Académique Documents
Professionnel Documents
Culture Documents
A. Corporation
1. Definition
2. Attributes of a Corporation
B. Classes of Corporations
C. Nationality of Corporations
3. How Exercised
a. By the Shareholders
b. By the Board of Directors
c. By the Officers
4. Trust Fund Doctrine
G. BOARD OF DIRECTORS AND TRUSTEES
1. Doctrine of Centralized Management
2. Business Judgment Rule
3. Tenure, Qualifications, and Disqualifications of Directors or Trustees
4. Elections
a. Cumulative Voting/Straight Voting
b. Quorum
5. Removal
6. Filling of Vacancies
7. Compensation
8. Rules on Fiduciaries’ Duties and Liabilities
9. Responsibility for Crimes
10. Inside Information
11. Contracts
a. By Self-Dealing Directors with the Corporation
b. Between Corporations with Interlocking Directors
12. Executive Committee
13. Meetings
a. Regular or Special
i. When and Where
ii. Notice
b. Who Presides
c. Quorum
d. Rule on Abstention
H. STOCKHOLDERS AND MEMBERS
2. Participation in Management
a. Proxy
b. Voting Trust
c. Cases When Stockholders’ Action is Required
i. By a Majority Vote
ii. By a Two-Thirds Vote
iii. By Cumulative Voting
3. Proprietary Rights
a. Right to Dividends
b. Right of Appraisal
c. Right to Inspect
d. Pre-Emptive Right
e. Right to Vote
f. Right to Dividends
g. Right of First Refusal
4. Remedial Rights
a. Individual Suit
b. Representative Suit
c. Derivative Suit
5. Obligations of a Stockholder
6. Meetings
a. Regular or Special
i. When and Where
ii. Notice
1. Subscription Agreements
3. Shares of Stock
a. Nature of Shares of Stock
b. Consideration for Shares of Stock
c. Watered Stock
i. Definition
ii. Liability of Directors for Watered Stocks
iii. Trust Fund Doctrine for Liability for Watered Stocks
d. Situs of the Shares of Stock
e. Classes of Shares of Stock
1. Modes of Dissolution
a. Voluntary
i. Where No Creditors Are Affected
ii. Where Creditors Are Affected
iii. Shortening of Corporate Term
b. Involuntary
i. Expiration of Corporate Term
ii. Non-use of Corporate Charter or Continuous
Inorperation of a Corporation
iii. Legislative Dissolution
iv. Dissolution by the SEC
2. Methods of Liquidation
1. Non-Stock Corporations
a. Definition
b. Purposes
c. Treatment of Profits
d. Distribution of Assets upon Dissolution
2. Foreign Corporations
a. Bases of Authority over Foreign Corporations
i. Consent
ii. Doctrine of “Doing Business” (related to definition under the
R.A. No. 7042 or the Foreign Investments Act)
b. Necessity of a License to Do Business
i. Requisites for Issuance of a License
ii. Resident Agent
c. Personality to Sue
d. Suability of Foreign Corporations
e. Instances When Unlicensed Foreign Corporations May Be Allowed
to Sue
f. Grounds for Revocation of License
L. Mergers and Consolidations
4. Procedure
5. Effectivity
POWER TO BORROW
MONEY except Section
CORPORATION CODE
Section 2
Being only a juridical entity, the physical acts of the corporation like the signing of documents,
can by performed only be natural persons duly authorized for the purpose.
Having Such Powers, Attributes and Properties Expressly Authorized by Law or Incident to its
Existence - A Creature of Limited Powers
THEORIES OF CORPORATE EXISTENCE AND POWERS
a. Theory of Concession
A corporation is a creature of the State and all its powers and capacities are only to the extent that the
laws and its charter has granted it.
Corporation is not merely an artificial being, but an aggregation of persons doing business through
an underlying economic unit called the “business enterprise.” Underlying theory is used to justify
piercing the veil of corporate fiction.
FOUR BASIC ADVANTAGES OF CORPORATE
ORGANIZATIONS
CENTRALIZED MANAGEMENT
Sale of franchise of a public utility requires approval of the NTC, but the sale of the shares
of the shareholders holding the franchise does not.
b. CENTRALIZED MANAGEMENT
Sec. 23. The board of directors or trustees. - Unless otherwise provided in this Code,
the corporate powers of all corporations formed under this Code shall be exercised,
by the board of directors or trustees to be elected from among the holders of stocks, or
where there is no stock, from among the members of the corporation,
who shall hold office for one (1) year until their successors are elected and qualified.
LIMITED LIABILITY TO INVESTORS
personality separate and distinct from those persons composing it, its
directors and officers, as well as from any other legal entity to which
(b) Such control must have been sued by the defendant to commit
fraud or wrong to perpetuate the violation of a statutory right or
other positive legal duly, or dishonest and unjust acts in
contravention of plaintiff’s legal rights; and
(1) When it is proven that the corporate officer has used the
corporation fiction to defraud a third party, or that he has acted
negligently, maliciously, or in bad faith, the corporate fiction may be
pierced to make both the officer and the corporation liable.
(3) When one tries to evade the civil liability by incorporating the
properties or the business to insulate them from judgment creditors
and employing the doctrine of limited liability.
NATIONALITY OF CORPORATION
CONTROL TEST
PRIMARY PLACE OF INCORPORATION TEST
3,6000 shares – 36 %
Under the above-quoted SEC Rules, there are two cases in determining the nationality of the Investee
Corporation.
Liberal Rule
The first case is the ‘liberal rule’, later coined by the SEC as the Control Test in its 30 May 1990 Opinion,
and pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which states, ‘(s)hares belonging
to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall
be considered as of Philippine nationality.’ Under the liberal Control Test, there is no need to further
trace the ownership of the 60% (or more) Filipino stockholdings of the Investing Corporation since a
corporation which is at least 60% Filipino-owned is considered as Filipino.
The second case is the Strict Rule or the Grandfather Rule Proper and pertains to the portion in said
Paragraph 7 of the 1967 SEC Rules which states, "but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of shares corresponding to such
percentage shall be counted as of Philippine nationality."
Under the Strict Rule or Grandfather Rule Proper, the
combined totals in the Investing Corporation and the Investee
Corporation must be traced (i.e., "grandfathered") to determine
the total percentage of Filipino ownership.
Moreover, the ultimate Filipino ownership of the shares must
first be traced to the level of the Investing Corporation and
added to the shares directly owned in the Investee Corporation
x x x.
In other words, based on the said SEC Rule and DOJ Opinion,
the Grandfather Rule or the second part of the SEC Rule applies
only when the 60-40 Filipino-foreign equity ownership is in
doubt (i.e., in cases where the joint venture corporation with
Filipino and foreign stockholders with less than 60% Filipino
stockholdings [or 59%] invests in other joint venture
corporation which is either 60-40% Filipino-alien or the 59%
less Filipino). Stated differently, where the 60-40 Filipino-
foreign equity ownership is not in doubt, the Grandfather Rule
will not apply.
(c) SEC Control Test: SEC Memorandum Circular No. 8,
s. 2013
Stock Corporation
Non-Stock Corporation
Corporation de Jure
De Facto Corporation
Corporation by Estoppel
Public Corporation
Private Corporation
Corporation sole
SHARES OF STOCK
General Rule on Classification of Shares
The shares of stock of stock corporations may be divided into classes or series of shares,
or both, any of which classes or series of shares may have such rights, privileges or
restrictions as may be stated in the articles of incorporation.
Exceptions:
(1) No share may be deprived of voting rights except those classified and issued as
"preferred" or "redeemable" shares.
(2) There shall always be a class or series of shares which have complete voting
rights.
(3) Any or all of the shares or series of shares may have a par value or have no par
value as may be provided for in the articles of incorporation: Provided, however, That
banks, trust companies, insurance companies, public utilities, and building and loan
associations shall not be permitted to issue no-par value shares of stock.
Common Shares
(1) amendment of the Articles of Incorporation to reduce the authorized capital stock,
(2) purchase of redeemable shares by the corporation, regardless of the existence of unrestricted
retained earnings, and
(3) dissolution and eventual liquidation of the corporation.
Furthermore, the doctrine is articulated in Section 41 on the power of a corporation to acquire its own
shares and in Section 122 on the prohibition against the distribution of corporate assets and property
unless the stringent requirements therefor are complied with.
Founders’ Shares
These must be provided for in the articles of incorporation, which would be entitled to
vote and be voted directors to the Board of Directors. But such privilege is good only for
five (5) years, which period shall begin from the date of the approval thereof by SEC.
Thereafter, they may form part of the common shares.
h. Treasury Stocks
They are shares of stock which have been issued and fully paid for, but subsequently re-
acquired by the issuing corporation by purchase, donation, or through some lawful
means.
Escrow Shares
Sec. 5. Corporators and incorporators, stockholders and members. - Corporators are those who compose
a corporation, whether as stockholders or as members. Incorporators are those stockholders or members
mentioned in the articles of incorporation as originally forming and composing the corporation and
who are signatories thereof.
Corporators in a stock corporation are called stockholders or shareholders. Corporators in a non-stock
corporation are called members.
a. Incorporators
Incorporators are those stockholders or members mentioned in the articles of incorporation as originally
forming and composing the corporation and who are signatories thereof.
b. Corporators
d. Members
Corporate Name
No corporate name may be allowed by the Securities and Exchange
Commission if the proposed name is identical or deceptively or confusingly
similar to that of any existing corporation or to any other name already
protected by law or is patently deceptive, confusing or contrary to existing
law. Where a change in a corporate name is approved, the commission
shall issue an amended certificate of incorporation under the amended
name.
Sec. 11. Corporate term. - A corporation shall exist for a
period not exceeding fifty (50) years from the date of
incorporation unless sooner dissolved or unless said period
is extended. The corporate term as originally stated in the
articles of incorporation may be extended for periods not
exceeding fifty (50) years in any single instance by an
amendment of the articles of incorporation, in accordance
with this Code; Provided, That no extension can be made
earlier than five (5) years prior to the original or subsequent
expiry date(s) unless there are justifiable reasons for an
earlier extension as may be determined by the Securities
and Exchange Commission.
