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Joint venture
(4) Adultery or concubinage;
- does not entail continuity because after the (6) Illegal search;
undertaking is completed it is already the end
- Foreign corporations enters into an agreement with a (10) Acts and actions referred to in Articles 21, 26, 27,
domestic corporation, it must be registered. Generally 28, 29, 30, 32, 34, and 35.
they do not need to be registered.
The parents of the female seduced, abducted, raped,
Corporations or abused, referred to in No. 3 of this article, may also
recover moral damages.
- They may enter into joint venture, but generally they
cannot enter into a partnership, but there are The spouse, descendants, ascendants, and brothers
exceptions allowed by the SEC: the 3 exceptions must and sisters may bring the action mentioned in No. 9 of
go hand in hand this article, in the order named.
Non-stock- title 10
- Only such powers as are expressly granted to it by law
and by its articles of incorporation including others
Stock- section 51
which are incidental to such conferred powers, those
reasonably necessary to accomplish its purpose and
those which may be incidental to its existence Stockholders must generally cast their votes in the
meeting; section 4 governed primarily by the law
- Can do things as the law asks or allows it to do creating them
laws or charters shall be governed primarily by the - If incorporated under the laws of the Philippines it is a
provisions of the special law or charter creating them domestic corporation
or applicable to them, supplemented by the provisions
of this Code, insofar as they are applicable. (n)
• ME Gray vs. CA
1. That they have a capital stock divided into shares; SMC 12%
and,
- Primarily governed by the law creating them - exists by virtue of colorable compliance
- Their subsidiaries are entirely different or independent - Attached directly only by the state in a quo warranto
from that of the other proceeding
3 stages
- Those formed or organized for the government or a
portion of the State or any of its political subdivision
1. Creation
and which have for their purpose the general good and
welfare
2. Re-organization or quasi-reorganization
Private Corporation
3. Dissolution/winding-up
1. Lawful
Corporation Sole
Close corporation
- Provision that states, cannot be issued less than par,
exception is treasury shares because it can be issued
- There is exclusivity of shares of stock
less than par
- Section 96-105
A corporation commences only upon issuance of the
- Restrictions to transfer shares certificate, prior thereto it has no being and cannot
transact business. Promoters cannot act for a
- Only those indicated can own shares projected corporation
- Incorporation test
Notes on Corporation Law
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©GTan; ASoguilon; VVillanueva
3
Section 18. Corporate name. - No - once it ceases to exist, it no longer has personality
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 - exist for another 3 years only for purposes of
any existing corporation or to any other name already liquidation
protected by law or is patently deceptive, confusing or
contrary to existing laws. When a change in the
- Dissolution- it is automatic
corporate name is approved, the Commission shall
issue an amended certificate of incorporation under
the amended name. (n) When should extension be made?
- 5-15
Section 18
or as members. Incorporators are those stockholders Except as otherwise provided in the articles
or members mentioned in the articles of incorporation of incorporation and stated in the certificate of stock,
as originally forming and composing the corporation each share shall be equal in all respects to every other
and who are signatories thereof. share.
Corporators in a stock corporation are called Where the articles of incorporation provide
stockholders or shareholders. Corporators in a non- for non-voting shares in the cases allowed by this
stock corporation are called members. (4a) Code, the holders of such shares shall nevertheless be
entitled to vote on the following matters:
- Section 5 provides:
4. Incurring, creating or increasing bonded
indebtedness;
Corporators in a stock corporation are called
stockholders or shareholders. Corporators in a non-
5. Increase or decrease of capital stock;
stock corporation are called members. (4a)
Section 6. Classification of shares. - The - General rule: Not less than 5 not more than 15
shares of stock of stock corporations may be divided
into classes or series of shares, or both, any of which - Exceptions:
classes or series of shares may have such rights,
privileges or restrictions as may be stated in the
articles of incorporation: Provided, That no share may 1. Educational corporations registered as non stock
be deprived of voting rights except those classified corporation whose number of trustees, though not less
and issued as "preferred" or "redeemable" shares, than five and not more than [15] should be divisible by
unless otherwise provided in this Code: Provided,
five [5], meaning they must have either five, ten, or
further, That there shall always be a class or series of
shares which have complete voting rights. Any or all of fifteen trustees and no other;
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
2. In close corporations where all the stockholders are
banks, trust companies, insurance companies, public considered as members of the board of directors
utilities, and building and loan associations shall not thereby effectively allowing twenty members in the
be permitted to issue no-par value shares of stock. board.
Preferred shares of stock issued by any 3. The by-laws of a corporation may provide for
corporation may be given preference in the
additional qualifications and disqualifications of its
distribution of the assets of the corporation in case of
liquidation and in the distribution of dividends, or such members of the board of directors or trustees.
other preferences as may be stated in the articles of However it may not do away with the minimum
incorporation which are not violative of the provisions disqualifications lay down by the Code.
of this Code: Provided, That preferred shares of stock
may be issued only with a stated par value. The board Qualifications of the governing board
of directors, where authorized in the articles of
incorporation, may fix the terms and conditions of
preferred shares of stock or any series thereof: - Requires mere residency <sec. 23>
Provided, That such terms and conditions shall be
effective upon the filing of a certificate thereof with
the Securities and Exchange Commission. Section 23. The board of directors or
trustees. - Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this
Shares of capital stock issued without par Code shall be exercised, all business conducted and all
value shall be deemed fully paid and non-assessable property of such corporations controlled and held by
and the holder of such shares shall not be liable to the the board of directors or trustees to be elected from
corporation or to its creditors in respect thereto: among the holders of stocks, or where there is no
Provided; That shares without par value may not be stock, from among the members of the corporation,
issued for a consideration less than the value of five who shall hold office for one (1) year until their
(P5.00) pesos per share: Provided, further, That the successors are elected and qualified. (28a)
entire consideration received by the corporation for its
no-par value shares shall be treated as capital and
shall not be available for distribution as dividends. 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
A corporation may, furthermore, classify its the books of the corporation. Any director who ceases
shares for the purpose of insuring compliance with to be the owner of at least one (1) share of the capital
constitutional or legal requirements. 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 reasonable per diems: Provided, however, That any
under this Code must be residents of the Philippines. 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
May a domestic corporation have a governing board capital stock at a regular or special stockholders'
consisting solely of foreigners? meeting. In no case shall the total yearly
compensation of directors, as such directors, exceed
- YES, section 23 majority of them must be residents of ten (10%) percent of the net income before income tax
of the corporation during the preceding year. (n)
the Philippines, no nationality requirement
- If the business undertaking or activity is only partially - In no case shall the paid- up capital be less than 5k
nationalized, aliens can be elected as such directors,
[unless the law provides otherwise] but their number
Is there a minimum authorized capital imposed by the
shall only be in proportion to their equity or
code?
participation in the capital stock of the corporation.
Amount of shares subscribed - For flexibility in price, particularly, no par shares may
be issued or sold from time to time at different price
50 K A depending on the net worth of the company since they
do not purport to represent an actual of fixed value.
50 K B
Section 6
C 250K
- Each shall be equal in all respects to every other share
D
Preferred shares
E
- Specific preference
PAID UP =62,500
- Dividends or during liquidation
Corporation cannot exceed more than 1 M it is the maximum
amount it cannot issue more unless amended No par
Maximum shares it can issue is 1M shares unless amended - Can sell it with the network of the corporation
How much shares should be subscribed? Distinction between the subscribed and outstanding
stocks?
- Must be at least 25% of the authorized capital stock
- Section 137
Paid- up must be at least 25%-minimum
a. They can be issued only with sated par value; and, Corporations cannot use its capitals in declaring
dividends; not all can issue no par value section 6
b. The preferences must be stated in the articles of
incorporation and in the certificate of stock, otherwise,
Voting
each share shall be, in all respect, equal to every other
share.
- entitled to vote at any motion brought up in writing
Participating
Non-voting
Preferred
Is it correct to state that common shares can never be
denied the right to vote?
- May be denied
What if hindi i-declare kahit na may dividends rights - PWEDENG MA-DENY YUNG COMMON SHARES, KASI
for the previous years? May they be denied dividend YUNG FOUNDER’S SHARES MERON SILANG EXCLUSIVE
rights because they are non holders of non- RIGHTS NA SILA LANG ANG MERON, SO PWEDE SILANG
cumulative? NOTE: YOU CANNOT COMPEL THE BUMOTO WITH REGARDS TO SOMETHING NA HINDI NA
CORPORATION TO DECLARE DIVIDENDS UNLESS IT SAKOP NG COMMON SHARE RIGHTS
EXCEEDS 100 % PAID UP CAPITAL SEC. 43
- Example: founders shares- may be given certain rights
Section 43. Power to declare dividends. - and privileges
The board of directors of a stock corporation may
declare dividends out of the unrestricted retained - Even common shares may be denied the right to vote
earnings which shall be payable in cash, in property, or
of founders’ shares issued <sec.7>
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 Section 7. Founders' shares. - Founders'
unpaid balance on the subscription plus costs and shares classified as such in the articles of
expenses, while stock dividends shall be withheld from incorporation may be given certain rights and
the delinquent stockholder until his unpaid privileges not enjoyed by the owners of other stocks,
subscription is fully paid: Provided, further, That no provided that where the exclusive right to vote and be
stock dividend shall be issued without the approval of voted for in the election of directors is granted, it must
stockholders representing not less than two-thirds be for a limited period not to exceed five (5) years
(2/3) of the outstanding capital stock at a regular or subject to the approval of the Securities and Exchange
special meeting duly called for the purpose. (16a) Commission. The five-year period shall commence
from the date of the aforesaid approval by the
Stock corporations are prohibited from Securities and Exchange Commission. (n)
retaining surplus profits in excess of one hundred
(100%) percent of their paid-in capital stock, except:
Notes on Corporation Law
“Notes come in handy only when you have studied…”
©GTan; ASoguilon; VVillanueva
7
Do you include non-voting shares in passing a valid - The corporation may cancel them; in effect there will
corporate act?
be a reduction in the outstanding capital stocks
Generally a corporation can reacquire its own shares if - If provided in by-laws but not in the articles of
it has unrestricted retained earnings incorporation then it will not be binding
Exception: redeemable shares may be reacquired - Restrictions and preferences are mandatorily required
irrespective of retained earnings in close corporations
Treasury shares
- If it does not provide restrictions it is not a close
corporation
- They are treasury while in the treasury account of the
corporation
- Specified persons- close corporations
Acknowledgment
Section 57 treasury shares have no voting and
dividend rights. Why not?
Treasurer affidavit part of the articles of incorporation
- But the grounds in section 17 are not exclusive - 4 requisites must go hand in hand take out anyone of
them there can be no de facto corporation
- EXCEPTION: CORPORATION SOLE <sec. 112> The existence of a de jure cannot be questioned even
by the State, either directly or indirectly
From and after the filing with the Securities - An unconditional act affords no rights, creates no
and Exchange Commission of the said articles of office
incorporation, verified by affidavit or affirmation, and
accompanied by the documents mentioned in the
preceding paragraph, such chief archbishop, bishop, - Legal contemplation it was never passed at all
priest, minister, rabbi or presiding elder shall become
a corporation sole and all temporalities, estate and
properties of the religious denomination, sect or - It can therefore be questioned by any person
church theretofore administered or managed by him
as such chief archbishop, bishop, priest, minister, rabbi If the certificate of registration has not been issued,
or presiding elder shall be held in trust by him as a may a corporation de facto exist?
corporation sole, for the use, purpose, behalf and sole
benefit of his religious denomination, sect or church,
including hospitals, schools, colleges, orphan asylums, - NO!
parsonages and cemeteries thereof. (n)
- Number 4 requirement, good faith in claiming to be
and doing business as a corporation
- CORPORATION SOLE- upon filing of the verified articles
of incorporation, once filed it is vested with a judicial
capacity • Hall vs. Piccio
- Vested with judicial capacity upon issuance of the - The certificate was not yet issued by the SEC, the
certificate by the SEC members knew and therefore they were not acting in
good faith, therefore anybody can question its
o However it is not accurate according to atty. existence
Ladia because there are those that can issue
for example cooperatives- BUREAU OF Corporation by estoppel
COOPERATIVES which register, home
insurance guaranty corporation- HOME - So defectively formed so that they are not to be
OWNERS considered a de jure or de facto
• Cagayan Fishing vs. Sandika - General partners- liable even beyond his promise even
his personal properties are prone to attachment
- Corporations are created by law
• Lozano vs. Delos Santos
- Commence to exist upon issuance by the CONCERNED
government corporation or agency - Founded on principle of equity
- The transfer of the property was not valid, it likewise - Enters with business with 3rd parties
did not have the right to transfer
De jure
Notes on Corporation Law
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©GTan; ASoguilon; VVillanueva
9
- No good faith
• Albert vs. University
- A person purporting in behalf of a non existing - Will not apply among members themselves there must
corporation be a 3rd party
- Section 21, you arrive at the same decision - Cannot escape when benefited
• Chiang Kai Siek vs. CA - General rule: you deal with a corporation, as to estop it
2 possible remedies
Assuming there was no law?
- As a general rule a person who has contracted it a What do you understand by the word charter? Is it the
corporation lacking personality same as articles of incorporation?
- Doctrine is not applicable where fraud takes part in the - Corporate charter is broader
transaction
Franchise
Another exemption
- Primary power granted by the state to be and act as a
• International express travel and tours vs. CA corporation
- No fraud in this case - Secondary franchise is the right or privilege that the
corporation may exercise
- How come Kahn was made liable?
You cannot issue investment contracts without a
- Doctrine of incorporation secondary franchise, kailangan primary muna hindi
pwede mauna secondary kasi sa section 19 it does not
- Applies only if that person is trying to escape from a exist until issued with a certificate of registration or
contract where he is benefited incorporation
- YES, it may apply - Stockholders cannot bring an action, to bring back the
properties of a corporation
- Georg Grotjahn vs. Isnami
- Corporation has no interest in the individual properties
A foreign corporation cannot gain access to our courts of its members
unless they attain a license to engage in business in
the Philippines but applying corporation by estoppels, • Sulo ng Bayan vs. Araneta
the court allowed
- Corporation cannot bring an action for the recovery of
the properties of its members
Municipality of Malabang case
• Caram vs. CA
- No law, hence may be questioned by any person
- Stockholders cannot be held liable for the legitimate • Yutivo and sons vs. Court of Tax Appeals
obligations of the corporation, they exist separately
and independently from one another - What where the facts or circumstances arrived by the
court here?
• Cruz vs. Dalisay
- Subscribed capital where all advanced by Yutivo, the
- Final judgment against a corporation cannot be board where the same as Yutivo
enforced against stockholders
• Commissioner of Internal Revenue vs. Norton and
• Rustan Pulp vs. CA Harrison
• Soriano vs. CA
- Two corporations managed by the same family,
workers were made interchangeably
- They are not personally liable
- Liabilities incurred by the corporation cannot be - Reverse of Soriano vs. CA (signed in their official
enforced against stockholders, etc., even if capacity)
stockholders, etc. happens to own a substantial
interest in the corporation, mere ownership does not • Tesco vs. WCC
disregard the corporate entity theory
- The two corporations where located in the same office
Corporate entity for legal or legitimate purposes only
• Claparols vs. CIR
Two or more corporations, one of them will be treated
as a mere alter-ego - Same as NAFLU and A.C. Ransom
- Courts are concerned with reality and not form 2. Such control must have been used by the defendant to
commit fraud or wrong, to perpetuate the violation of
- Mere ownership of all or substantially all of the shares a statutory or other positive legal duty or dishonest
of stock of a corporation is not, in itself, insufficient and unjust act in contravention of plaintiff’s legal
ground for disregarding the separate corporate rights; and,
personality. And for the separate personality of the
corporation to be disregarded, the wrong doing must 3. The aforesaid control and breach of duty must
be clearly and convincingly established proximately cause the injury or unjust loss complained
of.
- Fraud must be proven by clear and convincingly
evidence amounting to more than preponderance. It - The absence of one of the elements prevents “piercing
cannot be justified by speculation and can never be the corporate veil.” In applying the “instrumentality”
presumed. And only if it sought to hold the or “alter ego” doctrine, the courts are concerned with
stockholders liable directly for corporate debt reality and not form, with how the corporation
operated and the individual defendant’s relationship to
• Palacio vs. Fely that operation.
