far as the right to go on doing ordinary business is
concerned
b. The winding-up of its affairs, the payment of its debts, and the distribution of its assets among the shareholders or
members and other persons in interest. After winding-up, the existence of the corporation is terminated for all
purposes.
287. In how many ways may voluntary dissolution be affected?
4 ways
1. by the vote of the board of directors/trustees and the stockholders/members, where no creditors are affected;
2. by judgment of the SEC after hearing of petition for voluntary dissolution, where creditors are affected;
3. by amending the articles of incorporation to shorten the corporate term;
4. in the case of a corporation sole, by submitting to the SEC a verified declaration of dissolution for approval.
289. What are the effects of dissolution?
The effects of dissolution are the following:
a .The corporation ceases as a body corporate to continue the business for which it was established;
b. The corporation continues as a body corporate for 3 years for purposes of winding-up or liquidation;
c. Upon the expiration of the winding-up period of 3 years, the corporation ceases to exist for all purposes and it can
no longer sue and be sued.

290. What are the methods of corporate liquidation or winding up?

1. Liquidation by the corporation itself;

2. Liquidation by a duly appointed receiver;
3. Liquidation by trustees to whom the board of directors or trustees had conveyed the corporate assets

291. How much time is given to the corporation to liquidate its affairs if the liquidation is done by the board of the
directors or trustee to liquidate the affairs of the corporation?

At any time during said three (3) years, the corporation is authorized and empowered to convey all of its property to
trustees for the benefit of stockholders, members, creditors, and other persons in interest. From and after any such
conveyance by the corporation of its property in trust for the benefit of its stockholders, members, creditors and
others in interest, all interest which the corporation had in the property terminates, the legal interest vests in the
trustees, and the beneficial interest in the stockholders, members, creditors or other persons in interest.

292. What is the order of distribution of the corporate assets upon liquidation?

1. The creditors of the corporation;

2. Stockholders/members, directors/trustees, or officers of the corporation;
3. Stockholders or members in proportion to their shareholdings or interest;
4. City or municipality where assets are located.
 University of the Cordilleras

(5:25-6:50 MWF)
GUIDE QUESTION ANSWERS
LESSONS 9-12

SUBMITTED BY APRIL LYN ROMILLO

November 12, 2010