Minimum Capital Stock Required of Stock
Corporations
Section 13
Sec. 13. Amount of capital stock to be subscribed and paid for the purposes of incorporation. - At
twenty-five percent (25%) of the authorized capital
least
Section 6
Where the articles of incorporation provide for non-voting shares in the cases allowed by this Code, the holders of
such shares shall nevertheless be entitled to vote on the following matters:
1. Amendment of the articles of incorporation;
Section 23
Section 29
Theory of Directly Vested Power; Board as Trustee of the Stockholders-Beneficiaries.
Under the doctrine of
Under Section 23, it is the board which exercises all corporation powers in a corporation.
centralized management, the Board does not act as agents of the stockholders, since their source of
power is originally vested by law and not delegated by the stockholders
The theory of delegated power of the board of directors similarly explains why, under Section 29 of
the Corporation Code, in cases where the vacancy in the corporation’s board of directors is caused
not only the expiration of a member’s term, the successor “so elected to fill a vacancy shall be
elected only for the unexpired term of his predecessors in office. The board may fill the vacancy so
as not to retard the corporation’s operations; yet, in recognition of the stockholders’ right to elect
members of the board, it limited the period during which the successor shall only to the
“unexpired term of his predecessor in office.”
Board Must Act as a Body.
Unless otherwise provided in the Code, all corporate powers and prerogatives are vested directly in
the Board of Directors. Consequently, the rule has two consequences:
(a) The resolution, contracts and transactions of the Board, cannot be overturned or set aside by
the stockholders or members and not even by the courts under the principle that the business of the
corporation has been left to the hands of the Board; and
(b) Directors and duly authorized officers cannot be held personally liable for acts or contracts
done with the exercise of their business judgment.
Exceptions:
(2) When the Directors or officers acted with fraud, gross negligence or in bad faith; and
(3) When the Directors or officers act against the corporation in conflict of interest situation.
Montelibano v. Bacolod Murcia Milling Co., 5 SCRA
36 (1962)
(a) He must own at least one (1) share in his name and if he ceases to own at least one (1) share in
his own name, he automatically ceases as a director. EXCEPTION: Trustee in a voting trust may be elected
director/trustee.
NOTE: It is the commission (not the conviction) that must take place within five (5) years prior to election.
.
Section 23. The board of directors or trustees. - Unless otherwise provided in this Code, the corporate powers of all corporations formed under
this Code shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall
hold office for one (1) year until their successors are elected and qualified. (28a)
Every director must own at least one (1) share of the capital stock of the corporation of which he is a director, which share shall stand in his
name on the books of the corporation. Any director who ceases to be the owner of at least one (1) share of the capital stock of the corporation
of which he is a director shall thereby cease to be a director. Trustees of non-stock corporations must be members thereof. A majority of the
directors or trustees of all corporations organized under this Code must be residents of the Philippines.
Section 27
Section 27. Disqualification of directors, trustees or officers. - No person convicted by final judgment of an offense punishable by imprisonment
for a period exceeding six (6) years, or a violation of this Code committed within five (5) years prior to the date of his election or appointment,
shall qualify as a director, trustee or officer of any corporation
Directors who transfer all their shares to a
trustee under a VTA automatically ceases to
directors of the corporation.
ELECTION of DIRECTORS or TRUSTEES
b. Manner of Election
- Cumulative voting is a type of voting system that helps strengthen the ability of
minority shareholders to elect a director. This method allows shareholders to cast all of their
votes for a single nominee for the board of directors when the company has multiple
openings on its board..
Straight Voting
Candidate 1 Candidate 2 Candidate 3
Rob 60 60 60
Jim 40 40 40
Cumulative Voting
Rob 60 60 60 180
Rob owns 60 shares in the company and Jim owns 40 shares. During the electing
of the board of directors, Rob has a total of 180 votes, 60 shares for each of the
three candidates. Jim has a total of 120 votes, 40 shares for the three candidates.
Each man can distribute the total number of votes he holds between the open
seats on ballot. To ensure the person of Rob’s choice is elected, he casts at least 61
of his votes for a single candidate.
Report of Election of Directors, Trustees and Officers
Section 26. Report of election of directors, trustees and officers.
- Within thirty (30) days after the election of the directors,
trustees and officers of the corporation, the secretary, or
any other officer of the corporation, shall submit to the
Securities and Exchange Commission, the names,
nationalities and residences of the directors, trustees, and
officers elected. Should a director, trustee or officer die,
resign or in any manner cease to hold office, his heirs in
case of his death, the secretary, or any other officer of the
corporation, or the director, trustee or officer himself,
shall immediately report such fact to the Securities and
Exchange Commission.
Election of Directors
• Section 29. Vacancies in the office of director or • Section 23 which provides for the powers of
trustee. - Any vacancy occurring in the board of the Board of Directors expressly requires
directors or trustees other than by removal by the
stockholders or members or by expiration of term, them “to be elected from among the
may be filled by the vote of at least a majority of the holders of stock or when there is no stock,
remaining directors or trustees, if still constituting a from among the members of the
quorum; otherwise, said vacancies must be filled by corporation.”
the stockholders in a regular or special meeting called
for that purpose. A director or trustee so elected to fill
a vacancy shall be elected only or the unexpired term
of his predecessor in office.
• Any directorship or trusteeship to be filled by reason
of an increase in the number of directors or trustees
shall be filled only by an election at a regular or at a
special meeting of stockholders or members duly
called for the purpose, or in the same meeting
authorizing the increase of directors or trustees if so
stated in the notice of the meeting.
•
Any provision in the by-laws or the practice of the corporation
giving a stockholder a permanent seat in the Board of Directors
of the corporation would be against the provision of Section 28
and 29 of the Corporation Code which require of the board of
corporations to be elected. In addition, Section 23 which
provides for the powers of the Board of Directors expressly
requires them “to be elected from among the holders of stock or
when there is no stock, from among the members of the
corporation.”
Grace Christian High School v. Court of Appeals, 281 SCRA 133 (1997)
Valle Verde Country Club v. Africa, 598 SCRA 202 (2009)
June 2017 One Year Term June 2018 Holdover December 2018
If vacancy within one year term , vacancy may be filled by remaining board member. If
vacancy within hold over- stockholders
Section 29- election by remaining members of the Board only during unexpired one year term.
Hold over period. Original one year term has expired, incumbent still holding succeeding
term.
Reason for Vacancies in the Board:
Removal (Section 28)
Expiration of Term
Death
Resignation
Section 28
Section 28. Removal of directors or trustees. –
Any director or trustee of a corporation may be removed from office by a vote of the stockholders holding or
representing at least two-thirds (2/3) of the outstanding capital stock, or if the corporation be a non-stock
corporation, by a vote of at least two-thirds (2/3) of the members entitled to vote:
Provided, That such removal shall take place either at a regular meeting of the corporation or at a special meeting
called for the purpose, and in either case, after previous notice to stockholders or members of the corporation of the
intention to propose such removal at the meeting.
A special meeting of the stockholders or members of a corporation for the purpose of removal of directors or
trustees, or any of them, must be called by the secretary on order of the president or on the written demand of the
stockholders representing or holding at least a majority of the outstanding capital stock, or, if it be a non-stock
corporation, on the written demand of a majority of the members entitled to vote.
Should the secretary fail or refuse to call the special meeting upon such demand or fail or refuse to give the notice, or
if there is no secretary, the call for the meeting may be addressed directly to the stockholders or members by any
stockholder or member of the corporation signing the demand. Notice of the time and place of such meeting, as well
as of the intention to propose such removal, must be given by publication or by written notice prescribed in this
Code. Removal may be with or without cause: Provided, That removal without cause may not be used to deprive
minority stockholders or members of the right of representation to which they may be entitled under Section 24 of
this Code.
Vacancies in Board - Vacancy resulting from removal pursuant to Section 28
may be filled by election at the same meeting without further notice, or at any
regular or any special meeting called for the purpose, after giving notice.
A director or trustee so elected to fill a vacancy shall only be for the unexpired
term of his predecessor in office.
VACANCIES IN THE BOARD
Vacancies to be filled by Election of Vacancies to be filled by majority of
Stockholders/members remaining BOD
Vacancy resulting from removal pursuant to Section Any vacancy occurring in the Board of Directors or
28 trustees other than by removal by the stockholders
(Section 28- Any director or trustee of a or members or by expiration of term
corporation may be removed from office by a vote
of the stockholders holding or representing at least
two-thirds (2/3) of the outstanding capital stock, or
if the corporation be a non-stock corporation, by a
vote of at least two-thirds (2/3) of the members
entitled to vote)
i.e., resignation, death, incapacity Director shall only
serve remaining of the term.
Vacancy resulting in increase in board seats
e. Requisites of Board Meetings
In this case, petitioner Raniel was removed as a corporate officer through the resolution of Nephro's Board
of Directors adopted in a special meeting on February 2, 1998. As correctly ruled by the SEC, petitioners'
removal was a valid exercise of the powers of Nephro's Board of Directors.
Petitioners do not dispute that the stockholders' meeting was held in accordance with Nephro's By-Laws.
The ownership of Nephro's outstanding capital stock is distributed as follows:
Jochico - 200 shares;
Steffens - 100 shares;
Viriya - 100 shares;
Raniel - 75 shares; and
Pag-ong - 25 shares, or a total of 500 shares.
Section 25
b. Notice
Notice of regular or special meetings stating the date, time and place of the
meeting must be sent to every director or trustee at least one (1) day prior to the
scheduled meeting, unless otherwise provided by the by-laws. A director or
trustee may waive this requirement, either expressly or impliedly.
c. Place of Meetings
d. Quorum of Board
Section 25
xxx
Unless the articles of incorporation or the by-laws provide for a greater majority, a
majority of the number of directors or trustees as fixed in the articles of incorporation
shall constitute a quorum for the transaction of corporate business, and every decision
of at least a majority of the directors or trustees present at a meeting at which there is a
quorum shall be valid as a corporate act, except for the election of officers which shall
require the vote of a majority of all the members of the board.