- Piercing the veil of corporate fiction There must facts and circumstances before warrant
piercing the veil of corporate fiction
- Fely trans and the other corporation is one and the
same
The control necessary does not mean stock ownership
• Marvel bldg. vs. David
• MCConnel vs. CA
- There must be facts before the court will be justified in
piercing the veil of corporate fiction - were located in the same floor
mean that it is a mere business conduit of the 1. In case any amendment to the articles of
stockholder, that conclusion is amply justified where it incorporation has the effect of changing or restricting
is shown, as in the case before us, that the operations the rights of any stockholder or class of shares, or of
authorizing preferences in any respect superior to
of the corporation were so merged with the
those of outstanding shares of any class, or of
stockholders as to be practically indistinguishable from extending or shortening the term of corporate
them. To hold the latter liable for the corporation’s existence;
obligations is not to ignore the corporation’s separate
entity, but merely to apple the established principle
2. In case of sale, lease, exchange, transfer, mortgage,
that such entity cannot be invoked or used for
pledge or other disposition of all or substantially all of
purposes that could not have been intended by the the corporate property and assets as provided in the
law that created that separate personality.” Code; and
- The property must be in pursuance of a company Are non-voting shares included in amending the articles of
business incorporation
- La campana, one payroll, employees were made Would there be a valid amendment
interchangeable. Acrylic had its own standards
Special amendments 37 & 38 shortening that would
• PNB vs. Ritratto Group result to dissolution require prior approval by the SEC
- Control test
Section 37. Power to extend or shorten
corporate term. - A private corporation may extend or
- Not mere majority but rather complete shorten its term as stated in the articles of
incorporation when approved by a majority vote of the
- Twin ace was only a subsequent interested party board of directors or trustees and ratified at a meeting
by the stockholders representing at least two-thirds
- Assets and machineries (2/3) of the outstanding capital stock or by at least
two-thirds (2/3) of the members in case of non-stock
corporations. Written notice of the proposed action
Amendment of the articles of incorporation and of the time and place of the meeting shall be
addressed to each stockholder or member at his place
- Express power granted to a corporation 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
Section 16 in case of extension of corporate term, any dissenting
stockholder may exercise his appraisal right under the
- Appraisal right conditions provided in this code. (n)
- Section 81 to object on certain acts and transactions Section 38. Power to increase or decrease
capital stock; incur, create or increase bonded
indebtedness. - No corporation shall increase or
Section 81. Instances of appraisal right. -
decrease its capital stock or incur, create or increase
Any stockholder of a corporation shall have the right to any bonded indebtedness unless approved by a
dissent and demand payment of the fair value of his
majority vote of the board of directors and, at a
shares in the following instances: stockholder's meeting duly called for the purpose, two-
thirds (2/3) of the outstanding capital stock shall favor
Notes on Corporation Law
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©GTan; ASoguilon; VVillanueva
12
the increase or diminution of the capital stock, or the Commission, which shall have the authority to
incurring, creating or increasing of any bonded determine the sufficiency of the terms thereof. (17a)
indebtedness. Written notice of the proposed increase
or diminution of the capital stock or of the incurring,
creating, or increasing of any bonded indebtedness The vote must be cast at the meeting called for that
and of the time and place of the stockholder's meeting purpose
at which the proposed increase or diminution of the
capital stock or the incurring or increasing of any Written assent would not suffice
bonded indebtedness is to be considered, must be
addressed to each stockholder at his place of
residence as shown on the books of the corporation When do amendments become valid and effective?
and deposited to the addressee in the post office with
postage prepaid, or served personally. - Only upon the approval of the SEC TRUE OR FALSE?
Why is it retroactive?
(1) That the requirements of this section have been
complied with;
What provision may be amended, altered or repealed
(4) Any bonded indebtedness to be incurred, created - The name of the treasurer originally or first elected by
or increased;
the subscribers or members to act as such until his
successor has been duly elected and qualified,
(5) The actual indebtedness of the corporation on the
day of the meeting; - The number of shares and amount originally
subscribed and paid out of the original authorized
(6) The amount of stock represented at the meeting; capital stock of the corporation,
and
- The date and place of execution of the articles of
(7) The vote authorizing the increase or diminution of incorporation,
the capital stock, or the incurring, creating or
increasing of any bonded indebtedness. - The signatories and acknowledgment thereof.
Any increase or decrease in the capital stock - All other provisions or matters stated or contained in
or the incurring, creating or increasing of any bonded the articles are subject to amendment.
indebtedness shall require prior approval of the
Securities and Exchange Commission. Founder’s or signatories hindi pwede palitan
utilities, educational institutions and corporations - Will be bound by corporate officers if they acted within
declared to be vested with public interest in the 5 classification page 150
accordance with the provisions of this Code.
• Ramirez vs. Orientalist co.
The provisions of this Title shall primarily
govern close corporations: Provided, That the
provisions of other Titles of this Code shall apply - What was the position of Fernandez in this case?
suppletorily except insofar as this Title otherwise TREASURER
provides.
- Why did the court rule that actions of Fernandez
Transfer clause, executor clause, acknowledgment, bound the corporation when he is not even a board of
treasury affidavit-NO director?
• Philippine First Insurance case “if a man is found acting for a corporation
with the external indicia of authority, any person not
having notice of want of authority, may usually rely
- Mere change in the name of a corporation or by
upon those appearances; and if it be found that the
merely complying with the law is general amendment
directors had permitted the agent to exercise that
authority and thereby held him out as a person
- It does not change its personality. It is the same
competent to bind the corporation, or had acquiesced
person in a different name. the charter is the same
in a contract and retained the benefit supposed to
have been conferred by it, the corporation will be
Amendment of a corporate term bound, notwithstanding the actual authority may
never have been granted.”
- Extending the same can never be made 7 years prior?
TRUE or FALSE
- Contracts must be made by the director and not the
- FALSE. It can be if there are justifiable reasons for stockholders
earlier extension as may be determined by the SEC
- Actions of the stockholders in such matters is only
Can you extend the corporate term if it has already advisory and not in any way binding in the corporation
expired?
• Barreto vs. La previsora Filipina
- Once the term expires without an amendment having
happen it ceases to exist as a body politic. It is - Everything emanates from the board of directors
dissolved automatically on the day it expires.
- Stockholders action is merely advisory except their
Alhambra cigar and PNB case approval or vote is necessary to prove a valid
corporate act
Instances when the SEC allowed extension whose term
has already expired Qualifications:
- All of them involved are institutions of learning, it was - No citizenship requirement, at least majority must be
the case in order to avoid confusion that would arise residents
later on.
- Can have a governing board consisting solely of
BOARD OF DIRECTORS/TRUSTEES foreigners
- Stockholders may have all the profit but will turn over - As long as you are listed in the books as owner of one
the management to the governing board share
- But unless the law provides the power may be - Under the old law he must be the beneficial owner and
delegated legal owner thereof but in the new law it is not
required as long as it stands in his name he is qualifies
General rule
1 A-100t/S B (own in the trust of X) is B qualified to be a
- Corporations must sit and act as a body director?
2
Notes on Corporation Law
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©GTan; ASoguilon; VVillanueva
14
2– transferring there voting rights in favor of VT - No vote requirement, the one who gets the most
number of votes gets elected, section24.
Other rights will accrue in favor of them, but not the voting rights
What is cumulative voting?
voting rights must be recorder in the books of the corporation
that it is transferred - Process of multiplying the number of shares to the
number of director to be elected
PNB-IFL- wholly owned subsidiary of PNB
- Matter of right granted to stockholders in a stock
PNB will assign to PNB-IFL nominal shares and PNB-IFL now will corporation
be able to be nominated
1 to 5 has 200k/s and members of the same family- majority
Gen. Rule: 800k they have 4M votes they are guaranteed 4 seats
- Term of one year who will serve as such until there 6 to 10 are not related- 1 seat 1M votes
successors are elected and qualified
Cumulative to allow the minority to have a rightful
Exception: representation in the board
- Non-stock corporation can serve for a term of 3 years Is it allowed in a non-stock corporation?
to 10=1M/S
Do you include the vote of 1 & 2 to have a quorum to Other corporate officers other than the governing
have a valid meeting? board section 25
3-200k
The directors or trustees and officers to be
elected shall perform the duties enjoined on them by
4-100k law and the by-laws of the corporation. Unless the
articles of incorporation or the by-laws provide for a
5-100k 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
6-100k business, and every decision of at least a majority of
the directors or trustees present at a meeting at which
7-50k there is a quorum shall be valid as a corporate act,
except for the election of officers which shall require
8-40k the vote of a majority of all the members of the board.
Prohibited is president to be secretary or treasurer at - The contract here is so onerous that it would throw the
the same time corporation into insolvency
Board of director must sit and act as a body to arrive • Francisco vs. GSIS
at a corporate act
- GSIS cannot evade the binding effect of the telegram
What would constitute a quorum if 5 then 3 must be
present - Only 15 months later that the corporation said there
was a mistake
May the vote of 2 members past a 5 man governing
board pass a valid corporate act? - The silence coupled with the unconditional acceptance
of the other subsequent remittances is binding to the
- YES. Voting requirement is majority of directors corporation
present at which there where a quorum
• Board of liquidators vs. Kalaw
1 1 and 2 present=valid voting
requirement “Settled jurisprudence has it that where
similar acts have been approved by the directors as a
2 1 and 2 voted yes matter of general practice, custom and policy, the
general manager may bind the company without
3 3 voted no formal authorization of the board of directors. In
varying language, existence of such authority is
4 established, by proof of the course of business, the
usages and practices of the company and by the
5 knowledge which the board of directors has, or must
be presumed to have, of acts and doings of its
subordinates in and about the affairs of the
Is it absolute?
corporation. So also, “xx authority to act for and bind a
corporation may be presumed from acts of recognition
- NO, except in the election because it requires the
in other instances where the power was in fact
majority of all the members of the board
exercised.” “xx Thus, when, in the usual course of
business of a corporation, an officer has been allowed
- If by-laws or articles provide a higher voting in his official capacity to manage its affairs, his
requirement authority to represent the corporation may be implied
from the manner in which he has been permitted by
Artificial beings must act through its members and act the directors to manage its business.”
as a body to have a valid corporate act
In the case at bar, the practice of the
Exception: corporation has been to allow its general manager to
negotiate and execute contracts in its copra trading
- Delegation activities for and in NACOCO’s behalf without prior
board approval. If the by-laws were to be literally
- Expressly conferred followed, the board should give its stamp of prior
approval on all corporate contracts. But that Board
- Where the officer or agent is clothed with actual or itself, by its acts and through acquiescence, practically
apparent authority laid aside the by-law requirement of prior approval.
- Otherwise it will not bind the corporation - Kalaw signed alone and said contracts were submitted
to the board of directors after its consummation and
Yao ka sin trading case “already asked in the bar” not before
- Only bind the corporation to the extent of authority • Buenaseda vs. Bowen
confined to him or virtue of customs, usage and policy
- Express ratification is made through a formal board
- Must pass first the controller and counsel action
What if the notice requirement is not complied with? - Implied ratification is through: silence or acquiescence,
acceptance benefits and lastly recognition or adoption
• Lopez realty vs. Fotencha
An unauthorized act may nevertheless be binding
either by express or implied by estoppels
- Notice requirement must be complied with hence it
should have been with force and effect, but according By virtue of silence the board had impliedly accepted
to the SC, it may be ratified expressly if there is a the act
subsequent meeting called for that purpose
By recognition or adoption
- Impliedly through acts
- Asuncion was aware of the corporations obligation By virtue of payment of obligations arising therefore-
Lopez realty
- There was implied ratification or she was estopped
May directors or trustees be disqualified to act as
• Pua casim vs. Neumark and Co. such?
- Check which was the proceed of the loan which was - Possess or dispossess any of the qualifications or
endorsed and deposit in the corporate account disqualifications , cease to hold at least one share
- Neumark as president and also stockholder May directors be ousted from office?
It depends if the removal is without cause they cannot • Central cooperative exchange vs. Tibe
do so because removal without cause shall not deprive
the minority stockholders or members of the right of - By-laws may allow, stockholders may also allow such
representative
What do you understand by the phrase “as such
If with cause they can even if it will prejudice the directors”
rights of the minority, provided of course additional
requirements by-laws and articles of incorporation • Western institute vs. Salas
Who will fill up the vacancy created due to the ouster - Compensation was granted without by-laws authority
of a member of the board of directors <section 29>
2. He consents to the issuance of watered stocks or who, Distinction between section 31 and 34 relative to the
having knowledge thereof, does not forthwith file with ratification by the stockholders
the corporate secretary his written objection thereto;
- The second paragraph of section 31 which makes a
3. He agrees to hold himself personally and solidarily director liable to account for profits if he attempts to
liable with the corporation; acquire or acquires any interest adverse to the
corporation in respect to any matter reposed in him in
4. He is made, by a specific provision of law, to confidence as to which equity imposes a disability
personally answer for his corporate action. upon him to deal in his own behalf is not subject to
ratification by the stockholders. Whereas, in section 34
- Watered stocks- issued, fully paid up when in fact they if a director acquires for himself a business opportunity
have not been fully paid or promised as such which should belong to the corporation, he is bound to
account for such profits unless his act is ratified by the
• Llamado vs. CA stockholders owning ore representing at least 2/3 of
the outstanding capital stock.
- The corporate entity theory cannot be used as a
defense to escape liability in violation of B.P. 22 - If reposed in him in confidence, not subject to
ratification
- Where the check is drawn by a corporation the
persons who signed the check shall be liable. - If the acquisition is merely that of a business
opportunity which has not been reposed in him in
• Uichico vs. NLRC confidence, the same may be subject to ratification by
the stockholders.
- They are not insurer of the property of the company, A corporation cannot reaquire its share if it has no
they were guarantors that the enterprise undertaken restricted unretained earnings
by the corporation shall be successful
• Strong vs. Rapide
• Montelibano vs. Bacolod Murcia Milling Co.
- What duty did he violate?
- Directors are not liable due to imprudence or honest
error of judgment - He violated his duty of loyalty
- Duty of loyalty of corporate directors - The law would be impotent if the sale were not
invalidated
- 31,32,33,34
Self-dealing director and interlocking director
- 31,32,33- specific instances when corporate officers
may violate loyalty
What is a self-dealing director?
1. That the presence of such director or trustee in the May corporate directors purchase the corporate
board meeting in which the contract was approved property?
was not necessary to constitute a quorum for such
meeting; • Mead vs. Mccullogh
2. That the vote of such director or trustee was not - interlocking director- a director of one corporation who
necessary for the approval of the contract; deals and transacts business with another corporation
who is himself a director
3. That the contract is fair and reasonable under the
circumstances; and A- director of X company also a director of Y corporation
- it must be at a meeting called for the purpose - May be subject to the provision of section 32
- full disclosure of the adverse interest of the director - Section 32 contract may become voidable, hence it
concerned must be made may also be ratified
4. That in case of an officer, the contract has been - An action based on injury to the corporation-to enforce
previously authorized by the board of directors. a corporate right- wherein the corporation itself is
joined as a necessary party, and recovery is in favor of
and for the corporation.
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 - Remedy granted by law to stockholders to institute a
may be ratified by the vote of the stockholders case to remedy a wrong done directly to the
representing at least two-thirds (2/3) of the corporation and indirectly to the stockholders, if the
outstanding capital stock or of at least two-thirds (2/3) board refuses to do so. Otherwise if not they would be
of the members in a meeting called for the purpose: left without any recourse
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 Available suits
and reasonable under the circumstances. (n)
• individual or personal
• Prime white cement vs. IAC
- Wrong done against his person as a stockholder
- a director of a corporation owes a position in trust
• Class suit
- in case of conflict between himself and that of the
corporation, he cannot sacrifice the interest of the - Filed by a stockholder in representation of other
corporation to his own advantage stockholders
- as a director he should have acted in a manner as not - A wrong or redress done, a derivative suit in nature
to unduly prejudice the corporation
Intra-corporate remedies
- he cannot be allowed to enrich himself
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- Demand to the BOD to institute such action being intra-corporate disputes, per Section 5 (b) of
P.D. 902-A
- Negated by the BOD
• San Miguel vs. Khan
- The one who instituted must be a stockholder at the
date when the act was done, must have been a - Was a demand made? NO
stockholder by that time
- It is not necessary because he objected in the board
Demand will not be required if the majority of the BOD meeting, but still it was adopted therefore it was
are the one’s guilty of the wrong charged useless
Non-joinder is a ground for dismissal - Assuming the case prospered in the U.S. would not
estoppels apply as against him? NO for estoppels to
Any benefit should inure to the corporation step in it must be a case by the corporation
- By virtue of the fact that he is a stockholder, may - Fraud in the conduct of corporate affairs
maintain a derivative suit
• Gamboa vs. Victoriano
- Depend on how, when and what reason
- Is derivative suit appropriate in this case
- Seeking for the years 1898 all the way 1907
- They are not vindicatory damage done to the
- Only became a stockholder in 1903 corporation, but rather they where vindicating damage
against him
- He can sue only in 1903 forward because he must be a
stockholder - Violation of their rights as individuals, hence derivative
suit is not the remedy
- The right of action is personal in nature. He became a
stockholder only in 1902 • Evangelista vs. Santos
- By a stockholder to address a wrong done against the - Claim is not for the benefit of the corporation, but
corporation and the stockholder indirectly rather his individual benefit
- Essential requisite must have been a stockholder from From the cases above cited, these are the
the time the act complained of took place requirements and the procedures that must be
followed in order that a derivative suit may prosper
- Cannot institute an action from the years he was still
not a stockholder 1. That the party bringing the suit should be a
stockholder as of the time the act or transaction
• Everett vs. Asia Banking complained of took place, or whose shares have
evolved upon him since by operation of law. This rule,
- Stockholders cannot ordinarily commence suit in however, does not apply if such act or transaction
equity and such is in the hands of its BOD however continues and is injurious to the stockholder or affect
there are exceptions when the BOD will not sue since him specifically in some other way.
they are themselves principals to the fraud.
The number of his hares is immaterial since he is not
suing in his own behalf or for the protection or
• Republic vs. Cuaderno
vindication of his own right, or the redress of a wrong
done against him, individually, but in behalf and for
- The facts constitute sufficient cause of action
the benefit of the corporation.
court’s judgment binding upon it, and thus, bar future Corporate authority may be classified into three
litigation of the same issues. On what side the classes namely:
corporation appears loses importance when it is
considered that it lay within the power of the court to 1. Those expressly granted or authorized by law inclusive
direct the making of amendment of the pleading, by of the corporate charter or articles of incorporation;
adding or dropping parties, as may be required in the
interest of justice. Misjoinder of parties is not a ground 2. Those impliedly granted as are essential or reasonably
to dismiss action; and, necessary to the carrying out of the express powers;
5. Any benefit or damages recovered shall pertain to the 3. Those that are incidental to its existence.
corporation. This is so because in all instances,
derivative suit is instituted for and in behalf of the Section 36 to 45- POWER GRANTED BY LAW
corporation and not for the protection or vindication of
a right or rights of a particular stockholder, otherwise,
the aggrieved stockholder should institute, instead, an Section 36. Corporate powers and capacity. - Every
individual or personal suit to vindicate his personal or corporation incorporated under this Code has the power and
capacity:
individual right. Or, for that matter, representative or
class suit for all other stockholders whose rights are
similarly situated, injured or violated, personally or 1. To sue and be sued in its corporate name;
individually.
2. Of succession by its corporate name for the period
Executive committee of time stated in the articles of incorporation and the
certificate of incorporation;
- Not allowed under the OLD law
3. To adopt and use a corporate seal;
How may executive committee created and
constituted?
4. To amend its articles of incorporation in accordance
with the provisions of this Code;
- Section 35
May the board alone create an executive committee Section 37. Power to extend or shorten corporate
without any authority provided for the by-laws? term. - A private corporation may extend or shorten its term as
stated in the articles of incorporation when approved by a
majority vote of the board of directors or trustees and ratified at
- NO board of directors must sit and act as a body to a meeting by the stockholders representing at least two-thirds
have a valid transaction (2/3) of the outstanding capital stock or by at least two-thirds
(2/3) of the members in case of non-stock corporations. Written
May a non-member of the board of directors be a notice of the proposed action and of the time and place of the
member of the executive committee? 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
- NO, all of them must be members of the board of prepaid, or served personally: Provided, That in case of
directors extension of corporate term, any dissenting stockholder may
exercise his appraisal right under the conditions provided in this
- BOD cannot act by proxy it would be abdication of code. (n)
powers
Section 38. Power to increase or decrease capital
Purpose clauses necessary because it confers and also stock; incur, create or increase bonded indebtedness. - No
limits the actual authority of the corporation corporation shall increase or decrease its capital stock or incur,
create or increase any bonded indebtedness unless approved by
a majority vote of the board of directors and, at a stockholder's
CORPORATE POWERS AND AUTHORITY meeting duly called for the purpose, two-thirds (2/3) of the
outstanding capital stock shall favor the increase or diminution
of the capital stock, or the incurring, creating or increasing of
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21
any bonded indebtedness. Written notice of the proposed exchange for property needed for corporate purposes or in
increase or diminution of the capital stock or of the incurring, payment of a previously contracted debt.
creating, or increasing of any bonded indebtedness and of the
time and place of the stockholder's meeting at which the
proposed increase or diminution of the capital stock or the Section 40. Sale or other disposition of assets. -
incurring or increasing of any bonded indebtedness is to be Subject to the provisions of existing laws on illegal combinations
considered, must be addressed to each stockholder at his place and monopolies, a corporation may, by a majority vote of its
of residence as shown on the books of the corporation and board of directors or trustees, sell, lease, exchange, mortgage,
deposited to the addressee in the post office with postage pledge or otherwise dispose of all or substantially all of its
prepaid, or served personally. property and assets, including its goodwill, upon such terms and
conditions and for such consideration, which may be money,
stocks, bonds or other instruments for the payment of money or
A certificate in duplicate must be signed by a majority of the other property or consideration, as its board of directors or
directors of the corporation and countersigned by the chairman trustees may deem expedient, when authorized by the vote of
and the secretary of the stockholders' meeting, setting forth: the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, or in case of non-stock corporation, by
the vote of at least to two-thirds (2/3) of the members, in a
(1) That the requirements of this section have been stockholder's or member's meeting duly called for the purpose.
complied with; Written notice of the proposed action and of 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
(2) The amount of the increase or diminution of the
corporation and deposited to the addressee in the post office
capital stock;
with postage prepaid, or served personally: Provided, That any
dissenting stockholder may exercise his appraisal right under the
(3) If an increase of the capital stock, the amount of conditions provided in this Code.
capital stock or number of shares of no-par stock
thereof actually subscribed, the names, nationalities
A sale or other disposition shall be deemed to cover substantially
and residences of the persons subscribing, the amount
all the corporate property and assets if thereby the corporation
of capital stock or number of no-par stock subscribed
would be rendered incapable of continuing the business or
by each, and the amount paid by each on his
accomplishing the purpose for which it was incorporated.
subscription in cash or property, or the amount of
capital stock or number of shares of no-par stock
allotted to each stock-holder if such increase is for the After such authorization or approval by the stockholders or
purpose of making effective stock dividend therefor members, the board of directors or trustees may, nevertheless,
authorized; in its discretion, abandon such sale, lease, exchange, mortgage,
pledge or other disposition of property and assets, subject to the
rights of third parties under any contract relating thereto,
(4) Any bonded indebtedness to be incurred, created
without further action or approval by the stockholders or
or increased;
members.
the unrestricted retained earnings which shall be payable in - strict compliance is necessary
cash, in property, or in stock to all stockholders on the basis of
outstanding stock held by them: Provided, That any cash - should be served to those named in the statute
dividends due on delinquent stock shall first be applied to the
unpaid balance on the subscription plus costs and expenses,
while stock dividends shall be withheld from the delinquent - secretary of a dep’t are not those included in the
stockholder until his unpaid subscription is fully paid: Provided, statute
further, That no stock dividend shall be issued without the
approval of stockholders representing not less than two-thirds • E.B. Villarosa vs. Benito
(2/3) of the outstanding capital stock at a regular or special
meeting duly called for the purpose. (16a)
- decision En Banc repeals all other pronouncement
Stock corporations are prohibited from retaining surplus profits - section 13 Rule 14 was repealed
in excess of one hundred (100%) percent of their paid-in capital
stock, except: (1) when justified by definite corporate expansion
projects or programs approved by the board of directors; or (2) - the old rules was ambiguous and broad and at all time
when the corporation is prohibited under any loan agreement illogical
with any financial institution or creditor, whether local or foreign,
from declaring dividends without its/his consent, and such the particular revision under Section 11 of Rule 14 was
consent has not yet been secured; or (3) when it can be clearly
explained by retired Supreme Court Justice Florenz
shown that such retention is necessary under special
circumstances obtaining in the corporation, such as when there Regalado, thus:
is need for special reserve for probable contingencies. (n)
“xxx the then section 13 of this Rule allowed
service upon a defendant corporation to “be
Section 44. Power to enter into management
contract. - No corporation shall conclude a management contract made on the president, manager, secretary,
with another corporation unless such contract shall have been cashier, agent or any of its directors.” The
approved by the board of directors and by stockholders owning aforesaid terms were obviously ambiguous
at least the majority of the outstanding capital stock, or by at and susceptible of broad and sometimes
least a majority of the members in the case of a non-stock illogical interpretations, especially the word
corporation, of both the managing and the managed corporation, “agent” of the corporation. The Filoil case,
at a meeting duly called for the purpose: Provided, That (1)
involving the litigation lawyer of the
where a stockholder or stockholders representing the same
interest of both the managing and the managed corporations corporation who precisely appeared to
own or control more than one-third (1/3) of the total outstanding challenge the validity of service of summons
capital stock entitled to vote of the managing corporation; or (2) but whose very appearance for that purpose
where a majority of the members of the board of directors of the was seized upon to validate the defective
managing corporation also constitute a majority of the members service, is an illustration of the need for this
of the board of directors of the managed corporation, then the revised section with limited scope and
management contract must be approved by the stockholders of
specific terminology. Thus the absurd result
the managed corporation owning at least two-thirds (2/3) of the
total outstanding capital stock entitled to vote, or by at least in the Filoil case necessitated the
two-thirds (2/3) of the members in the case of a non-stock amendment permitting service only on the
corporation. No management contract shall be entered into for a in-house counsel of the corporation who is in
period longer than five years for any one term. effect an employee of the corporation, as
distinguished from an independent
The provisions of the next preceding paragraph shall apply to practitioner.”
any contract whereby a corporation undertakes to manage or
operate all or substantially all of the business of another o notes: additional knowledge
corporation, whether such contracts are called service contracts,
operating agreements or otherwise: Provided, however, That
- special appearance enter for that particular
such service contracts or operating agreements which relate to
the exploration, development, exploitation or utilization of appearance you are not the counsel in the case
natural resources may be entered into for such periods as may
be provided by the pertinent laws or regulations. (n) - would apply only if it does not involve an intra-
corporate controversy (controversy between and
Section 45. Ultra vires acts of corporations. - No among the stockholders)
corporation under this Code shall possess or exercise any
corporate powers except those conferred by this Code or by its - upon any of the statutory officers or officers fixed in
articles of incorporation and except such as are necessary or the by-laws any secretary, any of the directors; any
incidental to the exercise of the powers so conferred. (n) managers in the by-laws
Section 36 Seal
Non-stock corporation may provide in its by-laws that Power to issue or sell stocks and to admit members
the venue of meeting be anywhere in the Philippines
- stock of stockholders and provision governing non-
Upon whom service of summons be made? stock
- Section 11. Service upon domestic private juridical Power to acquire or alienate real or personal property
entity- when the defendant is a corporation,
partnership or association organized under the laws of - is there any limitation? YES
the Philippines with a juridical personality, service may
be made upon the president, managing partner, - Two specific limitation
general manager, corporate secretary, treasurer, or in
house counsel. 1. Section 36, as lawful transactions of business of the
corporation may reasonably and necessarily require
• Delta motor vs. Mangosing
2. Constitution and law
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23
• Luneta vs. A.D. Santos - Examined the articles of incorporation to arrive at its
decision
- Importance of the purpose clause
• National Power vs. Vera
- Cannot have the power to acquire
- For purpose of prohibiting the NAPOCOR
- Cannot engage in land transportation
- The court must decide whether or not a logical and
- Doctrine of limited capacity necessary relation exists between the act questioned
and the corporate purpose expressed in the NPC
• Gov’t vs. El Hogar charter
Power to make donation - Once its term expires, already dissolved automatically,
thus can no longer ask for extension
- Limitation section 36 par.9
- After dissolution, it has 3 years to windup
- These are circumstances, however, under which a
donation by a corporation may be to its benefit as a What are the modes of increasing capital stock?
means of increasing its business or promoting
patronage. Thus, paragraph 9 of section 36 expressly 1. Increasing the par value of the existing number of
authorizes a corporation to make donations. The only shares without increasing the number of shares;
limitations imposed are the following:
2. Increasing the number of existing shares without
1. The donation must be “reasonable”; increasing the par value thereof; and,
2. It must be for public welfare, or for hospital, charitable, 3. Increasing the number of existing shares and at the
scientific, cultural or similar purpose; and, same time increasing the par value of the shares.
3. It shall not be in aid of political party or candidate, or Why a corporation increases it capital stock?
for purposes of partisan political activity.
- Generate funds, business expansion, or payment of
Power to establish pension liabilities, purposes of acquiring other business.
(example: to buy cars for the officers, purpose of
- Include any act to promote and improve the acquiring other business, expansion, other valid
convenience, welfare and benefit of the employees or reasons)
offices
How do you decrease capital stock and why a
• Republic vs. Acoje corporation decreases?
- While as a rule an ultra-vires act is one committed - Reduce or wipeout existing deficit where no creditors
outside the object for which a corporation is created would thereby be effected
as defined by law, there are however certain
corporate acts that may be performed outside of the - When capital is more than necessary to procreate the
scope of the powers expressly conferred if they are business or reduction of capital surplus
necessary to promote the interest or welfare of the
corporation. Thus, it has been held that “although not - To write down the value of its fixed assets to reflect
expressly authorized to do so a corporation may those present and actual
become a surety where the particular transaction is
reasonably necessary or proper to the conduct of its o NOTE: any increase or decrease of capital stock
business,” and here it is undisputed that the requires approval of government agency like SEC it
establishment local post office is a reasonable and can never take place unless SEC approves the same
proper adjunct to the conduct of the business of
appellant company. Indeed, such post office is a vital Relevance of decrease of capital?
improvement in the living condition of its employees
and laborers who came to settle in its mining camp
1. To reduce or wipe out existing deficit where no
which is far removed from the postal facilities or
creditors would thereby be affected;
means of communication accorded to people living in
a city or municipality.
2. When the capital is more than what is necessary to
procreate the business or reduction of capital surplus;
Power to exercise such other powers essential or or,
necessary to carry out its purpose (implied power)
3. To write down the value of its fixed assets to reflect
1. Acts in the usual course of business; there present actual value in case where there is a
decline in the value of the fixed assets of the
2. Acts to protect debts owing to the corporation; corporation.
3. Embarking in a different business; - Examples: Php 10M capital for grocery business,
mayor didn’t want to issue license/permit because
4. Acts in part or wholly to protect or aid employees; and, mayor has 3 other grocery stores, only allowed sari-
sari store permit, reduce capital for sari-sari so that
5. Acts to increase business the money will not sleep in bank
- Example: car rental agencies-Php 10M capital for 20 May it be denied? How?
taxi’s, after some time each taxi is only 250K,
nagmura ang taxi, to reduce capital is to show actual
assets
- Yes, if provided by articles of incorporation or by an
amendment
Limitation imposed by law
- However, pre-emptive rights is unavailable to shares in
trading in stock exchange otherwise stockholders must
- Decrease shall not in any way affect the rights of the
waive first their right before they may sell such.
creditors
Exceptions
Philippine Trust Company vs. Rivera
Pre-emptive rights
The right of pre-emptive rights is absolute in close
corporations
- A right granted by law to all existing stockholders of a
stock corporation to subscribe to all issues or “All issues or depositing shares of any class” form part of ACS
disposition of shares of any class, in proportion to their
respective stockholdings, subject only to the Certain instances when a stockholder may
limitations imposed under section 39 of the Code. nevertheless be unable to exercise this right:
Pre-emptive rights, why it is granted? - Issued in good faith, with approval of 2/3 of
outstanding capital stock either a) in exchange for
property needed or b) for payment of a previously
- In order that the existing stockholders may maintain
contracted debt
their proportionate right as not to dilute their right
Section 39. Power to deny pre-emptive - if the shares are to be issued in compliance with laws
right. - All stockholders of a stock corporation shall requiring stock offering or minimum stock ownership
enjoy pre-emptive right to subscribe to all issues or
by the pubic
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 - In exchange for property needed for corporate
thereto: Provided, That such pre-emptive right shall purposes
not extend to shares to be issued in compliance with
laws requiring stock offerings or minimum stock - In payment of previously contracted debts
ownership by the public; or to shares to be issued in
good faith with the approval of the stockholders
representing two-thirds (2/3) of the outstanding capital This rule, however, does not apply in a close
stock, in exchange for property needed for corporate corporation as the pre-emptive rights of the
purposes or in payment of a previously contracted stockholders thereof is broadened to include all issues
debt.
without exceptions unless, of course, denied or limited May 1-5 subscribe to the unsubscribed capital stock to
by the articles of incorporations. Section 102 provides: the exclusion of 6-10?
Is there any restriction provided for by law in 1) Exercise of stockholders’ right to compel “close
reacquiring its own shares? corporation” to purchase his shares
- Yes, it must have been unrestricted retained earnings 2) Where corporation has sufficient assets in its books to
appearing in the books of corporation cover its debts and liabilities exclusive of capital stock
ACS 2M 1M PROFITS
PAID UP 1M ____________________
If 1-5 became 200K each, may 6-10 demand the • BOARD OF DIRECTORS
exercise their pre-emptive right? DECIDED TO SELL IT
- NO, if the same is necessary in the usual and regular • Steinberg vs. Velasco
course of business of said corporation or if the
proceeds of the sale or other disposition of such - For as long as there are debts and liabilities, a
property and assets be appropriated for the conduct of corporation may not reacquire its shares (subject to
its remaining business exceptions)
If X is a manufacturing company, then it can sell its - Creditors of a corporation have the right to assume
only property upon approval of the stockholders that so long as there are outstanding debts and
because it will render itself capable of continuing its liabilities, the board of directors will not use the assets
business, BUT if the proceeds will be used to purchase of the corporation to purchase its own stock, and that
a better one for the continuance of its business, then it it will not declare dividends to stockholders when the
does not need the approval of the stockholders corporation is insolvent.
Conditions for the valid exercise of this power are the Power to invest funds <sec.42>
following
• IDP vs. CA - For any other purpose other than the primary purpose,
stockholder’s consent or approval is necessary
- Consent of the members was not secured
- Thus, if it’s for the secondary purpose, it is necessary
• Edward Nell Co. vs. Pacific Farms
- If it’s in connection with the primary purpose, only
- Generally where one corporation sells or otherwise board resolution is necessary
transfers all of its assets to another corporation, the
latter is not liable for the debts and liabilities of the Requirements and steps to be followed for a valid
transferor, except: investment of corporate funds are:
1. Where the purchaser expressly or impliedly 1. Resolution by the majority of the board of directors or
agrees to assume such debts; trustees;
2. Where the transaction amounts to a consolidation 2. Ratification by the stockholders representing at least
or merger of the corporations; 2/3 of the outstanding capital stock or 2/3 of the
members in case of non-stock corporations;
3. Where the purchasing corporation is merely a
continuation of the selling corporation; 3. The ratification must be made at a meeting duly called
for that purpose;
4. Where the transaction is entered into fraudulently
in order to escape liability for such debts. 4. Prior written notice of the proposed investment and
the time and place of the meeting shall be made,
Power to acquire own shares addressed to each stockholder or member by mail or
by personal service, and;
Section 41. Power to acquire own shares. -
A stock corporation shall have the power to purchase 5. Any dissenting stockholder shall have the option to
or acquire its own shares for a legitimate corporate exercise his appraisal right
purpose or purposes, including but not limited to the
following cases: Provided, That the corporation has • Dela rama vs. Ma-ao Sugar
unrestricted retained earnings in its books to cover the
shares to be purchased or acquired:
- There is a substantial and not remote connection
between the sugar bags and the sugar manufacture,
1. To eliminate fractional shares arising out of stock thus stockholder’s approval is not necessary for
dividends;
validity
purpose of its incorporation, the vote of approval of What are property dividends?
the stockholders is necessary.
- Those paid in property surplus
• Gokongwei vs. SEC
Like tables and chairs? Can tables and chairs make
- Investments made by SMC is necessarily connected surplus profits?
with its primary purpose and this was ratified in a
meeting - No, they do not make surplus, bonds, etc.