Section 53. Regular and special meetings of directors or trustees. -
Regular meetings of the board of directors or trustees of every
corporation shall be held monthly, unless the by-laws provide
otherwise.
Special meetings of the board of directors or trustees may be
held at any time upon the call of the president or as provided
in the by-laws.
Meetings of directors or trustees of corporations may be held
anywhere in or outside of the Philippines, unless the by-laws
provide otherwise. Notice of regular or special meetings
stating the date, time and place of the meeting must be sent to
every director or trustee at least one (1) day prior to the
scheduled meeting, unless otherwise provided by the by-laws.
A director or trustee may waive this requirement, either
expressly or impliedly.
Calica v. Labatique, (CA) 55 OG 647
Ghe entries contained in the minutes are prima facie evidence of what actually took place during the
meeting, pursuant to Section 44, Rule 130 of the Revised Rule on Evidence.
8. COMPENSATION OF DIRECTORS
Section 30
Provided, however, That any such compensation other than per diems may
be granted to directors by the vote of the stockholders representing at least
a majority of the outstanding capital stock at a regular or special
stockholders' meeting. In no case shall the total yearly compensation of
directors, as such directors, exceed ten (10%) percent of the net income
before income tax of the corporation during the preceding year.
Singson v. Commission on Audit, 627 SCRA 36 (2010)
The nomenclature for the compensation of the directors used herein is per diems, and not salary or any
other words of similar import. Thus, petitioners
are allowed to receive only per diems of
P1,000.00 for every meeting that they actually attended. However, the Board
of Directors may increase or decrease the amount of per diems, when the
prevailing circumstances shall warrant. No other compensation may be given
to them, except only when they serve the corporation in another capacity.
The Court upholds the findings of respondent that petitioners right to compensation as members of the PICCI Board of Directors is limited only to per diem
of P1,000.00 for every meeting attended, by virtue of the PICCI By-Laws..
Western Institute of Technology v. Salas, 278 SCRA 216 (1997)
Rule that directors or trustees are not entitled to salary or other compensation when they perform
nothing more than the usual and ordinary duties of their office founded upon a presumption that
directors /trustees render service gratuitously and that the return upon their shares
adequately furnishes the motives for service, without compensation.
Under the foregoing section, there are only two (2) ways by which members of
the board can be granted compensation apart from reasonable per diems:
(1) when there is a provision in the by-laws fixing their compensation; and
(2) when the stockholders representing a majority of the outstanding capital
stock at a regular or special stockholders meeting agree to give it to them.
Western Institute of Technology v. Salas, 278 SCRA 216 (1997)
Section 35
Section 35. Executive committee. - The by-laws of a corporation may create an executive
committee, composed of not less than three (3) members of the board, to be appointed
by the board.
Said committee may act, by majority vote of all its members, on such specific matters within the
competence of the board, as may be delegated to it in the by-laws or on a majority vote of the board,
except with respect to:
(1) approval of any action for which shareholders' approval is also required;
(2) the filing of vacancies in the board;
(3) the amendment or repeal of by-laws or the adoption of new by-laws;
(4) the amendment or repeal of any resolution of the board which by its
express terms is not so amendable or repealable; and
(5) a distribution of cash dividends to the shareholders.
Unless otherwise provided in the
articles of incorporation or the by-
laws, officers of a non-stock
corporation may be directly elected
by the members. (Section 95)
Gurrea v. Lezama, 105 Phil. 553 (1958)
From the above the following conclusion is clear: that we can only regard
as officers of a corporation those who are given that character either by the
Corporation Law or by its by-laws. The rest can be considered merely as
employees or subordinate officials.
And considering that plaintiff has been appointed manager by the board of
directors and as such does not have the character of an officer, the
conclusion is inescapable that he can be suspended or removed by said
board of directors under such terms as it may see fit and not as provided
for in the by-laws.
Mita Pardo de Tavera v. Tuberculosis Society, 112 SCRA 243 (1982)
Since the by-laws of the company provided for only one position of Vice-
President which was already filled-up, the appointment of another vice-
president in a special meeting of the board of directors did not constitute the
appointee a corporate officer.
Matling Industrial and Commercial Corp. v. Coros, 633 SCRA
12(2010)
By-laws provide expressly that the Board of Directors “shall have full
power to create new offices and to appoint the officers thereto.”
Any office created, and any officer appointed pursuant to such clause
does not become a corporate officer, but is an employee and the
determination of the rights and liabilities relating to his removal are
within the jurisdiction of the NLRC.
Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations
shall be exercised by the board of directors. The power and the responsibility to decide whether the
corporation should enter into a contract that will bind the corporation are lodged in the board, subject
to the articles of incorporation, bylaws, or relevant provisions of law. In the absence of authority from
the board of directors, no person, not even its officers, can validly bind a corporation.
,
However, just as a natural person may authorize another to do certain acts for and on his behalf
The authority of a corporate officer or agent in dealing with third persons may be:
actual
apparent
Actual authority is either express or implied. The extent of an agents express authority is
to be measured by the power delegated to him by the corporation, while the extent of his
implied authority is measured by his prior acts which have been ratified or approved, or
their benefits accepted by his principal.
Banate v. Philippine Countryside Rural Bank, 625 SCRA
21 (2010
Actual authority is either express or implied. The extent of an agents express authority is
to be measured by the power delegated to him by the corporation, while the extent of his implied
authority is measured by his prior acts which have been ratified or approved, or their benefits
accepted by his principal.
Naturally, the third person has little or no information as to what occurs in corporate meetings; and he
must necessarily rely upon the external manifestations of corporate consent. The integrity of
commercial transactions can only be maintained by holding the corporation strictly to the liability fixed
upon it by its agents in accordance with law. What transpires in the corporate board room is entirely an
internal matter. Hence, petitioner may not impute negligence on the part of the respondents in failing
to find out the scope of Atty. Solutas authority. Indeed, the public has the right to rely on the
trustworthiness of bank officers and their acts.
As early as June 1993, or prior to the 90-day period within which to make the full payment, respondents already requested a
modification of the earlier agreement such that the full payment should be made upon receipt of this Courts decision confirming
petitioners right to the subject property. The matter was brought to the petitioners attention and was in fact discussed by the
members of the Board. Instead of acting on said request (considering that the 90-day period was about to expire), the board deferred
action on the request. It was only after one year and after the banks reorganization that the board rejected respondents request. We
cannot therefore blame the respondents in relying on the July 14, 1993 Letter-Agreement. Petitioners inaction, coupled with the
apparent authority of Atty. Soluta to act on behalf of the corporation, validates the July 14 agreement and thus binds the corporation.
All these taken together, lead to no other conclusion than that the petitioner attempted to defraud the respondents. This is bolstered
by the fact that it forged another contract involving the same property, with another buyer, the spouses Vaca, notwithstanding the
pendency of the instant case.
We would like to emphasize that if a corporation knowingly permits its officer, or any other agent, to perform acts within the scope
of an apparent authority, holding him out to the public as possessing power to do those acts, the corporation will, as against any
Banate v. Philippine Countryside Rural Bank, 625 SCRA 21 (2010)
(1) the general manner in which the corporation holds out an officer or agent as
having the power to act, or in other words, the apparent authority to act in general, with
which it clothes him; or
(2) the acquiescence in his acts of a particular nature, with actual or constructive
knowledge thereof, within or beyond the scope of his ordinary powers.
Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition
in other instances when the power was exercised without any objection from its board or shareholders.
DUTIES OF DIRECTORS, TRUSTEES OR OFFICERS
Section 31. Liability of directors, trustees or officers. - Directors or trustees
who wilfully and knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross negligence or bad
faith in directing the affairs of the corporation or acquire any personal
or pecuniary interest in conflict with their duty as such directors or
trustees shall be liable jointly and severally for all damages resulting
therefrom suffered by the corporation, its stockholders or members
and other persons.
DUTY OF OBEDIENCE Section 25 - directors must perform duties enjoined on them by law
Section 45 - Ultra vires doctrine
“willfully or knowingly” assent to “patently unlawful act
- those declared by law to be unlawful
- mere assent to unlawful act will make
director liable; not enough to abstain to
escape liability
SECTION 31 SECTION 34
TRANSACTION COVERED Contract of the corporation with one or more of its Contracts between two or more
directors, trustees or officers corporations having interlocking directors
STATUS OF CONTRACT VOIDABLE, unless the following are present:
(a) Presence of directors or trustee not necessary to Shall not be invalidated on that ground
constitute quorum alone- EXCEPT in case of FRAUD
(b) Vote of such director or trustee not necessary for And PROVIDED, the contract is FAIR and
approval of contract REASONABLE
(c) Contract is fair and reasonable
(d) In case of officer, contract authorized by Board
RATIFICATION When first two conditions set forth in the preceding If the interest of the interlocking director in
paragraph is absent, such contract may be ratified by one corporation is substantial and his
the vote of the stockholders representing at least 2/3 of interest in the other corporation or
the OCS and 2/3 of members. corporations is merely nominal, he shall be
subject to the provisions of the preceding
section insofar as the latter corporation or
corporations are concerned.
Stockholdings exceeding twenty (20%)
percent of the outstanding capital stock shall
be considered substantial for purposes of
interlocking directors. 2/3 vote of
outstanding capital stock
Section 32. Dealings of directors, trustees or officers with the corporation. - A contract of the corporation
with one or more of its directors or trustees or officers is voidable, at the option of such corporation,
unless all the following conditions are present:
1. That the presence of such director or trustee in the board meeting in which the contract was
approved was not necessary to constitute a quorum for such meeting;
2. That the vote of such director or trustee was not necessary for the approval of the contract;
3. That the contract is fair and reasonable under the circumstances; and
4. That in case of an officer, the contract has been previously authorized by the board of directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a
contract with a director or trustee, such contract may be ratified by the vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or of at least two- thirds (2/3) of
the members in a meeting called for the purpose: Provided, That full disclosure of the adverse interest
of the directors or trustees involved is made at such meeting: Provided, however, That the contract is
fair and reasonable under the circumstances. (n)
Section 33. Contracts between corporations with interlocking directors. - Except in cases of fraud, and
provided the contract is fair and reasonable under the circumstances, a contract between two or more
corporations having interlocking directors shall not be invalidated on that ground alone:
Provided, That if the interest of the interlocking director in one corporation is substantial and his
interest in the other corporation or corporations is merely nominal, he shall be subject to the
provisions of the preceding section insofar as the latter corporation or corporations are concerned.
Stockholdings exceeding twenty (20%) percent of the outstanding capital stock shall be considered
substantial for purposes of interlocking directors.
CORPORATE POWERS
1. General Powers; Theory of General Capacity
2. Specific Powers; Theory of Specific Capacity
a. Power to Extend or Shorten Corporate Term
b. Power to Increase or Decrease Capital Stock or Incur, Create,
Increase Bonded Indebtedness
c. Power to Deny Pre-Emptive Rights
d. Power to Sell or Dispose of Corporate Assets
e. Power to Acquire Own Shares
f. Power to Invest Corporate Funds in Another Corporation
or Business
g. Power to Declare Dividends
h. Power to Enter Into Management Contracts
TITLE IV
POWERS OF CORPORATIONS
Sec. 36. Corporate powers and capacity.
Sec. 37. Power to extend or shorten corporate term. Appraisal Right, in
case of extension; 2/3
Sec. 38. Power to increase or decrease capital stock;
incur, create or increase bonded indebtedness. 2/3 vote
Sec. 39. Power to deny pre-emptive right. 2/3 vote
Sec. 40. Sale or other disposition of assets. Appraisal right; 2/3 vote
Sec. 41. Power to acquire own shares.
Sec. 42. Power to invest corporate funds in another corporation or
business or for any other purpose. Appraisal Right; 2/3 vote
Sec. 43. Power to declare dividends. In case of stock dividends, 2/3 vote
Sec. 44. Power to enter into management contract.majority, 2/3 vote
EXPRESS - Section 36, Section 45
POWER TO SUE - directors if not derivative suit
- failure to attach Secretary’s Certificate of Board Resolution
authorizing the filing of Petition is fatal
IMPLIED - flow from the nature of the underlying business enterprise; discretionary authority to
enter into contracts necessary for business.
i.e., non-realty corporation has the implied power to lease out idle property’ invest
money at the best possible returns
Section 23. The board of directors or trustees. - Unless otherwise provided in this
Code, the corporate powers of all corporations formed under this Code shall
be exercised, all business conducted and all property of such corporations
controlled and held by the board of directors or trustees.
(2) Second Type: Those which are effected by corporate representative who act without
authority (even though the contract is within the express/implied/incidental powers of the corporation
they represent),
- may be ratified
For valid ratification of an ultra vires act, the following requisites must concur:
(b) The creditors are not prejudiced, or all of them have given their consent;
(c) The rights of the public or the State are not involved; and
(d) All the stockholders must give their consent.
Such ratification can only come from the act or omission of the Board of Directors.
Apparent authority, is derived not merely from practice. Its existence may be ascertained through (1) the
general manner in which the corporation holds out an officer or agent as having the power to act or, in
other words, the apparent authority to act in general, with which it clothes him; or (2) the acquiescence in
his acts of a particular nature, with actual or constructive knowledge thereof, whether within or beyond
the scope of his ordinary powers.
(3) Third Type: Those which are contrary to laws or public policy. VOID. Cannot be ratified.
POWERS OF THE Section 37 Section 38. POWER Section 40. SALE OR OTHER Section 42. POWER TO Section 43. POWER TO
CORPORATION POWER TO EXTEND TO INCREASE OR DISPOSITION OF ASSETS. INVEST CORPORATE DECLARE
OR SHORTEN DECREASE CAPITAL FUNDS IN ANOTHER DIVIDENDS. –
CORPORATE TERM STOCK; INCUR, CORPORATION OR
CREATE OR BUSINESS OR FOR
INCREASE BONDED ANY OTHER PURPOSE
INDEBTEDNESS.
may extend or shorten Consideration may be money, stocks, a private corporation may invest its may declare dividends out of
its term as stated in the bonds or other instruments for funds in any other corporation or business the unrestricted retained
articles of incorporation the payment of money or other or for any purpose other than the earnings which shall be payable in
property or consideration, as its board of primary purpose for which it cash, in property, or in
Section 11. Corporate term. - A directors or trustees may deem was organized stock to all stockholders
a period
corporation shall exist for expedient, when authorized on the basis of
not exceeding fifty (50) DOES NOT APPLY Where outstanding stock held
years from the date of A sale or other disposition shall be deemed to cover the investment by the corporation is by them: Provided, That any cash
incorporation unless sooner substantially all the corporate property and reasonably necessary to dividends due on
dissolved or unless said period is extended. The
corporate term as originally stated in the articles assets if thereby the corporation would be rendered accomplish its primary delinquent stock shall
of incorporation may be extended for incapable of continuing the purpose as stated in the articles first be applied to the
periods not exceeding business or accomplishing the purpose of incorporation. unpaid balance on the
fifty (50) years in any for which it was incorporated. subscription plus costs and
single instance by an Nothing in this section is intended to restrict the power of any expenses, while stock
corporation, without the authorization by the stockholders or
amendment of the members, to sell, lease, exchange, mortgage, pledge or dividends shall be
otherwise dispose of any of its property and assets if the same
articles of incorporation, is necessary in the usual and regular withheld from the
in accordance with this Code; Provided, That no
course of business of said delinquent stockholder
earlier than
extension can be made
corporation or if the proceeds of the sale or other until his unpaid
five (5) years prior to the disposition of such property and assets be appropriated for
the conduct of its remaining business. subscription is fully
original or subsequent paid.
expiry date(s) unless
there are justifiable reasons
for an earlier extension as may be determined by
the Securities and Exchange Commission.
Approval majority vote of the board of directors and, majority vote of its board of directors majority of the board of Majority of board of directors of
Requirements (a) majority vote at a stockholder's meeting duly called for the or trustees directors or trustees a stock corporation
of the board of directors or purpose, two-thirds (2/3) of the outstanding and ratified by the
trustees; and capital stock shall favor the increase or by the vote of the stockholders stockholders representing at no stock dividend shall be issued
(b) ratification at diminution of the capital stock representing at least two-thirds (2/3) least two-thirds (2/3) of the without the approval of
a meeting by the stockholders of the outstanding capital stock, or in outstanding capital stock, or stockholders representing not
representing at least two- case of non-stock corporation, by the by at least two thirds (2/3) of less than two-thirds (2/3) of the
thirds (2/3) of the outstanding vote of at least to two-thirds (2/3) of the members in the case of outstanding capital stock
capital stock or by at least the members non-stock corporations
two-thirds (2/3) of the
members in case of non-stock In non-stock corporations where there
corporations are no members with voting rights, the
vote of at least a majority of the
trustees in office will be sufficient
authorization for the corporation to
enter into any transaction authorized
by this section.
Meeting at a stockholder's or member's meeting duly at a stockholder's or member's at a stockholder's or For stock dividends- at a regular
at a stockholder's or called for the purpose. meeting duly called for the purpose. member's meeting duly called or special meeting duly called for
member's meeting duly called Written notice of the proposed sale for the purpose. Written the purpose.
for the purpose. Written notice of the proposed increase or and the time and place of the meeting notice of the proposed
diminution of the capital stock or of the shall be addressed to each stockholder investment and the time and
Written notice of the incurring, creating, or increasing of any or member at his place of residence as place of the meeting shall be
proposed action and of the bonded indebtedness and of the time and shown on the books of the corporation addressed to each
time and place of the meeting place of the stockholder's meeting at which and deposited to the addressee in the stockholder or member at his
shall be addressed to each the proposed increase or diminution of the post office with postage prepaid, or place of residence as shown
stockholder or member at his capital stock or the incurring or increasing of served personally on the books of the
place of residence as shown any bonded indebtedness is to be corporation and deposited to
on the books of the considered, must be addressed to each the addressee in the post
corporation and deposited to stockholder at his place of residence as office with postage prepaid,
the addressee in the post shown on the books of the corporation and or served personally
office with postage prepaid, deposited to the addressee in the post office
or served personally: with postage prepaid, or served personally.
Documentary Section 16. Amendment of Articles of
Requirements Incorporation. - x x x A certificate in duplicate must be signed by a majority of the
directors of the corporation and countersigned by the chairman
The original and amended articles and the secretary of the stockholders' meeting, setting forth:
together shall contain all provisions (1) That the requirements of this section have been complied
required by law to be set out in the with;
articles of incorporation. Such articles, as (2) The amount of the increase or diminution of the capital
amended shall be indicated by stock;
underscoring the change or changes (3) If an increase of the capital stock, the amount of capital
made, and a copy thereof duly certified stock or number of shares of no-par stock thereof actually
under oath by the corporate secretary subscribed, the names, nationalities and residences of the
and a majority of the directors or persons subscribing, the amount of capital stock or number of
trustees stating the fact that said no-par stock subscribed by each, and the amount paid by each
amendment or amendments have been on his subscription in cash or property, or the amount of
duly approved by the required vote of capital stock or number of shares of no-par stock allotted to
the stockholders or members, shall be each stock-holder if such increase is for the purpose of making
submitted to the Securities and Exchange effective stock dividend therefor authorized;
Commission. (4) Any bonded indebtedness to be incurred, created or
increased;
(5) The actual indebtedness of the corporation on the day of
the meeting;
(6) The amount of stock represented at the meeting; and
(7) The vote authorizing the increase or diminution of the
capital stock, or the incurring, creating or increasing of any
bonded indebtedness.