- Submission of previous action is a sound corporate Where should dividends come from?
practice
- Stock dividends are declared as stocks coming from
Redeemable shares corporation
Stockholder’s consent/ approval is not necessary and - The corporation may increase its capital
mere board action is sufficient if in accordance with
primary purpose Z co. 1M to X Co. is 2/3 of Xco. Stockholders
reacquired?
The logical relation of act done and primary purpose of
corporation and between the board of directors to
- No, because in property 2/3 is not required
undertake submission of acts is a sound corporate
practice
What is the effect of declaration of dividends with
regards to the assets of a company?
Dividends
Will there be a corresponding increase in their How did the court decide dividends in the case of
proportionate interest? Neilsen
ACS 2M 1M U.R.E.
SUB-1M TO
10%
SUB 1M JULY 24 DECLARATION
JULY 31
PU-1M 10-100K
PU 1M
ACS 2M
PU 1M
2
1M RE
TO TO HAVE THE TRANSFER
RECORDED
1 100K
10 100K
2 100K
1M
TO
1M
- Right to receive vest upon declaration. Who ever owns
at the time of declaration owns the dividends
May they be compelled?
- Unless there is a stipulation to the contrary
- NO. You cannot declare if it does not come from
unrestricted retained earnings. TRUST FUND DOCTRINE
1. 1M-U.R.E. (is it true there is no way to compel?) - The power to declare it if paid-up capital is not
maintained or is impaired
2. 2M-U.R.E.
- Trust fund must be kept intact for the protection of
May they be compelled to declare dividends creditors who have the right to rely on such
subscription and the paid-up capital for the satisfaction
- Mandatory if earned, the board may be compelled to of their claims
declare dividends
Cannot accumulate surplus unreasonably
Entitled to dividends
ACS 2M 1M U.R.E.
1-100K 50K PU - Declare dividend with the belief that it formed part of
the U.R.E., but yun pala sa capital
2-100K 50K
Directors are not liable, unless sec31 acted in bad faith
TO or gross negligence in the conduct of corporate affairs
members of the board of directors of the managing - Ultra-vires acts which are not illegal per se may
corporation also constitute a majority of the members become binding and enforceable either by satisfaction,
of the board of directors of the managed corporation, estoppels or equitable grounds
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 Consequences of ultra-vires acts?
stock entitled to vote, or by at least two-thirds (2/3) of
the members in the case of a non-stock corporation. 1. On the corporation itself
No management contract shall be entered into for a
period longer than five years for any one term.
- The proper forum, in accordance with the provisions of
PD 902-A, as amended and R.A. No. 8799 may
The provisions of the next preceding suspend or revoke, after proper notice and hearing,
paragraph shall apply to any contract whereby a the franchise or certificate of registration of the
corporation undertakes to manage or operate all or corporation for serious misrepresentation as to what
substantially all of the business of another corporation,
the corporation can do or is doing to the great damage
whether such contracts are called service contracts,
operating agreements or otherwise: Provided, or prejudice of the general public
however, That such service contracts or operating
agreements which relate to the exploration, 2. On the rights of the stockholders
development, exploitation or utilization of natural
resources may be entered into for such periods as may - A stockholder may bring either an individual or
be provided by the pertinent laws or regulations. (n)
derivative suit to enjoin a threatened ultra-vires act or
contract. If the act or contract has already been
The requirement for a valid management contract are performed, a derivative suit for damages against the
as follows: directors may be filed, but their liability will depend on
whether they acted in good faith and with reasonable
1. Resolution of the board of directors diligence in entering into the contract.
2. Approval by the stockholders holding or representing a
majority of the outstanding capital stock or majority of 3. On the immediate parties
the members in case of non-stock corporation of both
the managing and the managed corporation
- The courts have not agreed as to the legal effect of a
3. The approval of the stockholders or members must be
made at the meeting called for that purpose corporate contract outside of its authorized business
4. The contract shall not be for a period longer than 5 but Ballatine gives the following summary of the
years for any one term, except those which relate to doctrines evolved:
exploration, development or utilization of natural
resources which may be entered into for such periods a. If the contract is fully executed on both sides, the
as may be provided by pertinent laws and regulations
contract is effective and the courts will no
Every corporate act emanates from the BOARD
interfere to deprive either party of what has been
acquired under it
Is the voting requirements of a majority stockholder
ABSOLUTE?
b. If the contract is executory on both sides, as a
rule, neither party can maintain an action for its
- Not only a majority but 2/3 of the outstanding capital non-performance
stock or 2/3 of the members in a non-stock corporation
would be required for the approval of a management c. Where the contract is executor on one side only,
contract in the following instances: and has been fully performed on the other, the
courts differ as to whether an action will lie on
1. Where the stockholders representing the same the contract against the party who has received
interest of both the managing and managed benefits of performance under it. Majority of the
corporation own or control more than 1/3 of the total courts, however, hold that the party who has
outstanding capital stock of the managing corporation; received benefits from the performance is
and estopped to set up that the contract is ultra-vires
to defeat an action on the contract. This is more
2. Where a majority of the members of the board of in conformity with the doctrine that no person
directors of the managing corporation also constitute a shall be allowed to enrich himself at the expense
majority of the directors of the managed corporation of another
3. Where the contract would constitute the management • Privano vs. Dela Rama
or operation of all or substantially all of the business of
another corporation, whether such contracts are called - Court looked into the purpose clause
service contracts. If it will not constitute the
management of all or substantially all of the business - The purpose clause empowers and limits
of another corporation the first paragraph of section
44 will apply and not that of the second, that is, only - Articles likewise provide that it may deal with any of
the vote of the stockholders holding or representing at its money
least a majority of the outstanding capital stock or
majority of the members in the case of non-stock - “deal” broad enough to cover the donation it is not
corporation will be required. then ultra-vires
How long? - Not illegal per se hence (law of agency) excess powers
are subject to ratification
- Not longer than 5 years for any one term
- Ratified by passing the resolution in question
- Exception: exploration, development or utilization of
natural resources • Carlos vs. Mindoro sugar Co.
What is an ultra-vires act or contract? - PTC- trust company as such, it also has implied powers
as to make them more attractable
- Doctrine of limited capacity. Corporation can do such
acts and things as it is allowed to do - Not ultra-vires in pursuance of its legitimate business
- Acts beyond it will be ultra vires, allowing a collateral • Japanese war notes vs. SEC
attack
- Non-stock corporations cannot make profits and
- If not illegal per se merely voidable. Can be ratified distribute profits to its shareholders
expressly or impliedly or even stopped as equitable
grounds
BY-LAWS
How about 3rd persons?
By-Laws
- NO. unless there is actual knowledge of the same they
- Rule adopted by the corporation for its internal are not presumed to know of the provisions of the by-
governance laws
When should the by-laws be adopted or filed? Can it - Shares of stock are personal properties
not be adopted earlier?
- Shares of stock may transfer to whom ever he wishes
- After incorporation- within 1 month (emanates from
the BOARD) - The by-laws is contrary to law
Who will sign the adoption clause? - May provide reasonable restriction
- Proper notice and hearing, must first be complied with - Did the court categorically ruled here that the
provision in the 5th cause of action is valid?
• Loyola grand villas vs. CA
- Rules governing equity, considering the fact that there
- Not the SEC, but the HIGC was always lack of quorum
- Must – not always imperative - Section 29 BOD if still constituting a quorum may fill
up a vacancy other than by removal, etc.
- Filing of by-laws mandatory
• Gokongwei vs. SEC
- Empowered by SEC
- Section 48 allows a corporation to amend it by-laws
- Merely a ground, there must be proper notice and
hearing - Section 47 of the code, the by-laws may provide for
the qualification and disqualification
- Not affect the status of the corporation as a juridical
person - It cannot be said Gokongwei has a vested rights
- Prevent directors from taking advantage of position to - Upon issuance of the SEC that they are not
promote his individual interest to the damage of inconsistent
others
What if the SEC failed to act within 10 months without
- The validity or reasonableness of a by-laws is a fault attributable to the corporation?
question of law
T or F any amendment of the by-laws will never
- Subject to the limitations that reasonableness of a by- become valid until it gives its stamp of approval even
law is a mere matter of judgment after 1 year
- Rule of the majority and not the tyranny of the - TRUE. Articles of incorporation and by-laws are
minority different
1. By a majority vote of the directors or trustees and the - Meetings of stockholders 1. Date fixed
majority vote of the outstanding capital stock or in the by-laws or by-law
members in a non-stock corporation, at a regular or
special meeting called for that purpose; - Meetings of director or trustees
2. By the board of directors alone when delegated by 2/3 Meetings are regular and special
of the outstanding capital stock or 2/3 of the members
in a non-stock corporation.
Meetings of stockholders
- While there is no provision authorizing a stock Mandamus would be appropriate remedy if there is a
corporation to hold stockholders’ meetings outside of person authorized but refuses
the City of Municipality where the principal office is
located, the law allows a non-stock corporation to Quorum and voting requirement
provide in its by-laws any place of members’ meeting
provided that proper notice is sent to all members - Majority stockholders or members constitute a quorum
indicating the date, time and place of the meeting
which shall be within the Philippines.
Is the presence of the majority owners of the
outstanding capital stock ABSOLUTE to have a
T or F the by-laws of a stock corporation may validly quorum?
provide that meetings shall be held anywhere in the
Philippines? - NO. when the code requires a higher quorum it must
also be equivalent to the vote required
- FALSE. Non-stock corporations lang pwede provided
nakalagay sa by-laws and provided proper notice is
Do you include non-voting shares in arriving at the
given
voting requirement to have a valid corporate act?
- President until and unless there is a provision , 3. It must be held at he proper place
secretary on order of the president
4. It must be called by the proper party
What if there is nobody who can call?
5. Quorum and voting requirements must be met
- The petitioner, stockholder may petition the court
Date not complied with, notice, place, not complied
What if there is a person who can call, but he fails or with and the person who called not authorized, what
neglects to call the meeting? May a stockholder happens to any resolution called?
petition to authorize a meeting?
Section 28. Removal of directors or “all proceedings had and any business
trustees. - Any director or trustee of a corporation may transacted at any meeting of the
be removed from office by a vote of the stockholders stockholders or members, if within the
holding or representing at least two-thirds (2/3) of the powers or authority of the corporation, shall
outstanding capital stock, or if the corporation be a
be valid even if the meeting be improperly
non-stock corporation, by a vote of at least two-thirds
(2/3) of the members entitled to vote: Provided, That held or called, provided all the stockholders
such removal shall take place either at a regular or members of the corporation are present
meeting of the corporation or at a special meeting or duly represented at the meeting.”
called for the purpose, and in either case, after
previous notice to stockholders or members of the Directors/trustees meeting
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 Regular (monthly) and special (anytime)
removal of directors or trustees, or any of them, must
be called by the secretary on order of the president or May that be restricted (within or outside the Phil)
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 - YES. unless the by-laws provide otherwise.
corporation, on the written demand of a majority of
the members entitled to vote. Should the secretary fail Is there any notice requirement?
or refuse to call the special meeting upon such
demand or fail or refuse to give the notice, or if there
- YES. 1 day unless otherwise provided by the by-laws
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 What happens if notice is not complied with?
the demand. Notice of the time and place of such
meeting, as well as of the intention to propose such - If the notice requirement is not complied with the
removal, must be given by publication or by written
meeting is illegal and will not bind the corporation
notice prescribed in this Code. Removal may be with
or without cause: Provided, That removal without except when subsequently ratified or in the case of a
cause may not be used to deprive minority close corporation where the act of any one director
stockholders or members of the right of representation may bind the corporation even without a meeting
to which they may be entitled under Section 24 of this under the special provision of Section 101 of the Code.
Code. (n)
Can notice be waived? <sec.53>
Cases of removal or ouster of a director
Section 53. Regular and special meetings
of directors or trustees. - Regular meetings of the
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©GTan; ASoguilon; VVillanueva
33
board of directors or trustees of every corporation - However this right is not always inherent, because it
shall be held monthly, unless the by-laws provide may be denied:
otherwise.
1. Redeemable and preferred shares, however if
Special meetings of the board of directors or founders shares are issued others may be denied
trustees may be held at any time upon the call of the the right to vote.
president or as provided in the by-laws.
2. May be denied by the articles of incorporation or
Meetings of directors or trustees of contracts
corporations may be held anywhere in or outside of
the Philippines, unless the by-laws provide otherwise. - When not denied they may do so in person or by proxy
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 May the right to vote by proxy be denied?
scheduled meeting, unless otherwise provided by the
by-laws. A director or trustee may waive this May the articles of incorporation deny?
requirement, either expressly or impliedly. (n)
May the by-laws validly provide that proxy voting is
- YES. Expressly and impliedly not allowed?
- SEC ruling - NO
A special meeting is valid without notice Only non-stock may be denied proxy voting (may be
where the directors are all present or where broaden, limited or denied)
they consent to the meeting. Presence at
the meeting waives the want of notice. Proxy voting is a matter of right granted by law
Moreover, it has been ruled that the meeting
of the directors without a formal call first
Requirements of a valid proxy?
being had, and notice thereof given to the
members, did not operate to invalidate it or
- Section 58
to render the proceedings which were taken
at it void, for every member of the board
Section 58. Proxies. - Stockholders and
were present, and their joint action had
members may vote in person or by proxy in all
completely bound the corporation as if the
meetings of stockholders or members. Proxies shall in
meeting has been called with due formality,
writing, signed by the stockholder or member and filed
and everyone of the directors had received
before the scheduled meeting with the corporate
proper notice.
secretary. Unless otherwise provided in the proxy, it
shall be valid only for the meeting for which it is
What is the quorum and voting requirement in the
intended. No proxy shall be valid and effective for a
directors meeting?
period longer than five (5) years at any one time. (n)
- Maximum of 5 years
Vote required to pass a valid corporate act?
Should the director or trustees be physically present? - A proxy, like agency in general is revocable unless
coupled with an interest and revocation need not be
- General rule, must sit and act as a body to have a made by formal notice in writing. Revocation may be
expressed to the proxy holder, to the election
valid corporate act
committee, by a subsequent proxy to another or by
sale of the shares. Thus it may be revoke orally by
Five man member board, a meeting was called today,
conduct such that appearing and asserting the right to
should the physical presence or warm bodies requires
vote at a meeting by the registered owner of the
to constitute a quorum?
shares revokes a proxy previously given.
What is the effect of a voting trust agreement relative Being still the beneficial owner they may transfer
to the rights? these rights
- Lee vs. CA must pass these criteria Is the right granted to a voting trust agreement
absolute? (to inspect)
Requisites
May the voting trustee vote by proxy?
- Section 59
- Yes, legal owner may vote by proxy
Section 59. Voting trusts. - One or more May the proxy holder vote by proxy?
stockholders of a stock corporation may create a
voting trust for the purpose of conferring upon a
- NO, (AGENT) an agent can have no other agent unless
trustee or trustees the right to vote and other rights
pertaining to the shares for a period not exceeding five specifically allowed by the principal
(5) years at any time: Provided, That in the case of a
voting trust specifically required as a condition in a Stockholder executing as a proxy, is he qualified to be
loan agreement, said voting trust may be for a period voted as a director?
exceeding five (5) years but shall automatically expire
upon full payment of the loan. A voting trust
agreement must be in writing and notarized, and shall Why is he qualified to act as a director if the
specify the terms and conditions thereof. A certified stockholder executes as a director?
copy of such agreement shall be filed with the
corporation and with the Securities and Exchange - The beneficial owner of the shares in a voting trust is
Commission; otherwise, said agreement is ineffective disqualified to be a director in a voting trust whereas
and unenforceable. The certificate or certificates of
in a proxy, the owner of the shares may be elected as
stock covered by the voting trust agreement shall be
cancelled and new ones shall be issued in the name of such since legal title thereof remains with him
the trustee or trustees stating that they are issued
pursuant to said agreement. In the books of the
corporation, it shall be noted that the transfer in the
- YES he remains to be the owner
name of the trustee or trustees is made pursuant to
said voting trust agreement. Is the stockholder executing in a voting trust
agreement, is he qualified to act as a director?
The trustee or trustees shall execute and
deliver to the transferors voting trust certificates, - NO. ceases to be stockholder of record, no longer the
which shall be transferable in the same manner and legal owner of shares
with the same effect as certificates of stock.
May the corporation enforce the voting trust
The voting trust agreement filed with the agreements executed by its stockholders?
corporation shall be subject to examination by any
stockholder of the corporation in the same manner as - NO. NIDC vs. AQUINO
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 - Not a privy to the contract
and records in accordance with the provisions of this
Code. - Rights liabilities of a stockholder are there in their
individual capacity- corporate entity theory
Any other stockholder may transfer his
shares to the same trustee or trustees upon the terms Voting trust agreements
and conditions stated in the voting trust agreement,
and thereupon shall be bound by all the provisions of - Normally executed in favor of banking and financial
said agreement.
institutions
No voting trust agreement shall be entered - So that they can vote a certain set of directors
into for the purpose of circumventing the law against
monopolies and illegal combinations in restraint of
- They will be more secured
trade or used for purposes of fraud.
The voting trustee or trustees may vote by - By pulling their votes they can decline the resolution
proxy unless the agreement provides otherwise. (36a) passed by the board
3 modes
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35
- Purchaser can neither require the issuance What may be used as a consideration and how much
should be the consideration?
Xco. Inc.
- Section 62 provides:
Is Z liable to pay the balance of his acquisitions? 5. Amounts transferred from unrestricted retained
earnings to stated capital; and
- YES, no matter how the party refer to it, it is
considered subscription 6. Outstanding shares exchanged for stocks in the
event of reclassification or conversion.
- Once you subscribe, you become a stockholder which
is entitled to all the liabilities of a stockholder Where the consideration is other than actual
cash, or consists of intangible property such as patents
Z- subscribed to 100T/S of XCo. of copyrights, the valuation thereof shall initially be
determined by the incorporators or the board of
directors, subject to approval by the Securities and
Amount he paid 50k Exchange Commission.