One of the duplicate certificates shall be kept on file in the
office of the corporation and the other shall be filed with the
Securities and Exchange Commission and attached to the
original articles of incorporation. From and after approval by
the Securities and Exchange Commission and the issuance by
the Commission of its certificate of filing, the capital stock shall
stand increased or decreased and the incurring, creating or
increasing of any bonded indebtedness authorized, as the
certificate of filing may declare: Provided, That the Securities
and Exchange Commission shall not accept for filing any
certificate of increase of capital stock unless accompanied by
the sworn statement of the treasurer of the corporation
lawfully holding office at the time of the filing of the certificate,
showing that at least twenty-five (25%) percent of such
increased capital stock has been subscribed and that at least
twenty-five (25%) percent of the amount subscribed has been
paid either in actual cash to the corporation or that there has
been transferred to the corporation property the valuation of
which is equal to twenty-five (25%) percent of the subscription.
SEC approval The amendments shall take effect upon Any increase or decrease in the capital stock
their approval by the Securities and or the incurring, creating or increasing of any
Exchange Commission or from the date bonded indebtedness shall require prior
of filing with the said Commission if not approval of the Securities and Exchange
acted upon within six (6) months from Commission.
the date of filing for a cause not Provided, further, That no decrease of the
attributable to the corporation. (Section capital stock shall be approved by the
16) Commission if its effect shall prejudice the
rights of corporate creditors.
Appraisal Right any dissenting stockholder may exercise any dissenting stockholder may any dissenting stockholder shall
his appraisal right exercise his appraisal right have appraisal right
The board of directors or trustees Stock corporations are prohibited from
may, nevertheless, in its discretion, retaining surplus profits in excess of one
abandon such sale, lease, hundred (100%) percent of their paid-in
exchange, mortgage, pledge or capital stock, except: (1) when justified by
other disposition of property and definite corporate expansion projects or
assets, subject to the rights of third programs approved by the board of
parties under any contract relating directors; or (2) when the corporation is
thereto, without further action or prohibited under any loan agreement with
approval by the stockholders or any financial institution or creditor, whether
members. local or foreign, from declaring dividends
without its/his consent, and such consent
has not yet been secured; or (3) when it can
be clearly shown that such retention is
necessary under special circumstances
obtaining in the corporation, such as when
there is need for special reserve for
probable contingencies.
Disposition or Encumbrance of All or Substantially All Corporate Assets
The requirements:
NOTE: (a) all or substantially all-render corporation incapable of continuing the business or
accomplishing purpose for which it was incorporated.
(b) disposition of properties in the regular course of business does not need approval
or authority of the board.
Sec. 39. Power to deny pre-emptive right. - All stockholders
of a stock corporation shall enjoy pre-emptive
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:
Section 42. Power to invest corporate funds in another corporation or business or for any other purpose. -
Subject to the provisions of this Code, a private 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 when approved by a majority of the board of directors or trustees and ratified by the
stockholders representing at least two-thirds (2/3) of the outstanding capital stock, or by at least
two thirds (2/3) of the members in the case of non-stock corporations, at a stockholder's or
member's meeting duly called for the purpose.
Written notice of the proposed investment and the time and place of the meeting shall be
addressed to each stockholder or member at his place of residence as shown on the books of the
corporation and deposited to the addressee in the post office with postage prepaid, or served
personally: Provided, That any dissenting stockholder shall have appraisal right as provided in
this Code: Provided, however, That where the investment by the corporation is reasonably
necessary to accomplish its primary purpose as stated in the articles of incorporation, the approval
of the stockholders or members shall not be necessary
Section 44. Power to enter into management contract. - No corporation shall conclude a
management contract with another corporation unless such contract shall have been approved
by the board of directors and by stockholders owning at least the majority of the
outstanding capital stock, or by at least a majority of the members in the case of a non-stock
corporation, of both the managing and the managed corporation, at a meeting duly called for the
purpose:
Provided, That (1) where a stockholder or stockholders representing the same interest of both
the managing and the managed corporations own or control more than one-third (1/3) of the
total outstanding capital stock entitled to vote of the managing corporation; or (2) where a
majority of the members of the board of directors of the managing corporation also constitute a
majority of the members of the board of directors of the managed corporation, then the
management contract must be approved by the stockholders of the managed corporation
owning at least two-thirds (2/3) of the total outstanding capital stock entitled to vote, or
by at least two-thirds (2/3) of the members in the case of a non-stock corporation. No
management contract shall be entered into for a period longer than five years for any one term.
The provisions of the next preceding paragraph shall apply to any contract 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: Provided, however, That such service contracts or operating agreements which relate
to the exploration, development, exploitation or utilization of natural resources may be entered
into for such periods as may be provided by the pertinent laws or regulations.
Requirements of management contract are as follows, for both the managed and managing
corporation:
(1) where a stockholder or stockholders representing the same interest of both the
managing and the managed corporations own or control more than one-third (1/3) of the
total outstanding capital stock entitled to vote of the managing corporation; or
(2) where a majority of the members of the board of directors of the managing
corporation also constitute a majority of the members of the board of directors of the
managed corporation.
STOCKHOLDERS and
MEMBERS
H. STOCKHOLDERS AND MEMBERS
2. Participation in Management
a. Proxy
b. Voting Trust
c. Cases When Stockholders’ Action is Required
i. By a Majority Vote
ii. By a Two-Thirds Vote
iii. By Cumulative Voting
3. Proprietary Rights
a. Right to Dividends
b. Right of Appraisal
c. Right to Inspect
d. Pre-Emptive Right
e. Right to Vote
g. Right of First Refusal
4. Remedial Rights
a. Individual Suit
b. Representative Suit
c. Derivative Suit
5. Obligations of a Stockholder
6. Meetings
a. Regular or Special
i. When and Where
ii. Notice
Under Section 6, although shares, by specific provision in the articles of incorporation, may be
deprived of voting rights, nevertheless:
(1) No share may be deprived of voting rights, except those classified and issued as
“preferred” or “redeemable” shares; and
(2) There shall always be a class or series of shares which must have complete voting rights;
(3) Even shares classified as “non-voting” would have power to vote in the following
corporate acts:
For the protection of the interests of the decedent, this Court has in previous
instances recognized the heirs as proper representatives of the decedent, even when
there is already an administrator appointed by the court. When no administrator
has been appointed, as in this case, there is all the more reason to recognize the heirs
as the proper representatives of the deceased. Since the Rules do not specifically
prohibit them from representing the deceased, and since no administrator had as yet
been appointed at the time of the institution of the Complaint with the SEC, we see
nothing wrong with the fact that it was the heirs of John D. Young Sr. who
represented his estate in the case filed before the SEC.
Section 55 Right to vote of pledgors, mortgagors, and
administrators. - In case of pledged or mortgaged shares in stock
corporations, the pledgor or mortgagor shall have the right to
attend and vote at meetings of stockholders, unless the pledgee
or mortgagee is expressly given by the pledgor or mortgagor
such right in writing which is recorded on the appropriate
corporate books. (n)
Executors, administrators, receivers, and other legal
representatives duly appointed by the court may attend and
vote in behalf of the stockholders or members without need of
any written proxy.
Voting in Case of Joint Ownership of Stock
Form
Examination Right
Prohibited VTA
Termination of VTA
Sec. 59. Voting Trusts — One or more stockholders of a stock corporation may create a voting
trust for the purpose of conferring upon a trustee or trustees theright to vote and other
rights pertaining to the share for a period rights pertaining to the shares
for a period not exceeding five (5) years at any one time: Provided, that in the case of a
voting trust specifically required as a condition in a loan agreement, said voting trust may be for
a period exceeding (5) years but shall automatically expire upon full payment of the loan.
A voting trust agreement must be in writing and notarized, and shall specify the terms and conditions
thereof. A certified copy of such agreement shall be filed with the corporation and with the
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 certificates of stock.
The voting trust agreement filed with the corporation shall be subject to
examination by any stockholder of the corporation in the same manner as any
other corporate book or record: Provided, That both the transferor and the
trustee or trustees may exercise the right of inspection of all corporate books
and records in accordance with the provisions of this Code.
Any other stockholder may transfer his shares to the same trustee or trustees upon the
terms and conditions stated in the voting trust agreement, and thereupon shall be
bound by all the provisions of said agreement.
No voting trust agreement shall be entered into for the purpose of
circumventing the law against monopolies and illegal
combinations in restraint of trade or used for purposes of fraud.
Unless expressly renewed, all rights granted in a voting trust agreement shall
automatically expire at the end of the agreed period, and the voting trust certificates as
well as the certificates of stock in the name of the trustee or trustees shall thereby be
deemed cancelled and new certificates of stock shall be reissued in the name of the
transferors.
The voting trustee or trustees may vote by proxy unless the agreement provides
otherwise
Pre-emptive Right
enjoy
Section 39. Power to deny pre-emptive right. – All stockholders of a stock corporation shall
Section 39
disposition of
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other
all or substantially all of the corporate property and assets as
provided in the Code; and
Payment of fair
VOTE
Written demand value of shares
the day prior to
date of vote
30 days
60 days Constitute Payment of
appraisers Award
30 days
Majority Stockholders of Ruby Industrial Corp. v. Lim, 650 SCRA 461
The validity of issuance of additional shares may be questioned if done in breach of trust by the
controlling stockholders. Thus, even if the pre-emptive right does not exist, either because the
issue comes within the exceptions in Section 39 or because it is denied or limited in the articles of
Section 43. Power to declare dividends. – The board of directors of a stock corporation may
declare dividends out of the unrestricted retained earnings which shall be
payable in:
(1) cash,
(2) in property, or
(3) in stock 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 on the subscription plus costs and expenses,
stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid
Stock Dividends
to compel distribution of
dividends.
Republic Planters Bank v. Agana, 269 SCRA 1 (1997)
First. A director, trustee, stockholder or member has made a prior demand in writing for a
copy of excerpts from the corporation’s records or minutes;
Second. Any officer or agent of the concerned corporation shall refuse to allow the said director,
trustee, stockholder or member of the corporation to examine and copy said excerpts;
Third. If such refusal is made pursuant to a resolution or order of the board of directors
or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who
voted for such refusal; and,
Section 75. Right to financial statements. – Within ten (10) days from receipt of
a written request of any stockholder or member, the corporation shall furnish to
him its most recent financial statement, which shall include a balance sheet as of the end
of the last taxable year and a profit or loss statement for said taxable year, showing in
reasonable detail its assets and liabilities and the result of its operations.
At the regular meeting of stockholders or members, the board of directors or trustees shall present to such
stockholders or members a financial report of the operations of the corporation
for the preceding year, which shall include financial statements, duly signed and certified by
an independent certified public accountant.
However, if the paid-up capital of the corporation is less than P50,000.00, the financial statements may be
certified under oath by the treasurer or any responsible officer of the corporation.
Right to File Derivative Suits
DERIVATIVE SUITS
Section 1. Derivative action. —A stockholder or member may bring an action in
the name of a corporation or association, as the case may be, provided, that:
(3) No appraisal rights are available for the acts or acts complained of; and
(4) The suit is not a nuisance or harassment suit.
In case of nuisance of harassment suit, the court shall forthwith dismiss the case.
An individual stockholder is permitted to institute a derivative suit on behalf of the
corporation wherein he holds stocks in order to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are
the ones to be sued, or hold the control of the corporation.
the suing stockholder is regarded as a nominal
In such actions,
party, with the corporation as the real party in interest.
NOTE:
(a) All the above instances require the 2/3 votes of the outstanding
capital stock;
(b) The appraisal right pertains only to stockholders who have actually dissented
from the enumerated transactions.
SHARE OF STOCKS, STOCK CERTIFICATES and
SUBSCRIPTION AGREEMENTS
• TITLE VII - STOCKS AND STOCKHOLDERS
I. Capital Structure
1. Subscription Agreements •
2. Consideration for Shares of Stock
3. Shares of Stock • Section 60. Subscription contract.
a. Nature of Shares of Stock
b. Consideration for Shares of Stock • Section 61. Pre-incorporation subscription.
c. Watered Stock
i. Definition • Section 62. Consideration for stocks
ii. Liability of Directors for Watered Stocks
iii. Trust Fund Doctrine for Liability for Watered Stocks • Section 63. Certificate of stock and transfer of shares.
d. Situs of the Shares of Stock
e. Classes of Shares of Stock • Section 65. Liability of directors for watered stocks.)
4. Payment of Balance of Subscription
a. Call by Board of Directors
• Section 66. Interest on unpaid subscriptions.
b. Notice Requirement • Section 67. Payment of balance of subscription.
c. Sale of Delinquent Shares
i. Effect of Delinquency • Section 68. Delinquency sale.
ii. Call by Resolution of the Board of Directors
iii. Notice of Sale • Section 69. When sale may be questioned.
iv. Auction Sale and the Highest Bidder
5. Certificate of Stock • Section 70. Court action to recover unpaid subscription.
a. Nature of the Certificate
b. Uncertificated Shares • Section 71. Effect of delinquency.
c. Negotiability
i. Requirements for Valid Transfer of Stock • Section 72. Rights of unpaid shares.
d. Issuance
i. Full Payment
• Section 73. Lost or destroyed certificates.
ii. Payment Pro-Rata
e. Lost or Destroyed Certificates
6. Stock and Transfer Book
a. Contents
b. Who May Make Valid Entries
7. Disposition and Encumbrance of Shares
a. Sale of shares
b. Allowable Restrictions on the Sale of Shares
c. Requisites of a Valid Transfer
d. Involuntary Dealings with Shares
Free transferability of the
Units of Ownership
Shares of stock of a corporation are not
owned or are the assets of the corporation -
they are owned by the stockholders of
record. However, to bind the corporation as
well as third parties, it is necessary that the
transfer is recorded in the books of the
corporation.
Principles on Shares under Code
Section 6 Section 63
Section 63. Certificate of stock and transfer of shares. - The capital stock
of stock corporations shall be divided into shares for which certificates signed by the president or
vice president, countersigned by the secretary or assistant secretary, and sealed with the seal of the
corporation shall be issued in accordance with the by-laws.
No transfer, however, shall be valid, except as between the parties, until the transfer is
recorded in the books of the corporation showing the names of the
parties to the transaction, the of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be transferable in the
books of the corporation.
The shares of stock held by registered stockholders
represents property rights: their right to dispose,
encumber, or deal with them as owner thereof, and their
right to receive a covering certificate of stock, the right to
vote and the right to receive dividends declared.
7. Investment of corporate funds in another corporation or business in accordance with this Code; and
contract acquisition of
for the
materialize within said period or within a longer period as may be stipulated in the
contract of subscription:
Provided,
UNLESS:
PROVIDED:
Recital:
1. Mabuhay Corporation has authorized capital stock of 6,000 shares at P1.00 each or the total of
P6,000.
2. Subscriber A, B and C are subscribing to 1,000 shares each at P1,000.00
It is agreed
2. Subscrption irrevocable for a period of at least six (6) months from the date of subscription UNLESS
subscribers A, B and C consent to the revocation, or unless the incorporation of said corporation fails to
materialize within said period or within 8 months.
2. No pre-incorporation subscription may be revoked after the submission of the articles of incorporation
to the Securities and Exchange Commission.
Pre-incorporation Subscription
• Section 61. Pre-incorporation subscription. - A subscription Not Governed by Ordinary Sales Contract
for shares of stock of a corporation still to be formed shall be:
•
Doctrine
• irrevocable for a period of at least six (6)
months from the date of subscription,
(1) Unlike in an ordinary sale, any
•
condition or clause with effectively renders
• UNLESS
unenforceable the obligation of the subscriber to
• all of the other subscribers consent to the pay his subscription would be considered void;
revocation , or
• after the
That no pre-incorporation subscription may be revoked
submission of the articles of incorporation to (3) Upon insolvency of the corporation,
the Securities and Exchange Commission which under sale would allow buyer of shares to
rescind contract, but in a subscription agreement,
the insolvency makes all the subscription
receivables due and demandable
Ong Yong v. Tiu, 401 SCRA 1 (2003)
Facts:
Ongs invested P100 million for 1,000,000 shares of stock in FLADC.
Tius in their personal capacities filed a civil case for recission on the ground of breach of contract
against the Ongs for the Subscription contract between the Ongs and FLADC.
Central Textile Mills, Inc. v. National Wages and Productivity Commission, 260 SCRA 386
(1996)
A Board resolution was passed increasing the capital stock of the corporation.
No SEC Approval on increase but petitioner already started receiving subscriptions and payments on
the proposed increase, which it allegedly held conditionally, that is, pending approval of the same by
the SEC.
These payments cannot as yet be deemed part of petitioners’ paid-up capital, technically speaking,
because its capital stock has not yet been legally increased. Such payments constitute deposits on future
subscriptions, money which the corporation will hold in trust for the subscribers until it files a petition
to increase its capitalization and a certificate of filing of increase of capital stock is approved and issued
by the SEC. As a trust fund, this money is still withdrawable by any of the subscribers at any time before
the issuance of the corresponding shares of stock, unless there is a pre-subscription agreement to the
contrary, which apparently is not present in the instant case. Consequently, if a certificate of increase has
not yet been issued by the SEC, the subscribers to the unauthorized issuance are not to be deemed as
stockholders possessed of such legal rights as the rights to vote and dividends.
Issued Price or Par Value
Pacific Basin Securities v. Oriental Petroleum & Minerals, 531 SCRA 667 (2007)
The rule is that the delivery of the stock certificate duly endorsed by the
owner is the operative act of transfer of shares from the
lawful owner to the transferee. Thus, title may be vested in the
transferee only by delivery of the duly indorsed certificate of stock.
Until registration is
accomplished, the transfer,
though valid between the
parties, cannot be effective as
against the corporation.
STOCK and TRANSFER BOOK
Liability of directors for watered stocks. – Any director or officer of a corporation consenting to the
issuance of stocks for a consideration less than its par
or issued value or for a consideration in any form
other than cash, valued in excess of its fair
value, or who, having knowledge thereof, does not forthwith
express his objection in writing and file the same with the corporate
secretary, shall be solidarily, liable with the stockholder
concerned to the corporation and its creditors for the difference between
shares.
Liability of Directors for Watered Stocks
Section 65
any time declare due and payable to the corporation unpaid subscriptions to the capital stock
and may collect the same or such percentage thereof, in either case with accrued interest, if any, as it may deem necessary
shall thereupon become delinquent and shall be subject to sale as hereinafter provided,
unless the board of directors orders otherwise.
Payment of Unpaid Subscription
On date on specified
in the contract of Entire balance plus interest due Delinquent; shall be subject to
subscription or on and payable sale
date in call
Section 68. Delinquency sale. – The board of directors may, by
resolution, order the sale of delinquent stock and shall
No delinquent stock:
(1) shall be voted for or be entitled to vote or to
representation at any stockholder's meeting,
(2) 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.
Section 68. Delinquency sale. –
The board of directors may, by resolution, order the sale of
delinquent stock and shall
(1) specifically state the amount due on each subscription plus all
accrued interest, and
(2) date, time and place of the sale which shall not be less
the
than thirty (30) days nor more than sixty (60) days from the
date the stocks become delinquent.
PUBLICATION
or by registered mail.
(2) once a week
The same shall furthermore be published
(1) the full amount of the balance on the subscription together with accrued
interest,
Should there be no bidder at the public auction who offers 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
Title to all the shares of stock covered by the subscription shall be vested in the
corporation as treasury shares and may be disposed of by said
corporation in accordance with the provisions of this Code.