Z did not pay on the date called and was declared a delinquent
Shares of stock shall not be issued in
share
exchange for promissory notes or future service.
While it appears, that a subscriber to shares of stock Section 63. Certificate of stock and
cannot be entitled to the issuance of a certificate of transfer of shares. - The capital stock of stock
stock until the full amount of his subscription together corporations shall be divided into shares for which
certificates signed by the president or vice president,
with interest and expenses (in case of delinquent
countersigned by the secretary or assistant secretary,
shares) if any is due, has been paid, a subscriber to and sealed with the seal of the corporation shall be
shares of stock, even if not yet fully paid, is entitled to issued in accordance with the by-laws. Shares of stock
exercise all the rights of a stockholder and the so issued are personal property and may be
corresponding liability that attach thereunder. Thus, transferred by delivery of the certificate or certificates
the Code provides: indorsed by the owner or his attorney-in-fact or other
person legally authorized to make the transfer. No
transfer, however, shall be valid, except as between
Section 72. Rights of unpaid shares. - the parties, until the transfer is recorded in the books
Holders of subscribed shares not fully paid which are of the corporation showing the names of the parties to
not delinquent shall have all the rights of a the transaction, the date of the transfer, the number of
stockholder. (n) the certificate or certificates and the number of shares
transferred.
Is the issuance of a certificate of stock necessary to
consider the subscriber a stockholder? No shares of stock against which the
corporation holds any unpaid claim shall be
- NO, shall be considered a stockholder even without a transferable in the books of the corporation. (35)
certificate of stock
“Until registration is accomplished, the transfer,
Instances when he may not be able to exercise his though valid between the parties, cannot be effective
rights as such stockholder as against the corporation. Thus the, unrecorded
transfer cannot enjoy the status of a stockholder; he
- Declared delinquent cannot vote nor be voted for, and he will not be
entitled to dividends. The corporation will be protected
- When he exercises his appraisal right when it pays dividend to the registered owner despite
a previous transfer of which it had no knowledge. The
Are certificate of stocks transferrable? purpose of registration therefore is twofold: to enable
the transferee to exercise all the rights of a
- YES stockholder and to inform the corporation of any
change in shares ownership so that it can ascertain
the persons entitled to the rights and subject to the
Are certificate of stocks considered negotiable?
liabilities of a stockholder.”
- Quasi-negotiable
Thus, it was also ruled by the High Court in
Nautica Canning Corp. vs. Yumul that “A
Why are they considered quasi-negotiable when it may transfer of shares not recorded in the stock
be transferred through endorsement and delivery? and transfer book of the corporation is non-
existent in so far as the corporation is
100t/s 001 concerned.” This is so because “the
corporation looks only through its books for
10/s
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the purpose of determining who its - Register of deeds where the corporation resides and if
stockholders are.” different in the register of deeds of owner’s domicile
1. To enable the corporation to know who its - All transferred not register will not have a valid force
stockholders are; and effect
5. To protect creditors who have the right to look upon - Valid , may be reasonably regulated, restricted by
stockholders, in case of no-payment or watered agreement of parties
shares, for the satisfaction of their claims.
- Reasonable agreement by the parties
Duty of the secretary is ministerial, hence mandamus
will lie if the secretary refuses to record the transfer, - Reasonable as to length of time
but he cannot be compelled when the transferee’s title
to the said shares has no prima facie validity or • Padgett vs. Babcock
uncertain
- Any attempt to restrain transfer
Transfer- absolute and unconditional transfer to
warrant registration in the books of the corporation in - SC, in the absence of a valid lien upon its shares
order to bind the latter and other third persons.
- Valid restrictions shares are applicable
Other restrictions on the right to transfer shares would
include: - Any restriction on a stockholder’s right to dispose of
his shares must be construed strictly; and any attempt
1. It is not valid, except as between the parties, until to restrain a transfer of shares is regarded as being in
recorded in the books of the corporation; restraint of trade, in the absence of a valid lien upon
its shares, and except to the extent that valid
2. Shares of stock against which the corporation holds restrictive regulations and agreements exist and are
any unpaid claim shall not be transferable in the books applicable. Subject only to such restrictions, a
of the corporation; unpaid claims, refer to claims stockholder cannot be controlled in or restrained from
arising from unpaid subscription and not to any exercising his right to transfer by the corporation or its
indebtedness which a stockholder may owe the officers or by other stockholders, even though the sale
corporation such as monthly dues; is to a competitor of the company, or to an insolvent
person, or even though a controlling interest is sold to
3. Restrictions required to be indicated in the articles of one purchaser.
incorporation, by-laws and stock certificates of a close
corporation; Certificate of stocks are transferrable
4. Restrictions imposed by special law, such as the Public - By endorsement and delivery of the stock certificate to
Service Act requiring the approval of the government the transferee
agency concerned if it will vest unto the transferee
40% of the capital of the public service company; In order to be valid, must be registered in the books. If
not, will only be binding among parties
5. Sale to aliens in violation of maximum ownership of
shares under the Nationalization Laws; How may shares of stock be transferred?
6. Those covered by reasonable agreement of the - Endorsement of stock certificate by owner or attorney-
parties. in-fact with delivery
- Deed of assignment
• Rural bank of Salinas vs. CA - Valid between contracting parties even if not recorded
in corporation books
- If denied or refused without good cause, mandamus
will lie - Right accrues only if refused
- In the case there was no attempt to foreclose • De los Santos vs. Republic
- Petitioner must have a prima facie right - Why is he, not considered as the owner of shares?
When it has been said that when endorsed by the
• Nava vs. Peers Marketing owner it is considered as strict certificate? Because
certificate of stocks are non-negotiable
- A stock subscription is a subsisting liability from the
time the subscription is made - Although a stock-certificate is sometimes regarded as
quasi-negotiable, in the sense that it may be
transferred by endorsement, coupled with delivery, it
- The subscriber is as much bound to pay his
is well settled that the instrument is non-negotiable,
subscription as he would be to pay any other debt
because the holder thereof takes it without prejudice
to such rights or defenses as the registered owner or
- No stock certificate was issued. Without stock
creditor may have under the law, except insofar as
certificate, which is the evidence of ownership of
such rights or defenses are subject to the limitations
corporate stock, the assignment of corporate shares is
imposes by the principles governing estoppels.
effective only between the parties to the transaction
Endorsement and delivery is not necessary (TAN vs. C armed with the endorsement form certificate, sold to
SEC) D (innocent purchaser for value), will D acquire title?
• Tan vs. SEC (FULL KNOWLEDGE, HE IS ESTOPPED) - NO, subject to such rights and defenses as the true and
lawful owner may have
- Persons sought to be stockholder is officer and has
custody of the book (estopped) What if C now goes to the corporation and presents the
form?
General Rule for valid transfer
- Then the corporation shall cancel the old certificate and
- Certificate of stock must be endorsed by owner or issues a new one, now in the name of C, now
attorney-in-fact coupled with delivery registered in the name of C, will C acquire title?
- D will acquire title took the shares not by virtue of a - Section 64 provides:
forged or unauthorized transfer, but on the reliance
that the stock certificate is valid and owned by C
Section 64. Issuance of stock certificates. -
No certificate of stock shall be issued to a subscriber
Stock certificate now in possession of D. A knew of until the full amount of his subscription together with
what happened and went to the corporation and interest and expenses (in case of delinquent shares), if
complains. Who will have a better title? any is due, has been paid. (37)
- the corporation may be compelled to recognize both, A A certificate of stock cannot be issued unless he fully
as stockholder (non-negotiable) D, reliance that the paid the amount subscribed
stock certificate is valid and existing and owned by C
Subscription to the capital stocks of the corporation
Forged transfers are indivisible
Watered stock
- by virtue of the doctrine of non-negotiability of
certificate of stocks
- One which is issued by the corporation as fully paid-up
shares, when in fact the whole amount of the value
The true and lawful owner will never be deprived of his
thereof has not been paid.
rights
- Basis is par value and not the fair market value
What happens to D?
Section 62 states that stocks shall not be issued for a
- D will have a cause of action against the corporation for
consideration less than par or issued price thereof,
the value of his acquisition cost inclusive of damages,
while section 13 states that in no case shall be paid-up
attorney’s fees and cost of suit
capital be less than five thousand [P5000] pesos.
Why is stock watering illegal? - Those having knowledge thereof, but did not interpose
their objection shall be liable
1. The corporation is deprived of its capital thereby
hurting its business prospects, financial capability and - Section 65 provides:
responsibility;
Section 65. Liability of directors for
2. Stockholders who paid their subscriptions in full, or watered stocks. - Any director or officer of a
promised to pay the same, are injured and prejudiced corporation consenting to the issuance of stocks for a
by the reduction of their proportionate interest in the consideration less than its par or issued value or for a
corporation; and, 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
3. Present and future creditors are deprived of the writing and file the same with the corporate secretary,
corporate assets for the protection of their interest. shall be solidarily, liable with the stockholder
concerned to the corporation and its creditors for the
- Corporation is prejudiced difference between the fair value received at the time
of issuance of the stock and the par or issued value of
the same. (n)
- Stockholders, dilution of interest
- Creditors are prejudiced, virtue of right to look upon ACS-100M 100M/S PAR VALUE-
corporations properties for the satisfaction of their 1.00
claims
SUBSCRIBED-50M FAIR MARKET VALUE-
What is the effect of issuance of watered stocks 12.00/S
3. As to the consenting stockholders - They are stopped There is a denial of pre-emptive rights and directors
from raising any objection thereto; A,B,C,D,E decided to issue the remaining 50M and
subscribed for 10M each at 2 per share.
4. As to dissenting stockholders - In view of the dilution
of their proportionate interest in the corporation, they Is there stock watering if the fair market value is
may compel the payment of the “water” in the stock 12.00?
solidarily against the responsible and consenting
directors and officers inclusive of the holder of the - No stock watering
watered stocks;
- The basis is the par value
5. As to creditors - They may enforce payment of the
difference in the price, or the water in the stock, - The shares where in fact paid more than the par value
solidarily against the responsible directors/officers and indicated in the articles of incorporation
the stockholders concerned; and’
3 days later they sold their 10M share for P11.00 each,
6. As against transferees of the watered stock – His right therefore making a profit.
is the same as that of his transferor. If, however, a
certificate of stock has been issued and duly indorsed Can you question there actuations? What would be the
to a bona fide purchaser, without knowledge, actual or cause of action?
constructive, the latter cannot be held liable, at least
as against the corporation, since he took the shares on - It may be questioned.
reliance of the misrepresentation made by the
corporation that the stock certificate is valid and - Duty of loyalty or fiduciary duty as such directors
subsisting. This is because a corporation is prohibited
from issuing certificates of stock until the full value of - They cannot advance their own motives to the
the subscriptions have been paid and could not, damage prejudice of the corporation which they
therefore, deny the validity of the stock certificate it represents and stockholders as a whole instead of it
issued as against a purchaser in good faith. Thus, being sold outside
Ballentine states that whether there is any liability on
the part of the transferee of watered stock is made to - 500M would have gone to the coffers of the
depend upon whether he acquired the same without corporation, 500M should be there for the protection of
notice, either as purchaser or donee. If he had creditors
knowledge thereof, he is subject to the same liability
as his transferor. - They are placed in a fiduciary relationship
What is the nature of the liability of the corporate - Sila lang ba ang kikita, pano naman yung corporation,
directors consenting to the issuance of watered stocks opportunity na yun para kumita
and the extent of their liabilities?
When are unpaid subscriptions due and payable?
- Solidarily liable with the holder of the watered stocks
to the extent of the water from said shares of stocks
- Section 67. Payment of balance of subscription. -
Will all the directors be liable? What if you objected Subject to the provisions of the contract of
will you also be liable? subscription, the board of directors of any stock
corporation may at any time declare due and payable
to the corporation unpaid subscriptions to the capital
- If you do not issue a written objection, you are still
stock and may collect the same or such percentage
liable
thereof, in either case with accrued interest, if any, as
it may deem necessary.
- Even passive directors may be liable
Payment of any unpaid subscription or any percentage of this Code, bid for the same, and the total amount
thereof, together with the interest accrued, if any, due shall be credited as paid in full in the books of the
shall be made on the date specified in the contract of corporation. Title to all the shares of stock covered by
subscription or on the date stated in the call made by the subscription shall be vested in the corporation as
the board. Failure to pay on such date shall render the treasury shares and may be disposed of by said
entire balance due and payable and shall make the corporation in accordance with the provisions of this
stockholder liable for interest at the legal rate on such Code. (39a-46a)
balance, unless a different rate of interest is provided
in the by-laws, computed from such date until full
payment. If within thirty (30) days from the said date Who is the winning bidder in a delinquency sale?
no payment is made, all stocks covered by said
subscription shall thereupon become delinquent and
- Bidder who shall “offer to pay the full amount of the
shall be subject to sale as hereinafter provided, unless
balance on the subscription together with accrued
the board of directors orders otherwise. (38)
interest, cost of advertisement and expenses of sale,
for the smallest number of shares or fraction of a
Remedies of the corporation to enforce payment of share.”
unpaid subscription
X Co. has 1M authorized capital stock
1. By board action in accordance with the procedure laid
down in sections 67 to 69 of the code 500 thousand is already subscribed
2. By a collection case in court as provided for in section
70
A subscribed to 100 thousand shares, 50 thousand is
already paid leaving 50 thousand unpaid
Are subscribers of shares of stocks not fully paid, liable
to pay interest?
The corporation is at a loss of 250 thousand, the board
decides to make a call for the payment of the unpaid
- General rule is they are not liable to pay interest subscriptions, however A could not paid, hence
because the code says unless requires in the by-laws declared delinquent and decides to sell his share at a
- Aside from the mandate of the law that subscribers to public auction
shares of stock must pay the full value of their
subscription, they may likewise be required to pay
interest on all unpaid subscriptions if so imposed in the 55 thousand is to be paid, remaining balance plus cost
contract or in the corporate by-laws at such rate as and expenses
may be indicated thereat or the legal rate if not so
fixed. Unless so required or provided, however,
subscribers to shares of stock, not fully paid, are not BIDDERS:
liable to pay interest on their unpaid subscriptions. The
code thus provides:
X-55K FOR 99,900 shares
Until a call is made, they are not due and payable, but - NO. It cannot bid because the law says, subject to the
still subject to the provisions of the contracts provisions of this CODE. Section 68 and 41 should be
Procedures in case of sale of delinquent stocks reconciled. Section 68 states that:
- Section 68. Delinquency sale. - The board of directors Should there be no bidder at the public
auction who offers to pay the full amount of the
may, by resolution, order the sale of delinquent stock
balance on the subscription together with accrued
and shall specifically state the amount due on each
interest, costs of advertisement and expenses of sale,
subscription plus all accrued interest, and the date,
for the smallest number of shares or fraction of a
time and place of the sale which shall not be less than
share, the corporation may, subject to the
thirty (30) days nor more than sixty (60) days from the
provisions of this Code, bid for the same, and the
date the stocks become delinquent.
total amount due shall be credited as paid in full in the
books of the corporation. Title to all the shares of stock
Notice of said sale, with a copy of the covered by the subscription shall be vested in the
resolution, shall be sent to every delinquent corporation as treasury shares and may be disposed of
stockholder either personally or by registered mail. by said corporation in accordance with the provisions
The same shall furthermore be published once a week of this Code. (39a-46a)
for two (2) consecutive weeks in a newspaper of
general circulation in the province or city where the
principal office of the corporation is located.
What if the shares of A were sold without compliance stock subscription in order to realize assets for the
of the requirements? May A question the sale? payment of its debts.
- A corporation has no power to release an original
subscriber to its capital stock from the obligation of
- The law prescribes two conditions before an action to paying for his shares, without a valuable consideration
recover delinquent stocks irregularly sold may be for such release; and as against creditors a reduction
allowed. These are: of the capital stock can take place only in the manner
and under the conditions prescribed by the statute or
the charter or the articles of incorporation.
1. The party seeking to maintain such action first pays or
tenders to the party holding the stock the sum for
which the same was sold, with interest from the date • Edward Keller and Co. vs. COB
of the sale at the legal rate; and,
2. The action shall be commenced by the filing of a
complaint within six months from the date of the sale. - May the stockholder be held liable for the debts of the
corporation? YES. To the extent of their unpaid
subscription
- The reason for such is the stability of transactions of - As to the liability of the stockholders, it is settled that
the shares of stock a stockholder is personally liable for the financial
obligations of a corporation to the extent of his unpaid
subscriptions
Suppose in the example, since there are no
unrestricted retained earnings, hence the corporation
cannot bid, is the corporation left without any Is there a prescriptive period wherein a demand for
recourse? unpaid subscription should be made?
- Section 70. Court action to recover unpaid - NO. Garcia vs. Suarez case
subscription. - Nothing in this Code shall prevent the
corporation from collecting by action in a court of
proper jurisdiction the amount due on any unpaid • Garcia vs. Suarez
subscription, with accrued interest, costs and
expenses. (49a)
- Never became due and payable until there is a call
made
• Velasco vs. Poizat - Prescription will not run until and unless there is
demand
- Prescription should be determined from the time
- The subscriber is as much bound to pay the amount of demand has been made and not from the time of
the share subscribed by him as he would be to pay any subscription
other debt, and the right of the company to demand
payment is no less incontestable.
- Two available remedies: the first and most special If declared delinquent, what would be the effect as to
remedy given by the statute consist in permitting the the owner of said shares?
corporation to put up the unpaid stock and dispose of
it for the account of the delinquent subscriber. The
other remedy is by action in court. - Section 71. Effect of delinquency. - No delinquent
stock shall be voted for or be entitled to vote or to
representation at any stockholder's meeting, nor shall
• De Silva vs. Aboitiz and Co. 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
- Discretionary on the part of the board of directors to
unless he pays the amount due on his subscription
do whatever is provided in the said article relative to
with accrued interest, and the costs and expenses of
the application of the part of the 70 percent of the
advertisement, if any. (50a)
profit distributable in equal parts on the payment of
- However if the shares are not delinquent, subscribers
the shares subscribed to and fully paid
to the capital of a corporation, though not fully paid,
are entitled to all the rights of a stockholder, according
• Lingayen Gulf vs. Baltazar to section 72
- Exception: pursuant to a bona fide compromise or to Section 72. Rights of unpaid shares. -
set off a debt due from the corporation, a release Holders of subscribed shares not fully paid which are
supported by consideration, will be effectual as against not delinquent shall have all the rights of a
dissenting stockholders and subsequent and existing stockholder. (n)
creditors. A release which might originally have been
held invalid may be sustained after a considerable
May the rules governing delinquency sale apply to a
lapse of time
non-stock corporation? Are there unpaid shares in a
non-stock corporation?
• Apocada vs. NLRC
- Rules governing stock corporations, when applicable,
- Set-off is without any legal basis also applies to a non-stock corporation
- It was premature - There are delinquent shareholders also in a non-stock
- Unpaid subscriptions will become due and payable corporation. Example is membership dues
only upon certain instance
- Call or if there is a stipulation in contract
A corporation paid 50% of subscription and was later
- If no call and no stipulation in contract then it will not
on declared delinquent when he could not pay upon
be demandable or payable at all
call; A is also a director of the corporation. Will A, upon
declaration of delinquency , still be able to exercise his
• Lumanlan vs. Cura right as a director?
- Trust Fund Doctrine- subscription to the capital of a - Yes, he loses all his right as a stockholder except his
corporation constitute a fund to which the creditors right to receive dividends
have a right to look for satisfaction of their claims and - He remains to be a director, only qualification to be a
that the assignee in insolvency can maintain an action director is he must own at least 1 share and since it
upon any unpaid stock subscription in order to realize still stands in his name pending the sale, he remains to
assets for the payment of its debts. be and act as a director
- Even if there is sale, he may still be director because
the winning bidder may not bid or pay for all the
• PNB vs. Bitulak shares or there might be remaining shares, which
would be credited in favor of the delinquent
stockholder
- Where it not for the promise, the defendants would - Section 43 provides:
have not subscribed
- Trust Fund Doctrine, it is established doctrine that
subscriptions to the capital of a corporation constitute Section 43. Power to declare dividends. -
a fund to which creditors have a right to look for The board of directors of a stock corporation may
satisfaction of their claims and that the assignee in declare dividends out of the unrestricted retained
insolvency can maintain an action upon any unpaid earnings which shall be payable in cash, in property, or
Notes on Corporation Law
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©GTan; ASoguilon; VVillanueva
43
in stock to all stockholders on the basis of outstanding - The code provides that:
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 after the expiration of one (1) year from
expenses, while stock dividends shall be withheld from the date of the last publication, if no contest has
the delinquent stockholder until his unpaid been presented to said corporation regarding said
subscription is fully paid: Provided, further, That no certificate of stock, the right to make such contest
stock dividend shall be issued without the approval of shall be barred and said corporation shall cancel in its
stockholders representing not less than two-thirds books the certificate of stock which has been lost,
(2/3) of the outstanding capital stock at a regular or stolen or destroyed and issue in lieu thereof new
special meeting duly called for the purpose. (16a) certificate of stock,
Stock corporations are prohibited from Could it be issued earlier than 1 year?
retaining surplus profits in excess of one hundred
(100%) percent of their paid-in capital stock, except:
- Yes it can be, the code states that:
(1) when justified by definite corporate expansion
projects or programs approved by the board of
directors; or (2) when the corporation is prohibited unless the registered owner files a bond or
under any loan agreement with any financial other security in lieu thereof as may be required,
institution or creditor, whether local or foreign, from effective for a period of one (1) year, for such amount
declaring dividends without its/his consent, and such and in such form and with such sureties as may be
consent has not yet been secured; or (3) when it can satisfactory to the board of directors, in which case a
be clearly shown that such retention is necessary new certificate may be issued even before the
under special circumstances obtaining in the expiration of the one (1) year period provided
corporation, such as when there is need for special herein: Provided, That if a contest has been
reserve for probable contingencies. (n) 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
When a certificate of stock is loss or destroyed, what issuance of the new certificate of stock in lieu thereof
must be done by the owner 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.
- Section 73. Lost or destroyed certificates. - The
following procedure shall be followed for the issuance
by a corporation of new certificates of stock in lieu of May corporate officers be held liable for the
those which have been lost, stolen or destroyed: unauthorized issuance?
excerpts from the corporation's records and ownership of shares and the necessity of
minutes has improperly used any information self-protection. Managers of some
secured through any prior examination of the corporations deliberately keep the
records or minutes of such corporation or of any shareholders in ignorance or under
other corporation, or was not acting in good misapprehension as to the true condition of
faith or for a legitimate purpose in making his its affairs. Business prudence demands that
demand.” the investor keep a watchful eye on the
management and the condition of the
business. Those in charge of the company
What is the stock and transfer? Where should stock may be guilty of gross incompetence or
and transfer be kept? Can it be kept elsewhere? dishonesty for years and escape liability if
the shareholders cannot inspect the records
and obtain information.”
“Stock corporations must also keep a book
to be known as the "stock and transfer book", in
which must be kept a record of all stocks in the Is there any distinction of the right of inspection of a
names of the stockholders alphabetically stockholder and that of a director?
arranged; the installments paid and unpaid on
all stock for which subscription has been made,
and the date of payment of any installment; a - Yes, as compared to a stockholder or member, the
statement of every alienation, sale or transfer of right of a director or trustee to inspect and examine
stock made, the date thereof, and by and to corporate books and records is considered absolute
whom made; and such other entries as the by- and unqualified and without regard to motive. This is
laws may prescribe. The stock and transfer book because a director supervises, directs and manages
shall be kept in the principal office of the corporate business and it is necessary that he be
corporation or in the office of its stock transfer equipped with all the information and data with regard
agent and shall be open for inspection by any director to the affairs of the company in order that he may
or stockholder of the corporation at reasonable manage and direct its operations intelligently and
hours on business days. “ according to his best judgment in the interest of all the
stockholders he represents. Thus, while stockholders
and members are entitled to inspect and examine the
Stock and transfer agent
books and records as provided in sections 74 and 75
they may not gain access to highly sensitive and
- Records every movement confidential information. In the case of directors. “it is
- Person who monitors movement by the minutes or by not denied” that they have such access. This would
the hours include, among others,
- Non-stock corporation- stock and transfer books
- Club share- membership
a. Marketing strategies and pricing structure;
b. Budget for expansion and diversification;
Are stockholders entitled to financial statements? c. Research and development;
d. Sources of funding, availability of personnel,
proposals of mergers or tie-ups with other firms
- Yes, they are entitled to a copy, the code provides
that:
May this right be exercised, other than by the
stockholders themselves?
Section 75. Right to financial statements. -
Within ten (10) days from receipt of a written request
of any stockholder or member, the corporation shall - Yes, while the right is founded on stock ownership thus
furnish to him its most recent financial statement, personal in nature it may be made by the
which shall include a balance sheet as of the end of stockholder’s agent or representative since it may be
the last taxable year and a profit or loss statement for unavailing in many instances
said taxable year, showing in reasonable detail its
assets and liabilities and the result of its operations.
What if the right of the stockholder to inspect is
denied? What is his remedy?
At the regular meeting of stockholders or
members, the board of directors or trustees shall
1. Mandamus
present to such stockholders or members a financial
2. Damages either against the corporation or responsible
report of the operations of the corporation for the
officer who refused the inspection
preceding year, which shall include financial
3. Criminal complaint for violation of his right to inspect
statements, duly signed and certified by an
and copy excerpts of all business transactions and
independent certified public accountant.
minutes of meeting. Section 74 provides that Any
officer or agent of the corporation who shall refuse to
However, if the paid-up capital of the allow any director, trustees, stockholder or member of
corporation is less than P50,000.00, the financial the corporation to examine and copy excerpts from its
statements may be certified under oath by the records or minutes, in accordance with the provisions
treasurer or any responsible officer of the corporation. of this Code, shall be liable to such director, trustee,
(n) stockholder or member for damages, and in addition,
shall be guilty of an offense which shall be punishable
under Section 144 of this Code. The latter provision
- Audited financial statement filed in the SEC, 120 days imposes a penalty of a fine of not less than P1,000 but
from the end of the final year, or must be filed on or not more than P10,000 or an imprisonment for not less
before April of each year than 30 days but not more than 5 years, or both, at
- Must be stamp received by the BIR the discretion of the court. If the refusal is pursuant to
a resolution or order of the board, the liability shall be
imposed upon the directors or trustees who voted for
Those in the stock exchange such refusal.
- Disclosure of any matter that have to do with Defense of the responsible corporate officer
increasing and decreasing
- If not “kulong” violation of securities and regulation
act 1. That the person demanding has improperly used any
information secured through any prior examination of
the records or minutes of such corporation or of any
Why is this right of inspection granted to a other corporation;
stockholder? 2. That he was not acting in good faith or for a legitimate
purpose in making his demand;
3. The right is limited or restricted by special law or the
- The basis of the right of the stockholder to inspect the law of it creation.
books and records of the corporation for a proper
purpose is to protect his interest as a stockholder.
Thus, it has been said that: • W.G. Philpotts vs. Philippine Manufacturing Co.
“The right of the shareholders to ascertain - The right of inspection given to a stockholder can be
how the affairs of his company are being exercised either by himself or by any proper
conducted by its directors and officers is representative or attorney-in-fact, and either with or
founded by his beneficial interest through without the attendance of the stockholder
- The right may be regarded as personal, in the sense - However, whole seemingly enlarging the right of
that only a stockholder may enjoy it; but the inspection, the new code has prescribed limitations to
inspection and examination may be made by another. the same. It is now expressly required as a condition
Otherwise it would be unavailing in many instances. for such examination that the one requesting it must
not have been guilty of using improperly any
information secured through a prior examination and
o Note: Usually hires an auditor or accountant to
that the person asking for such examination must be
safeguard his interest
acting in good faith and for a legitimate purpose in
making his demand
• Pardo vs. Hercules Lumber Co. - Admittedly, he sought to be a stockholder in order to
pry into transactions entered into by the respondent
bank even before he became a stockholder. His
- The law is clear, it may be exercised during reasonable obvious purpose was to arm himself with materials he
hours on any business days, the by-laws cannot deny can use against the respondent bank for acts done by
this right all together the latter when the petitioner was a total stranger to
- The general right given by the statute may not be the same.
lawfully abridged to the extent attempted in this - Bank was created by a special law, it has its own
resolution. It may be admitted that the officials in charter and primarily governed by the law creating
charge of a corporation may deny inspection when them
sought at unusual hours or under other improper - The bank is only subject to the inspection of the
conditions; but neither the executive officers nor the Central Bank and any information pertaining to the
board of directors have the power to deprive a bank is confidential and shall not be revealed to any
stockholder of the right altogether. person other than the President of the Philippines, the
- The corporation, or its responsible directors and Secretary of Finance and the Board of Directors, nor
officers cannot unduly restrict this right of inspection shall any information relative to the funds in its
and may not arbitrarily set a few days of the year custody, its current accounts or deposits belonging to
within which the stockholder may make the inspection. private individuals, corporations or other entities
- A by-law unduly restricting the right of inspection is except by order of a Court of Competent Jurisdiction,
undoubtedly invalid hence inspection sought to by the petitioner is
violative of the provisions of its charter and is even
subject to penal sanctions
• Vegaruth vs. Isabela Sugar Co.
Assuming you are a stockholder of PNB, and then it
- Directors of a corporation have the unqualified right to was privatized, may you already have the right to
inspect the books and records of the corporation at all inspect?
reasonable hours.
- We do not conceive, however, that a director or
stockholder has any absolute right to secure certified - No, unless its charter has been altered or repealed it is
copies of the minutes of the corporation until these still subject to the same law
minutes have been written up and approved by the
directors.
3 stages in the life of a corporation
A, is a stockholder of Ayala, does he have a right to o purchase and sale of corporate assets is another
inspect the records of its subsidiaries? form of corporate reorganization
- San Miguel corporation owns all of the shares of stock - Section 79. Effectivity of merger or
of San Miguel International consolidation. - The articles of merger or of
- It is wholly-owned consolidation, signed and certified as herein above
- It would be in accord with equity, good faith and fair required, shall be submitted to the Securities and
dealing to construe the statutory right of petitioner as Exchange Commission in quadruplicate for its
stockholder to inspect the books and records of such approval: Provided, That in the case of merger or
wholly-owned subsidiary which are in respondent consolidation of banks or banking institutions,
corporation’s possession and control building and loan associations, trust companies,
insurance companies, public utilities,
educational institutions and other special
If being operated as separate and distinct corporations governed by special laws, the
corporations, there is no such right favorable recommendation of the appropriate
Telecommunications- special franchise, it is a government agency shall first be obtained. If the
legislative grant Commission is satisfied that the merger or
consolidation of the corporations concerned is not
inconsistent with the provisions of this Code and
• Gonzales vs. PNB existing laws, it shall issue a certificate of merger or of
consolidation, at which time the merger or
consolidation shall be effective.
- Provisions of the old law was unqualified, when it
granted stockholders the right to inspect
Notes on Corporation Law
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©GTan; ASoguilon; VVillanueva
48
If, upon investigation, the Securities and Although merger and consolidation is an express
Exchange Commission has reason to believe that the power granted to corporation, it is subject to
proposed merger or consolidation is contrary to or limitations, as maybe proscribed by law
inconsistent with the provisions of this Code or existing What would be the effect of merger or consolidation?
laws, it shall set a hearing to give the corporations <sec. 80>
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 1. There will only be a single corporation. In case of
before said hearing. The Commission shall thereafter merger, the surviving corporation or the consolidated
proceed as provided in this Code. (n) corporation in case of consolidation;
2. The termination of the corporate existence of the
constituent corporations, except that of the surviving
Merger corporation or the consolidated corporation;
3. The surviving corporation or the consolidated
corporation will possess all the rights, privileges,
- A union effected by absorbing one or more existing immunities and powers and shall be subject to all the
corporations by another which survives and continues duties and liabilities of a corporation organized under
the combined business the Code;
- It is the uniting of two or more corporations by the 4. The surviving or consolidated corporation shall possess
transfer of property to one of them which continue in all the rights, privileges, immunities and franchises of
existence, the other or the others being dissolved and the constituent corporations, and all property and all
merged therein. receivables due, including subscriptions to shares and
other choses in action, and every other interest of, or
A B belonging to or due to the constituent corporations
shall be deemed transferred to and vested in such
surviving or consolidated corporation without further
A transfers all assets, properties, rights, obligations, act and deed; and,
liabilities to B 5. The rights of creditors or any lien on the property of
the constituent corporations shall not be impaired by
the merger or consolidation.
B issues shares of stocks in exchange of the transfer
o In merger and consolidation, there is due majority of the appraisers shall be final, and their
diligence and an economist is usually hired award shall be paid by the corporation within thirty
(30) days after such award is made: Provided, That no
payment shall be made to any dissenting stockholder
APPRAISAL RIGHT unless the corporation has unrestricted retained
earnings in its books to cover such payment: and
Provided, further, That upon payment by the
Define appraisal corporation of the agreed or awarded price, the
stockholder shall forthwith transfer his shares to the
- Right to withdraw from the corporation and demand corporation. (n)
payment of the fair value of his shares after dissenting
from certain corporate acts involving fundamental X Co.
changes in corporate structure <sec. 81>
1. In case any amendment to the articles of - False, a stockholder in a close corporation may for any
incorporation has the effect of changing or restricting reason compel the close corporation that he be paid
the rights of any stockholder or class of shares, or of the fair value of his shares
authorizing preferences in any respect superior to
those of outstanding shares of any class, or of
extending or shortening the term of corporate Can he exercise his appraisal rights in the first place?
existence; He hasn’t even paid his subscription in full.
2. In case of sale, lease, exchange, transfer, mortgage, May a stockholder who hasn’t paid his subscription in
pledge or other disposition of all or substantially all of full exercise his appraisal rights?
the corporate property and assets as provided in the
Code; and
- Yes, he can exercise his appraisal rights, by reconciling
the provisions of section 72, section 82 and section 86
3. In case of merger or consolidation. (n)
- To some it may change or restrict the rights to others If within a period of sixty (60) days from the
it may not date the corporate action was approved by the
stockholders, the withdrawing stockholder and the
corporation cannot agree on the fair value of the
How is the right exercised? shares, it shall be determined and appraised by three
(3) disinterested persons, one of whom shall be named
- According to section 82 of the code: by the stockholder, another by the corporation, and
the third by the two thus chosen. The findings of the
majority of the appraisers shall be final, and their
Section 82. How right is exercised. - The award shall be paid by the corporation within thirty
appraisal right may be exercised by any stockholder (30) days after such award is made: Provided, That no
who shall have voted against the proposed corporate payment shall be made to any dissenting stockholder
action, by making a written demand on the unless the corporation has unrestricted retained
corporation within thirty (30) days after the date on earnings in its books to cover such payment: and
which the vote was taken for payment of the fair value Provided, further, That upon payment by the
of his shares: Provided, That failure to make the corporation of the agreed or awarded price, the
demand within such period shall be deemed a waiver stockholder shall forthwith transfer his shares to the
of the appraisal right. If the proposed corporate action corporation. (n)
is implemented or affected, the corporation shall pay
to such stockholder, upon surrender of the certificate
or certificates of stock representing his shares, the fair Section 86. Notation on certificates; rights
value thereof as of the day prior to the date on which of transferee. - Within ten (10) days after demanding
the vote was taken, excluding any appreciation or payment for his shares, a dissenting stockholder shall
depreciation in anticipation of such corporate action. submit the certificates of stock representing his shares
to the corporation for notation thereon that such
shares are dissenting shares. His failure to do so shall,
If within a period of sixty (60) days from the at the option of the corporation, terminate his
date the corporate action was approved by the rights under this Title. If shares represented by the
stockholders, the withdrawing stockholder and the certificates bearing such notation are transferred, and
corporation cannot agree on the fair value of the the certificates consequently cancelled, the rights of
shares, it shall be determined and appraised by three the transferor as a dissenting stockholder under this
(3) disinterested persons, one of whom shall be named Title shall cease and the transferee shall have all the
by the stockholder, another by the corporation, and rights of a regular stockholder; and all dividend
the third by the two thus chosen. The findings of the
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50
distributions which would have accrued on such shares When may the right to be paid the value of his shares
shall be paid to the transferee. (n) cease? Can he withdraw his right of appraisal?