Section 69. When sale may be questioned. –
UNLESS
UNLESS
it is commenced by the filing of a complaint within six (6)
months from the date of sale.
Judicial Remedy
PROCEDURE
1. Affidavit
2. Publication
- one year
-bond
The following procedure shall be followed for the issuance by a corporation of new certificates of stock in
lieu of those which have been lost, stolen or destroyed:
(2) the circumstances as to how the certificate was lost, stolen or destroyed,
(4) the serial number of the certificate and the name of the corporation which issued the
same.
(5) He shall also submit such other information and evidence which he may deem necessary;
PUBLICATION
After verifying the affidavit and other information and evidence with the books of the corporation, said corporation shall publish a notice:
(1) in a newspaper of general circulation published in the place where the corporation has its principal office, once a
week for three (3) consecutive weeks at the expense of the registered owner of the certificate of stock which has been lost, stolen or destroyed.
and that after the expiration of one (1) year from the date of the last publication,
if no contest has been presented to said corporation regarding said certificate of stock,
the right to make such contest shall be barred and said corporation shall cancel in its books the certificate of stock which has been
lost, stolen or destroyed and issue in lieu thereof new certificate of stock,
UNLESS
the registered owner files a bond or other security in lieu thereof as may be required, effective for a period of one (1) year, for such amount
and in such form and with such sureties as may be satisfactory to the board of directors, in which case a new certificate may be issued even
before the expiration of the one (1) year period provided herein:
Provided, That if a contest has been presented to said corporation or if an action is pending in court regarding the ownership of said certificate of
stock which has been lost, stolen or destroyed, the issuance of the new certificate of stock in lieu thereof shall be suspended until the final
decision by the court regarding the ownership of said certificate of stock which has been lost, stolen or destroyed.
Mergers and Consolidations
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.
Section 77. Stockholder’s or member’s approval. – Upon approval by
majority vote of each of the board of directors or trustees of the constituent corporations of
the plan of merger or consolidation, the same shall be submitted for approval by the stockholders or members of each
of such corporations at separate corporate meetings duly called for the purpose.
Notice of such meetings shall be given to all stockholders or members of the respective corporations, at least
two (2) weeks prior to the date of the meeting, either personally or by registered mail. Said notice shall
state the purpose of the meeting and shall include a copy or a summary of the plan of merger or consolidation.
The affirmative vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock of each corporation in the case of stock corporations or at least two-thirds
(2/3) of the members in the case of non-stock corporations shall be necessary for the approval of such plan. Any
dissenting stockholder in stock corporations may exercise his appraisal right in
accordance with the Code: Provided, That if after the approval by the stockholders of such plan, the board of directors
decides to abandon the plan, the appraisal right shall be extinguished.
Any amendment to the plan of merger or consolidation may be made, provided such amendment is
approved by majority vote of the respective boards of directors or trustees of all the constituent
corporations and ratified by the affirmative vote of stockholders representing at least two-thirds (2/3) of the
outstanding capital stock or of two-thirds (2/3) of the members of each of the constituent
corporations. Such plan, together with any amendment, shall be considered as the agreement of merger or
consolidation.
Section 78. Articles of merger or consolidation. – After the approval by
the stockholders or members as required by the preceding section, articles of merger or
articles of consolidation shall be executed by each of the constituent corporations, to be
signed by the president or vice-president and certified by the secretary or assistant secretary of
each corporation setting forth:
1. The plan of the merger or the plan of consolidation;
2. As to stock corporations, the number of shares outstanding, or in the case
of non-stock corporations, the number of members; and
3. As to each corporation, the number of shares or members voting for and
against such plan, respectively.
Section 79. Effectivity of merger or consolidation. – The articles of
merger or of consolidation, signed and certified as herein above required, shall be submitted to the
Securities and Exchange Commission approval:
in quadruplicate for its
Provided, That 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.
If, upon investigation, the Securities and Exchange Commission has reason to believe that the
proposed merger or consolidation is contrary to or inconsistent with the provisions of this Code or
existing laws, it shall set a hearing to give the corporations concerned the opportunity to be
heard. Written notice of the date, time and place of hearing shall be given to each constituent
corporation at least two (2) weeks before said hearing. The Commission shall thereafter
proceed as provided in this Code.
Section 80. Effects of merger or consolidation. – The merger or consolidation shall have the
following effects:
1. The constituent corporations shall become a single corporation which, in case of merger, shall be the
surviving corporation designated in the plan of merger; and, in case of consolidation, shall be the
consolidated corporation designated in the plan of consolidation;
2. The separate existence of the constituent corporations shall cease, except that of the surviving or the
consolidated corporation;
3. The surviving or the consolidated corporation shall possess all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of a
corporation organized under this Code;
4. The surviving or the consolidated corporation shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations; and all property, real or
personal, and all receivables due on whatever account, including subscriptions to shares and other choses in
action, and all and every other interest of, or belonging to, or due to each constituent corporation, shall be deemed
transferred to and vested in such surviving or consolidated corporation without further act or deed; and
5. The surviving or consolidated corporation shall be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the same manner as if such surviving or consolidated corporation had itself
incurred such liabilities or obligations; and any pending claim, action or proceeding brought by or against any of such constituent
corporations may be prosecuted by or against the surviving or consolidated corporation. The rights of creditors or liens upon the
property of any of such constituent corporations shall not be impaired by such merger or consolidation.
OUTLINE ON CONSOLIDATION OR MERGER
Articles of
Plan of merger of Merger/Consolidation
consolidation setting Approval of (signed by Pres. or VP and
forth: (1) Names of
2/3 OCS Certified by Sec. or Asst.)
corporations: (2) Terms majority of or 2/3 setting forth: Plan of Merger of notice 2 weeks
-
consolidation; no. of
and mode of carrying it BOD members shares/members; no. of shares
out; and (3)Statement of of member voting for and
Changes in AOI against plan
EFFECTS OF MERGER OR CONSOLIDATION
SURVIVING CORPORATION CONSOLIDATED CORPORATION
A AB
shall possess all the rights shall possess all the rights
and liablilities of A and B and liablilities of A and B
A
shall possess all the rights and
B A B
liablilities of B
Non-Stock Corporations
1. Non-Stock Corporations TITLE XI - NON-STOCK CORPORATIONS
Written notice setting forth the proposed plan of distribution or a summary thereof and the date,
time and place of such meeting shall be given to each member entitled to vote, within the time and in
the manner provided in this Code for the giving of notice of meetings to members. Such plan of
distribution shall be adopted upon approval of at least two-thirds (2/3) of the members
having voting rights present or represented by proxy at such meeting.
Manila Sanitarium v. Gabuco, 7 SCRA 14 (1963)
a. “Foundation” - a non-stock, non-profit corporation with funds established to maintain or aid charitable,
religious, educational, athletic, cultural, literary, scientific, social welfare or similar activities primarily though
extending grants or endowments,
b. Foundations applying for registration with the Commission shall submit the following:
(1) Modus Operandi or Plan of Operation, executed, under oath, by the President of such Foundation, setting
forth the mode of its operation, source of its funds, the proposed applications of such funds, and the prospective
beneficiaries of grants or endowments; or
(2) Certificate of Bank Deposit in the amount of not less than 1,000,000.00 representing the funds to be used
for extending grants or endowments.
c. In addition to the reportorial requirements for ordinary non-stock non-profit corporations, shall submit to
the Commission, together with the Financial Statements, a Statements of Fund Application, executed under oath,
by the President of the Foundation, setting forth in detail the sources and amounts of funds established and the
names of beneficiaries and the corresponding amounts of funds granted or endowed by the Foundation.
A close corporation, within the meaning of this Code, is one whose articles of incorporation provide that:
(1) All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not
more than a specified number of persons, not exceeding twenty (20);
(2) all the issued stock of all classes shall be subject to one or more specified restrictions on transfer
permitted by this Title; and
(3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any
class. Notwithstanding the foregoing, a corporation shall not be deemed a close corporation when at least
two-thirds (2/3) of its voting stock or voting rights is owned or controlled by another corporation which is
not a close corporation within the meaning of this Code.
Any corporation may be incorporated as a close corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public utilities, educational institutions and corporations declared to
be vested with public interest in accordance with the provisions of this Code.
The provisions of this Title shall primarily govern close corporations: Provided, That the provisions of other
Titles of this Code shall apply suppletorily except insofar as this Title otherwise provides.
Section 110. Corporation sole. –
1. Modes of Dissolution
a. Voluntary
i. Where No Creditors Are Affected
ii. Where Creditors Are Affected
iii. Shortening of Corporate Term
b. Involuntary
i. Expiration of Corporate Term
ii. Non-use of Corporate Charter or Continuous
Inorperation of a Corporation
iii. Legislative Dissolution
iv. Dissolution by the SEC
2. Methods of Liquidation
voluntarily or
involuntarily.
Voluntary dissolution where no creditors
are affected.
Section 118.–
If dissolution of a corporation does not prejudice the rights of any creditor having a claim against it,
the dissolution may be effected
(5) after sending such notice to each stockholder or member either by registered mail or by personal delivery at least thirty (30) days
prior to said meeting.
(5) A copy of the resolution authorizing the dissolution shall be certified by a majority of the board of directors or trustees and
countersigned by the secretary of the corporation.
(6) The Securities and Exchange Commission shall thereupon issue the certificate of dissolution.
Voluntary dissolution where creditors
are affected.
Section 119.–
Where the dissolution of a corporation may prejudice the rights of any creditor,
(1) thepetition for dissolution shall be filed with the Securities and Exchange
Commission.
(2) The petition shall be signed by a majority of its board of directors or trustees or
other officers having the management of its affairs,
(3) verified by its president or secretary or one of its directors or trustees, and
(4) shall set forth all claims and demands against it, and that
(5) its dissolution was resolved upon by the affirmative vote of the stockholders representing at
least two-thirds (2/3) of the outstanding capital stock or by at least two-thirds
(2/3) of the members
(6) at a meeting of its stockholders or members called for that purpose.