- Notation is not mandatory, it is even discretionary - Yes, he may withdraw, but there must be consent by
because the code provides “at the option of the the corporation as provided for by section 83 of the
corporation” because it never issued one for that code:
matter since the subscriptions are not yet fully paid
trustees, or officers, subject to the provisions of this office of one-third (1/3) of their number shall expire
code on dissolution every year; and subsequent elections of trustees
comprising one-third (1/3) of the board of trustees
shall be held annually and trustees so elected shall
What provision of the code will govern non-stock have a term of three (3) years. Trustees thereafter
corporations? Would the provision governing stock elected to fill vacancies occurring before the expiration
corporations also apply to non-stock corporations? of a particular term shall hold office only for the
unexpired period.
May the right to cumulative voting be denied in a - Board of Trustees, however section 138 provides that:
stock corporation?
May the right to vote by proxy be validly denied in a Section 27. Disqualification of directors,
stock corporation? 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
- No, it is a matter of right in a stock corporation
this Code committed within five (5) years prior to the
date of his election or appointment, shall qualify as a
May member of a non-stock corporation cast their vote director, trustee or officer of any corporation. (n)
by text?
Section 29. Vacancies in the office of
- Yes, subject to the approval and terms and conditions director or trustee. - Any vacancy occurring in the
of the SEC <sec. 89> board of directors or trustees other than by removal by
the stockholders or members or by expiration of term,
may be filled by the vote of at least a majority of the
“Voting by mail or other similar means by remaining directors or trustees, if still constituting a
members of non-stock corporations may be authorized quorum; otherwise, said vacancies must be filled by
by the by-laws of non-stock corporations with the the stockholders in a regular or special meeting called
approval of, and under such conditions which may be for that purpose. A director or trustee so elected to fill
prescribed by, the Securities and Exchange a vacancy shall be elected only or the unexpired term
Commission. “ of his predecessor in office.
The power or authority to terminate members in non- 1. All liabilities and obligations of the corporation
stock corporations is said to be inherent but strict shall be paid, satisfied and discharged, or
compliance with the manner and procedure laid down adequate provision shall be made therefore;
in the by-laws must be observed, otherwise it may
render the expulsion ineffective and invalid.
2. Assets held by the corporation upon a be deemed a close corporation when at least two-
condition requiring return, transfer or thirds (2/3) of its voting stock or voting rights is owned
conveyance, and which condition occurs by or controlled by another corporation which is not a
reason of the dissolution, shall be returned, close corporation within the meaning of this Code.
transferred or conveyed in accordance with such
requirements;
- Between and among themselves, they feel and act
alike
3. Assets received and held by the corporation - Not more than 20 stockholders
subject to limitations permitting their use only for - Specified persons, if you are not specified, you cannot
charitable, religious, benevolent, educational or be a stockholder
similar purposes, but not held upon a condition - All the issued stocks of all classes is subject to
requiring return, transfer or conveyance by restrictions
reason of the dissolution, shall be transferred or - Shall not be listed in the stock exchange not publicly
conveyed to one or more corporations, societies offered
or organizations engaged in activities in the - 3 qualifying conditions must be contained in the
Philippines substantially similar to those of the articles of incorporation, to be considered as a close
dissolving corporation according to a plan of corporation, if not, it will not be considered as such
distribution adopted pursuant to this Chapter; and will be governed by the general provisions of the
code
- Even if 100 % is owned by one person it will not be
4. Assets other than those mentioned in the considered a close corporation without the 3 qualifying
preceding paragraphs, if any, shall be distributed provisions
in accordance with the provisions of the articles - Identity of stockholders, specified persons
of incorporation or the by-laws, to the extent that - Active management either as directors or partners in
the articles of incorporation or the by-laws, management
determine the distributive rights of members, or - Combination of the corporation and partnership type
any class or classes of members, or provide for of business
distribution; and
- Section 94 number 3 provides: - No, it will only be a closed corporation if 2/3 of the
voting stocks of a close corporation is also owned by a
3. Assets received and held by the close corporation. It must be “voting” stocks
corporation subject to limitations permitting their use - Even if another corporation owns or controls 2/3 of the
only for charitable, religious, benevolent, educational voting stocks of a close corporation, the latter may still
or similar purposes, but not held upon a condition be considered as such close corporation if the
requiring return, transfer or conveyance by reason of corporation owning or controlling the shares is also a
the dissolution, shall be transferred or conveyed to close corporation.
one or more corporations, societies or organizations
engaged in activities in the Philippines substantially “Notwithstanding the foregoing, a
similar to those of the dissolving corporation according corporation shall not be deemed a close corporation
to a plan of distribution adopted pursuant to this when at least two-thirds (2/3) of its voting stock or
Chapter; voting rights is owned or controlled by another
corporation which is not a close corporation within the
- If there is no distributive agreement then they may do meaning of this Code.”
so through a plan of distribution under section 95
What kind of corporations cannot be a close
Section 95. Plan of distribution of assets. - corporation?
A plan providing for the distribution of assets, not
inconsistent with the provisions of this Title, may be
1. Mining or oil companies,
adopted by a non-stock corporation in the process of
2. Stock exchange
dissolution in the following manner:
3. Banks and insurance companies,
4. Public utilities
The board of trustees shall, by majority vote, 5. Educational institutions
adopt a resolution recommending a plan of distribution 6. Corporations vested with public interest
and directing the submission thereof to a vote at a
regular or special meeting of members having voting
Classification of directors
rights. 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 - Ordinary stock- no such right
member entitled to vote, within the time and in the - Close corporation-yes there is such a right
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 Section 97 is a permissive provision
(2/3) of the members having voting rights present or
represented by proxy at such meeting. (n)
Section 97. Articles of incorporation. - The
articles of incorporation of a close corporation may
provide:
After classification what then? - Will have to amend the articles of incorporation to
accommodate other purchasers of share
- Will cease to be a close corporation if it amends and
- After classification, qualification and then restriction as becomes in excess of 20
provided for under the 3 qualifying conditions in
section 96
o Unless all the stockholders consent they
“may”
Cumulative voting is restricted in close corporations if
will be elected solely by a particular class
In a close corporation, the articles of incorporation What if the other stockholders object to register? What
may provide for a greater quorum and voting will be the remedy of the transferee?
requirement in meetings of both stockholders or
directors to increase the veto power of minority - His remedy is rescission. The effect of rescission is
stockholders, unlike in a stock corporation wherein mutual restitution
only directors meetings may provide for greater
quorum requirement and in stockholders meeting
which may not be altered or increased, as provide for How about the stockholder, what is his recourse?
in section 25, following the doctrine of limited capacity
The articles of a close corporation may likewise
provide that the business of the corporation shall be - He may compel the close corporation to purchase his
managed by the stockholders rather than by the board shares at their fair value for any reason, provided the
of directors. However the same must contain the corporation has sufficient assets in its books to cover
continuing provisions required in paragraph 2 of the debts and liabilities exclusive of capital
section 97, that is: - In a close corporation, there is a withdrawing
stockholder, unlike in an ordinary stockholder where
there is none, they may only do so in the exercise of
1. No meeting of stockholders need be called to appraisal rights
elect directors;
2. Unless the context clearly requires otherwise, the
stockholders of the corporation shall be deemed Section 105. Withdrawal of stockholder or
to be directors; and; dissolution of corporation. - In addition and without
3. The stockholders of the corporation shall be prejudice to other rights and remedies available to a
subject to all liabilities of directors. stockholder under this Title, any stockholder of a
close corporation may, for any reason, compel
the said corporation to purchase his shares at
Liability of stockholders acting as directors in a close their fair value, which shall not be less than
corporation are more extensive since they are their par or issued value, when the corporation
personally liable for corporate torts unless the has sufficient assets in its books to cover its
corporation has obtained a reasonable adequate debts and liabilities exclusive of capital stock:
liability insurance, unlike a ordinary stock corporation, Provided, That any stockholder of a close corporation
wherein directors thereof are only liable for corporate may, by written petition to the Securities and
torts only if they have been negligent or acted Exchange Commission, compel the dissolution of such
fraudulently in the performance of their functions. corporation whenever any of acts of the directors,
Restrictions officers or those in control of the corporation is illegal,
or fraudulent, or dishonest, or oppressive or unfairly
prejudicial to the corporation or any stockholder, or
- In ordinary stock corporations, the restrictions must whenever corporate assets are being misapplied or
appear in the articles of incorporation as well as the wasted.
certificate of stocks
- In a close corporation, the restrictions must appear in
the articles of incorporation, the by-laws and the Agreements may also be entered in a close
certificate of stocks. Otherwise, the same shall not be corporation <sec.100>
binding on any purchaser thereof in good faith
- They can even agree to be partners in management
What if the stockholders do not want to exercise their - Pre-incorporation
right or option to purchase may it be sold to any - Manner in which the business of the corporation shall
person? be managed
Section 98. Validity of restrictions on - Ordinary stock corporations- sit and act as a body at a
transfer of shares. - Restrictions on the right to duly constituted meeting, they may do so by virtue of
transfer shares must appear in the articles of the E-Commerce Act through teleconference or video
incorporation and in the by-laws as well as in the conference
certificate of stock; otherwise, the same shall not be
binding on any purchaser thereof in good faith. Said
restrictions shall not be more onerous than granting Exception to the rule: other officers may be directly
the existing stockholders or the corporation the option appointed and hired by the stockholders
to purchase the shares of the transferring stockholder Close corporations may validly act even without a
with such reasonable terms, conditions or period meeting provided the conditions are obtained
stated therein. If upon the expiration of said
period, the existing stockholders or the
Section 101. When board meeting is
corporation fails to exercise the option to
unnecessary or improperly held. - Unless the by-laws
purchase, the transferring stockholder may sell
provide otherwise, any action by the directors of a
his shares to any third person.
close corporation without a meeting shall nevertheless
be deemed valid if:
o ordinary stock corporations are liable only if
acted in Bad faith, fraud or negligence in
1. Before or after such action is taken, written consent
performance of duty
thereto is signed by all the directors; or
What if there are already 20 stockholders and they 2. All the stockholders have actual or implied
want to add 2 more, may it compel? knowledge of the action and make no prompt
objection thereto in writing; or
- In ordinary stock corporations, they may compel by
mandamus 3. The directors are accustomed to take informal
- In close corporations, may not be compelled to admit action with the express or implied acquiescence of all
because it breaches the qualifying conditions the stockholders; or
Since they cannot be compelled, may they admit? 4. All the directors have express or implied knowledge
of the action in question and none of them makes
- Yes, provided all the stockholders consented or prompt objection thereto in writing.
instead of consenting they decide to amend their
articles of incorporation Pre-emptive rights in a close corporation is absolute
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Section 105
Section 103. Amendment of articles of
incorporation. - Any amendment to the articles of
incorporation which seeks to delete or remove any - Dishonesty is a ground for dissolution of a close
provision required by this Title to be contained in the corporation
articles of incorporation or to reduce a quorum or - Even one stockholder may petition for dissolution
voting requirement stated in said articles of
incorporation shall not be valid or effective unless
approved by the affirmative vote of at least two-thirds o when there is a relief available, dissolution
(2/3) of the outstanding capital stock, whether with or would not be available in an ordinary
without voting rights, or of such greater proportion of corporation
shares as may be specifically provided in the articles
of incorporation for amending, deleting or removing
any of the aforesaid provisions, at a meeting duly CLOSE CORPORATION ORDINARY STOCK
called for the purpose. CORPORATION
1. The number of stockholders No limitation as to number of
cannot exceed 20 shareholder
What happens if there is a deadlock? 2. To the extent that all Maximum number of directors
stockholders can be is 15
deemed directors, the
- Section 104 provides for a remedy number of directors can
effectively be more than 15
Section 104. Deadlocks. - Notwithstanding 3. Shares of stock are subject Generally no restriction on
any contrary provision in the articles of incorporation to specified restrictions transfer of shares
or by-laws or agreement of stockholders of a close 4. Shares of stock are No prohibition
corporation, if the directors or stockholders are so prohibited from being listed
divided respecting the management of the in the stock exchange or
corporation's business and affairs that the votes offered for sale to the public
required for any corporate action cannot be obtained, 5. Stockholders may take an Management is lodged in the
with the consequence that the business and affairs of active part in corporate Board of Directors
the corporation can no longer be conducted to the management by vesting
advantage of the stockholders generally, the Securities management to them rather
and Exchange Commission, upon written petition by than a Board of Director
any stockholder, shall have the power to arbitrate the 6. Those active in Directors are liable for torts
dispute. In the exercise of such power, the management are personally only if they have acted
Commission shall have authority to make such order liable for corporate torts negligently or fraudulently
as it deems appropriate, including an order: (1) unless the corporation has
cancelling or altering any provision contained in the obtained an adequate
articles of incorporation, by-laws, or any stockholder's liability insurance
agreement; (2) cancelling, altering or enjoining any 7. Directors can validly act Directors must, as a rule, act
resolution or act of the corporation or its board of even without a meeting as a body at a duly constituted
directors, stockholders, or officers; (3) directing or meeting
prohibiting any act of the corporation or its board of 8. Agreements between Not valid and binding since
directors, stockholders, officers, or other persons party stockholders regarding the stockholders’ agreement
to the action; (4) requiring the purchase at their fair operations of the business cannot limit the discretion of
value of shares of any stockholder, either by the can validly be made the Board to manage
corporation regardless of the availability of corporate affairs
unrestricted retained earnings in its books, or by the 9. To the extent that directors Ordinarily, no such
other stockholders; (5) appointing a provisional may be classified into one classification and no
director; (6) dissolving the corporation; or (7) granting or more classes and to be restrictions on cumulative
such other relief as the circumstances may warrant. voted solely by a particular voting
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the date of his election or appointment, shall qualify as a - Section 111 and section 112 provides for the contents
director, trustee or officer of any corporation. (n) and procedures
Non-stock or stock, can they serve for a 1 year term 5. The place where the principal office of the
only? corporation sole is to be established and located,
which place must be within the Philippines.
- No, not any person can form a corporation sole, Is it required to indicate its terms of execution? Why
section 110 provides: not?
Section 110. Corporation sole. - For the - Not required because they are supposed to exist in
purpose of administering and managing, as trustee, perpetuity
the affairs, property and temporalities of any religious - However, it does not mean that it shall continue to
denomination, sect or church, a corporation sole may exist forever, it merely means that it has the capacity
be formed by the chief archbishop, bishop, priest, of continuous existence during a particular period until
minister, rabbi or other presiding elder of such dissolved in accordance with law
religious denomination, sect or church. (154a)
- Upon filing of verified articles of incorporation with the Section 114. Filling of vacancies. - The
SEC, will not require the approval of SEC successors in office of any chief archbishop, bishop,
priest, minister, rabbi or presiding elder in a
corporation sole shall become the corporation sole on
A corporation sole is possessed with the same power, their accession to office and shall be permitted to
rights and privileges, to own, acquire and hold or transact business as such on the filing with the
convey properties like any other corporation? True or Securities and Exchange Commission of a copy of their
False commission, certificate of election, or letters of
appointment, duly certified by any notary public.
- False, they have the same power rights and privileges,
but when it comes to alienation and acquisition, it During any vacancy in the office of chief
must possess a court order, however when there is a archbishop, bishop, priest, minister, rabbi or presiding
regulated method, a court order may be dispensed elder of any religious denomination, sect or church
with <sec. 113> incorporated as a corporation sole, the person or
persons authorized and empowered by the rules,
regulations or discipline of the religious denomination,
Section 113. Acquisition and alienation of
sect or church represented by the corporation sole to
property. - Any corporation sole may purchase and
administer the temporalities and manage the affairs,
hold real estate and personal property for its church,
estate and properties of the corporation sole during
charitable, benevolent or educational purposes, and
the vacancy shall exercise all the powers and authority
may receive bequests or gifts for such purposes. Such
of the corporation sole during such vacancy. (158a)
corporation may sell or mortgage real property held by
it by obtaining an order for that purpose from the
Court of First Instance of the province where the If a corporation exists in equity may it not be
property is situated upon proof made to the dissolved?
satisfaction of the court that notice of the application
for leave to sell or mortgage has been given by
publication or otherwise in such manner and for such Section 115. Dissolution. - A corporation
time as said court may have directed, and that it is to sole may be dissolved and its affairs settled voluntarily
the interest of the corporation that leave to sell or by submitting to the Securities and Exchange
mortgage should be granted. The application for leave Commission a verified declaration of dissolution.
to sell or mortgage must be made by petition, duly
verified, by the chief archbishop, bishop, priest,
minister, rabbi or presiding elder acting as corporation The declaration of dissolution shall set forth:
sole, and may be opposed by any member of the
religious denomination, sect or church represented by
1. The name of the corporation;
the corporation sole: Provided, That in cases where the
rules, regulations and discipline of the religious
denomination, sect or church, religious society or 2. The reason for dissolution and winding up;
order concerned represented by such corporation sole
regulate the method of acquiring, holding, selling and
mortgaging real estate and personal property, such 3. The authorization for the dissolution of the
rules, regulations and discipline shall control, and the corporation by the particular religious denomination,
intervention of the courts shall not be necessary. sect or church;
(159a)
4. The names and addresses of the persons who are to
Since a corporation sole is consists only of one person, supervise the winding up of the affairs of the
will the registration of the property in the name of the corporation.
corporation sole vest unto the head thereof the
ownership of the property?