If the petition is sufficient in form and substance
1. Order
the Commission shall, by an order reciting the purpose of the petition,
3. Publication
Before such date, a copy of the order shall be published at least once a week for three (3) consecutive weeks in a newspaper of general circulation
published in the municipality or city where the principal office of the corporation is situated, or if there be no such newspaper, then in a newspaper of general
circulation in the Philippines, and a similar copy shall be posted for three (3) consecutive weeks in three (3) public places in such municipality or city.
4. Filing of objections
Upon five (5) day’s notice, given after the date on which the right to file objections as fixed in the order has expired, the Commission shall proceed to hear the
petition and try any issue made by the objections filed; and
5. No objections
if no such objection is sufficient, and the material allegations of the petition are true, it shall render judgment dissolving the corporation and directing such
disposition of its assets as justice requires, and may appoint a receiver to collect such assets and pay the debts of the corporation.
Section 120. Dissolution by shortening
corporate term
(3) whose corporate existence for other purposes is terminated in any other manner,
shall nevertheless be continued as a
body corporate for three (3) years after the time when it would have been so dissolved, for the purpose of:
but not for the purpose of continuing the business for which it was established.
Section 122. Corporate liquidation. Con’t
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.
Upon the winding up of the corporate affairs , any asset distributable to any
creditor or stockholder or member who is unknown or cannot be found shall be escheated to the city or
municipality where such assets are located.
(b) Doing Business in the (b) Cannot sue, but may be sued
Philippines, without a license in the Philippines
- Philippine who contracted with foreign corporation
estopped
(c) Not Doing business in the
Philippines, on Isolated (b) May sue
Transactions (c) May be sued
Definition of “Doing Business”
Not profit making because it was local company that sold the mollasses and was paid for it.
(3) Activities in the Philippines Must be “Profit Making”
Mavest (U.S.A.), Inc. v. Sampaguita Garment Corp., 470 SCRA 440 (2005)
(2) Mere ownership of Local Properties or Rights Not Necessarily Doing Business
Agilent Technologies Singapore (PTE) Ltd. v. Integrated Silicon Technology Phil. Corp., 427
SCRA 597 (2004)
The following acts do not constitute “doing business”
(2) appointment of a full-time representative in Integrated Silicon, to oversee and supervise the
production of Agilent’ products;
(3) the appointment by Agilent of six full-time staff members, who were permanently stationed
at Integrated Silicon’s facilities in order to inspect the finished goods for Agilent;
(4) Agilent’s participation in the management, supervision, and control on Integrated Silicon,
including instructing Silicon to hire more employees to meet Agilent’s increasing production
needs.
Formation; Enactment of a Law (2008) No.XI.
(A) Since February 8, 1935, the legislature has not passed even a
single law creating a private corporation. What provision of the
Constitution precludes the passage of such a law? (3%)
(B) If you advise your client to use a corporation, what officer positions must the corporation at
least have?(2%)
SUGGESTED ANSWER: The corporation must have at least five directors (Section 14 of the
Corporation Code). It Must also have a president, a treasurer, and secretary (Section 25 of the
Corporation Code).
(C) What particular qualifications, if any, are these officers legally required to possess under the
Corporation Code? (2%)
Stockholders; Nationality; Preferred Shares (2013)
Bell Philippines, Inc. (BelPhil) is a public utility company, duly incorporated and registered with the
Securities and Exchange Commission. Its authorized capital stock consists of voting common shares and
non-voting preferred shares, with equal par values of P100.00/share. Currently, the issued and outstanding
capital stock of BelPhil consists only of common shares shared between Bayani Cruz, a Filipino with 60% of
the issued common shares, and Bernard Fleet, a Canadian, with 40%. To secure additional working fund,
BelPhil issued preferred shares to Bernard Fleet equivalent to the currently outstanding common shares. A
suit was filed questioning the corporate action on the ground that the foreign equity holdings in the
company would now exceed the 40% foreign equity limit allowed under the Constitution the for public
utilities.
Rule on the legality of Bernard Fleet’s current holdings. (8%)
SUGGESTED ANSWER:
The holding of Bernard Fleet equivalent to the
outstanding common shares is illegal. His holdings of
preferred shares should not exceed 40%. Since the
constitutional requirement of 60% Filipino ownership of
the capital of public utilities applies not only to voting
control but also to beneficial ownership of the
corporation, it should also apply to the preferred shares.
Preferred shares are also entitled to vote in certain
corporated matters. (Gamboa v. Teves, 682 SCRA 397,
2012) The state shall develop a self-reliant and
independent national economy effectively controlled by
Filipinos. (Articles II, Sec. 19, 1987 Constitution) The
effective control here should be mirrored across the board
on all kinds of shares.
Incorporators BOD; Qualifications (2012) No.VI.
X is a Filipino immigrant residing in Sacramento, California. Y is a Filipino residing in Quezon
City, Philippines. Z is a resident alien residing in Makati City. GGG Corporation is a domestic
corporation - 40% owned by foreigners and 60% owned by Filipinos, with T as authorized
representative. CCC Corporation is a foreign corporation registered with the Philippine Securities
and Exchange Commission. KKK Corporation is a domestic corporation (100%) Filipino owned. S is
a Filipino, 16 years of age, arid the daughter of Y.
(A) Who can be incorporators? Who can be subscribers? (2%)
(B) What are the differences between an incorporator and a subscriber, if there are any? (2%) (D)
Who are qualified to act as Treasurer of the company? (2%)
In the November 2010 stockholders meeting of Greenville Corporation, eight (8) directors were
elected to the board. The directors assumed their posts in January 2011. Since no stockholders
meeting was held in November 2011, the eight directors served in a holdover capacity and thus
continued discharging their powers. In June 2012, two (2) of Greenville Corporation’s directors -
Director A and Director B – resigned from the board. Relying on Section 29 of the Corporation
Code, the remaining six (6) directors elected two (2) new directors to fill in the vacancy caused by
the resignation of Directors A and B. Stockholder X questioned the election of the new directors,
initially, through a lettercomplaint addressed to the board, and later (when his letter-complaint
went unheeded), through a derivative suit filed with the court. He claimed that he vacancy in the
board should be filled up by the vote of the stockholders of Greenville Corporation. Greenville
Corporation’s directors defended the legality of their action, claiming as well that Stockholder X’s
derivative suit was improper.
Rule on the issues raised. (8%)
Derivative Suit; Jurisdiction (2009) No.II.
Atlantis Realty Corporation (ARC), a local firm engaged in real estate development, plans to sell one
of its prime assets—a three-hectare land valued at about P100-million. For this purpose, the board of
directors of ARC unanimously passed a resolution approving the sale of the property for P75-million
to Shangrila Real Estate Ventures (SREV) a rival realty firm. The resolution also called for a special
stockholders meeting at which the proposed sale would be up for ratification. Atty. Edric, a
stockholder who owns only one (1) share in ARC, wants to stop the sale. He then commences a
derivative suit for and in behalf of the corporation, to enjoin the board of directors and the
stockholders from approving the sale.
(A) Can Atty. Edric, who owns only one share in the company, initiate a derivative suit? Why or why
not? (2%)
(B) If such a suit is commenced, would it constitute an intra-corporate dispute? If so, why and where
would such a suit be filed? If not, why not? (2%)
(C) Will the suit prosper? Why or why not? (3%)
Derivative Suit; Expiration of Term (2013) No.VIII.
In the November 2010 stockholders meeting of Greenville Corporation, eight (8) directors were elected to
the board. The directors assumed their posts in January 2011. Since no stockholders meeting was held in
November 2011, the eight directors served in a holdover capacity and thus continued discharging their
powers. In June 2012, two (2) of Greenville Corporation’s directors - Director A and Director B – resigned
from the board. Relying on Section 29 of the Corporation Code, the remaining six (6) directors elected two
(2) new directors to fill in the vacancy caused by the resignation of Directors A and B. Stockholder X
questioned the election of the new directors, initially, through a lettercomplaint addressed to the board,
and later (when his letter-complaint went unheeded), through a derivative suit filed with the court. He
claimed that he vacancy in the board should be filled up by the vote of the stockholders of Greenville
Corporation. Greenville Corporation’s directors defended the legality of their action, claiming as well that
Stockholder X’s derivative suit was improper.
Rule on the issues raised. (8%)
Derivative Suit; Jurisdiction (2009) No.II.
Atlantis Realty Corporation (ARC), a local firm engaged in real estate development,
plans to sell one of its prime assets—a three-hectare land valued at about P100-
million. For this purpose, the board of directors of ARC unanimously passed a
resolution approving the sale of the property for P75-million to Shangrila Real
Estate Ventures (SREV) a rival realty firm. The resolution also called for a special
stockholders meeting at which the proposed sale would be up for ratification. Atty.
Edric, a stockholder who owns only one (1) share in ARC, wants to stop the sale. He
then commences a derivative suit for and in behalf of the corporation, to enjoin the
board of directors and the stockholders from approving the sale.
(A) Can Atty. Edric, who owns only one share in the company, initiate a derivative
suit? Why or why not? (2%)
(B) If such a suit is commenced, would it constitute an intra-corporate dispute? If so,
why and where would such a suit be filed? If not, why not? (2%)
(C) Will the suit prosper? Why or why not? (3%)
Corporation; Dissolution (2012) No.X.
AAA Corporation is a bank. The operations of AAA Corporation as a
bank was not doing well. So, to avert any bank run, AAA Corporation,
with the approval of the Monetary Board, sold all its assets and liabilities
to BBB Banking Corporation which includes all deposit accounts. In effect
then, BBB Corporation will service all deposits of all depositors of AAA
Corporation.
(A) Will the sale of all assets and liabilities of AAA Corporation to BBB
Banking Corporation automatically dissolve or terminate the corporate
existence of AAA Corporation? Explain your answer. (5%)
(B) What are the legal requirements in order that a corporation may be
dissolved? (5%)