Upon approval of such declaration of
dissolution by the Securities and Exchange
- No, it will not vest unto the head, the head is acting Commission, the corporation shall cease to carry on its
merely as a guardian operations except for the purpose of winding up its
affairs. (n)
- Extinguishment of the corporate franchise and the Should this be strictly complied with?
termination of corporate existence
- Yes, compliance with the requirements and formalities incorporation shall be submitted to the Securities and
prescribed above is mandatory such that failure to Exchange Commission in accordance with this Code.
comply therewith will have no effect on the legal Upon approval of the amended articles of
existence of the corporation. incorporation of the expiration of the shortened term,
as the case may be, the corporation shall be deemed
dissolved without any further proceedings, subject to
Will dissolution be effective and valid by a mere the provisions of this Code on liquidation. (n)
resolution of the BOD and stockholders?
What is the definition of liquidation and winding up? - If this method is used, the three year period limitation
imposed by section 122 will not apply provided the
designation of the trustee is made within that period
- Collection of all corporate assets, the payments of all
its debts and settlement of its obligations and the
ultimate distribution of the corporate assets, if any of 3. By appointment of a receiver
it remains, to all stockholders in accordance with their
proportionate stockholdings in the corporation or in
accordance with their respective contracts of - A receiver may be appointed by the proper forum on
subscription. petition or motu proprio upon the dissolution of the
corporation
- The appointment of a receiver is, however, permissive
Preference upon liquidation rather than mandatory and the law tends to recognize
that in cases of voluntary dissolution there is no
occasion for the appointment of a receiver except
- If there are preferred shares, the preference granted under special circumstances and upon proper showing
to such should be complied with - If a receiver is appointed, the 3 year period fixed by
- Preferred shares may give the holder thereof, law within which to complete the task of liquidation
preference only in the dividends but also in the will not likewise apply because the dissolved
distribution of corporate assets upon liquidation or corporation is substituted by the receiver who may sue
termination of the corporate existence. If such is the or be sued even after that period
intent, the contract of subscription must so indicate
lest they are placed on equal footing with common
shareholders o Mere appointment of a receiver without
- Preference may be participating or non-participating anything more does imply in the dissolution
of a corporation
Section 122. Corporate liquidation. - Every - Actions pending for or against the corporation when
corporation whose charter expires by its own limitation the 3 year period expires, are abated since after that
or is annulled by forfeiture or otherwise, or whose period, the corporation ceases for all intents and
corporate existence for other purposes is terminated purposes and is no longer capable of suing or being
in any other manner, shall nevertheless be continued sued
as a body corporate for three (3) years after the time - May be continued by the trustee provided done within
when it would have been so dissolved, for the purpose the 3 year period
of prosecuting and defending suits by or against it and - Should the corporation, therefore, finds it difficult to
enabling it to settle and close its affairs, to dispose of finish its liquidation, it may, at any time during the
and convey its property and to distribute its assets, three year period, convey all its assets and receivables
but not for the purpose of continuing the business for to a trustee to prosecute and defend suits by or
which it was established. against the corporation begun before the expiration of
said period
- The effect of the conveyance is to make the trustees
At any time during said three (3) years, the the legal owners of the property conveyed, subject to
corporation is authorized and empowered to convey all the beneficial interest therein of creditors and
of its property to trustees for the benefit of stockholders
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 • Sumera vs. Valencia
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 - Thus it was held that when a corporation is dissolved
trustees, and the beneficial interest in the and the liquidation of the assets is placed in the hands
stockholders, members, creditors or other persons in of receiver or assignee, the period of 3 years
interest. prescribed by law is not applicable and the assignee
may institute all actions leading to the liquidation of
the corporation even after the expiration of 3 years.
Upon the winding up of the corporate affairs, - If the corporation carries out the liquidation of its
any asset distributable to any creditor or stockholder assets through its own officers and continues and
or member who is unknown or cannot be found shall defends the actions brought by or against it, its
be escheated to the city or municipality where such existence shall terminate at the end of three years
assets are located. from the time of dissolution; but if a receiver or
assignee is appointed, with or without a transfer of its
properties within 3 years, the legal interest passes to
Except by decrease of capital stock and as the assignee, the beneficial interest remaining in the
otherwise allowed by this Code, no corporation shall members, stockholders, creditors and other interested
distribute any of its assets or property except upon persons and said assignee may bring an action,
lawful dissolution and after payment of all its debts prosecute that which has already been commenced for
and liabilities. (77a, 89a, 16a) the benefit of the corporation, or defend the latter
against any other action already instituted or which
may be instituted even outside of the period of three
However the 3 year period is not absolute years fixed for the offices of the corporation.
Liquidation may be undertaken in either of the 3 ways
- The counsel who prosecuted and defended the interest According to atty Ladia: What happens to a
of the corporation may be considered as a “trustee” at corporation that is already dissolved, that has not
least with respect to the matter in litigation only been able to appoint a trustee with in the 3 year
period?
• Clemente vs. CA
What if the law of the state of the foreign corporation
does not allow Filipino citizens to do business in their
- Who owns the properties? SOCIEDAD ANONIMA country?
- The termination of the life of a juridical entity does not
by itself cause the extinction or diminution of the
rights and liabilities of such entity or those of its - The phrase “and whose laws allow Filipino citizens and
owners and creditors. If the three year extended life corporations to do business in its own country or
has expired without a trustee or receiver having been state” is not, however, an accurate inclusion in the
expressly designated by the corporation within that definition as ay corporation registered or organized
period, the board of directors o trustees itself, under the laws of another state is necessarily a foreign
following the rationale of the Supreme Court’s decision corporation whether or not the state of its
in Gelano vs. CA may be permitted to do so continue incorporation allow Filipino citizens or corporations to
as” trustees” by legal implication to complete the do business in that forum.
liquidation. Still in the absence of a BOD or BOT, those - The said phrase was inserted by the framers of the law
having any pecuniary interest in the assets, including only as a condition precedent to the grant of a license
not only the shareholders but likewise the creditors of of a foreign corporation to do business in the
the corporation, acting for and in its behalf, might Philippines.
make proper representations with the SEC, which has
primary and sufficiently broad jurisdiction in matters of Composed of 100% Americans; organized under the
this nature, for working out a final settlement of the laws other than the Philippines
corporate concerns
controlling stockholders determines the nationality of Foreign banking, financial and insurance
the corporation corporations shall, in addition to the above
requirements, comply with the provisions of existing
laws applicable to them. In the case of all other foreign
If a foreign corporation wants to transact business in corporations, no application for license to transact
the Philippines, what must it do? business in the Philippines shall be accepted by the
Securities and Exchange Commission without previous
authority from the appropriate government agency,
- Obtain a license
whenever required by law. (68a)
2. The address, including the street number, of the Section 126. Issuance of a license. - If the
principal office of the corporation in the country or Securities and Exchange Commission is satisfied that
state of incorporation; the applicant has complied with all the requirements
of this Code and other special laws, rules and
regulations, the Commission shall issue a license to
3. The name and address of its resident agent the applicant to transact business in the Philippines for
authorized to accept summons and process in all legal the purpose or purposes specified in such license.
proceedings and, pending the establishment of a local Upon issuance of the license, such foreign corporation
office, all notices affecting the corporation; may commence to transact business in the Philippines
and continue to do so for as long as it retains its
4. The place in the Philippines where the corporation authority to act as a corporation under the laws of the
intends to operate; country or state of its incorporation, unless such
license is sooner surrendered, revoked, suspended or
annulled in accordance with this Code or other special
5. The specific purpose or purposes which the laws.
corporation intends to pursue in the transaction of its
business in the Philippines: Provided, That said
purpose or purposes are those specifically stated in Within sixty (60) days after the issuance of
the certificate of authority issued by the appropriate the license to transact business in the Philippines, the
government agency; license, except foreign banking or insurance
corporation, shall deposit with the Securities and
Exchange Commission for the benefit of present and
6. The names and addresses of the present directors future creditors of the licensee in the Philippines,
and officers of the corporation; securities satisfactory to the Securities and Exchange
Commission, consisting of bonds or other evidence of
indebtedness of the Government of the Philippines, its
7. A statement of its authorized capital stock and the political subdivisions and instrumentalities, or of
aggregate number of shares which the corporation has government-owned or controlled corporations and
authority to issue, itemized by classes, par value of entities, shares of stock in "registered enterprises" as
shares, shares without par value, and series, if any; this term is defined in Republic Act No. 5186, shares of
stock in domestic corporations registered in the stock
exchange, or shares of stock in domestic insurance
8. A statement of its outstanding capital stock and the
companies and banks, or any combination of these
aggregate number of shares which the corporation has
kinds of securities, with an actual market value of at
issued, itemized by classes, par value of shares,
least one hundred thousand (P100,000.) pesos;
shares without par value, and series, if any;
Provided, however, That within six (6) months after
each fiscal year of the licensee, the Securities and
9. A statement of the amount actually paid in; and Exchange Commission shall require the licensee to
deposit additional securities equivalent in actual
market value to two (2%) percent of the amount by
10. Such additional information as may be necessary which the licensee's gross income for that fiscal year
or appropriate in order to enable the Securities and exceeds five million (P5,000,000.00) pesos. The
Exchange Commission to determine whether such Securities and Exchange Commission shall also require
corporation is entitled to a license to transact business deposit of additional securities if the actual market
in the Philippines, and to determine and assess the value of the securities on deposit has decreased by at
fees payable. least ten (10%) percent of their actual market value at
the time they were deposited. The Securities and
Exchange Commission may at its discretion release
Attached to the application for license shall part of the additional securities deposited with it if the
be a duly executed certificate under oath by the gross income of the licensee has decreased, or if the
authorized official or officials of the jurisdiction of its actual market value of the total securities on deposit
incorporation, attesting to the fact that the laws of the has increased, by more than ten (10%) percent of the
country or state of the applicant allow Filipino citizens actual market value of the securities at the time they
and corporations to do business therein, and that the were deposited. The Securities and Exchange
applicant is an existing corporation in good standing. If Commission may, from time to time, allow the licensee
such certificate is in a foreign language, a translation to substitute other securities for those already on
thereof in English under oath of the translator shall be deposit as long as the licensee is solvent. Such
attached thereto. licensee shall be entitled to collect the interest or
dividends on the securities deposited. In the event the
The application for a license to transact licensee ceases to do business in the Philippines, the
business in the Philippines shall likewise be securities deposited as aforesaid shall be returned,
accompanied by a statement under oath of the upon the licensee's application therefor and upon
president or any other person authorized by the proof to the satisfaction of the Securities and
corporation, showing to the satisfaction of the Exchange Commission that the licensee has no liability
Securities and Exchange Commission and other to Philippine residents, including the Government of
governmental agency in the proper cases that the the Republic of the Philippines. (n)
applicant is solvent and in sound financial condition,
and setting forth the assets and liabilities of the Other than section 125 and 126. What other
corporation as of the date not exceeding one (1) year requirements are set under Philippine Law before a
immediately prior to the filing of the application.
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65
foreign corporation may transact business in the - No, if there is a resident agent, the designation is
Philippines exclusive and service must be made only to the
resident agent or else the service is without force and
effect unless made to him
- Yes. A Resident agent is required. As a condition - Thus, while the law allows service upon the SEC or any
precedent to the grant of a license to do or transact of its officers or agents within the Philippines
business in the Philippines, the foreign corporation is - The two modes may become effective only if the
required to designate its resident agent on whom foreign corporation failed or neglected to designate
summons and other legal processes may be served in such a person or an agent
all actions or legal proceedings against such - Summons must be made only to resident agent except
corporation when there is no resident agent appointed
- Section 128 provides:
- Where such foreign corporation actually doing
business here has not applied for a license to do and
Section 128. Resident agent; service of has not designated an agent to receive summons,
process. - The Securities and Exchange Commission then service of summons on it will be made pursuant
shall require as a condition precedent to the issuance to the provisions of the rules of court. If such foreign
of the license to transact business in the Philippines by corporation has a license to do business, then
any foreign corporation that such corporation file with summons to it will be served on the agent designated
the Securities and Exchange Commission a written by it for the purpose, or otherwise in accordance with
power of attorney designating some person who must the Corporation Law (General Corporation of the
be a resident of the Philippines, on whom any Philippines vs. Union Insurance Soc. Of Canton Ltd.)
summons and other legal processes may be served in
all actions or other legal proceedings against such
corporation, and consenting that service upon such If the foreign corporation conducts business in the
resident agent shall be admitted and held as valid as if Philippines without the license requirement. What is
served upon the duly authorized officers of the foreign the effect?
corporation at its home office. Any such foreign
corporation shall likewise execute and file with the - Section 133 provides:
Securities and Exchange Commission an agreement or
stipulation, executed by the proper authorities of said
corporation, in form and substance as follows: Section 133. Doing business without a
license. - No foreign corporation transacting business
in the Philippines without a license, or its successors or
"The (name of foreign corporation) does assigns, shall be permitted to maintain or intervene in
hereby stipulate and agree, in consideration of its any action, suit or proceeding in any court or
being granted by the Securities and Exchange administrative agency of the Philippines; but such
Commission a license to transact business in the corporation may be sued or proceeded against before
Philippines, that if at any time said corporation shall Philippine courts or administrative tribunals on any
cease to transact business in the Philippines, or shall valid cause of action recognized under Philippine laws.
be without any resident agent in the Philippines on (69a)
whom any summons or other legal processes may be
served, then in any action or proceeding arising out of
any business or transaction which occurred in the - if they do so, the responsible officers may be
Philippines, service of any summons or other legal subjected to the penal sanctions provided for in
process may be made upon the Securities and section 144 of the code, which may either be fine or
Exchange Commission and that such service shall imprisonment
have the same force and effect as if made upon the
duly-authorized officers of the corporation at its home
office." What if it is not doing business without a license?
Whenever such service of summons or other - If it is not transacting business in the Philippines, even
process shall be made upon the Securities and without a license, it can sue before the Philippine
Exchange Commission, the Commission shall, within Courts
ten (10) days thereafter, transmit by mail a copy of
such summons or other legal process to the
corporation at its home or principal office. The sending The general rule is that “it is not the lack of required
of such copy by the Commission shall be necessary license but doing business without a license which
part of and shall complete such service. All expenses bars a foreign corporation form access to our courts.”
incurred by the Commission for such service shall be Exception:
paid in advance by the party at whose instance the
service is made.
1. Foreign corporations can sue before the
Philippine Courts if the act or transaction involved
In case of a change of address of the is an “isolated transaction” or the corporation is
resident agent, it shall be his or its duty to not seeking to enforce any legal or contractual
immediately notify in writing the Securities and rights arising from, or growing out of, any
Exchange Commission of the new address. (72a; and business which it has transacted in the
n) Philippines
2. Neither is a license required before a foreign
corporation may sue before the forum if the
- The necessity of the appointment of a resident agent purpose of the suit is to protect its trademark,
is only for the purpose of receiving summons and trade name, corporate name, reputation or
other legal processes in any legal action or proceeding goodwill;
against the foreign corporation 3. Or where it is based on a violation of the Revised
Penal Code;
4. Or merely defending a suit filed against it
Who may be appointed as a resident agent? 5. Or where a party is stopped to challenge the
personality of the corporation by entering into a
contract with it.
- Section 127 provides that:
Section 127. Who may be a resident agent. Rules laid down by the SC
- A resident agent may be either an individual residing
in the Philippines or a domestic corporation lawfully A. As to whether or B. As to whether or
transacting business in the Philippines: Provided, That not it can sue not it can be sued
in the case of an individual, he must be of good moral
A foreign corporation A foreign corporation
character and of sound financial standing. (n)
transacting or doing transacting business in the
business in the Philippines Philippines with the
May a partnership be appointed as a resident agent? with a license can sue requisite license can be
before Philippine Courts sued in the Philippine Courts
Subject to certain A foreign corporation
- Yes, domestic corporation taken in its general sense exceptions, a foreign transacting business in the
not legal sense corporation doing business Philippines without a license
in the country without a can be sued in Philippine
license cannot sue in Courts
If there is a resident agent appointed. May summons Philippine Courts
be served to any officers of the corporation? If it is not transacting if it is not doing business in
business in the Philippines, the Philippines, it cannot be
even without a license, it sued in Philippine Courts for
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66
can sue before the lack of jurisdiction petitioner has been in the Philippines engaged in
Philippine Courts continuing business or enterprise for which it was
A foreign corporation not doing business in the organized, when the sixteen bundles were erroneously
Philippines, may it be sued? discharged in manila, for it to be considered as
transacting business in the Philippines. The fact is that
the bundles, the value of which is sought to be
- If it is not transacting business in the country it cannot recovered, were landed not as a result of a business
be sued for lack of jurisdiction transaction, isolated or otherwise, but due to a
mistaken belief that they were part of the shipment of
forty similar bundles consigned to persons or entities
Is there any sanction that can be enforced to foreign in the Philippines, there is no justification therefore, for
corporations which are doing business without the invoking the section
required license?
- Penal sanctions under section 144 There were 3 contracts entered into, how come they
- Any violation of the code is subject to such penal were still not considered as doing business? (Antam
sanctions Consolidted, Inc. vs. CA)
• The Swedish East Asia Co., Ltd. Vs. Manila Port Service How do you know if it has an independent status?
- It must stated that the section is not applicable to a - Communications Materials and Design vs. CA
foreign corporation performing single acts or “isolated
transactions.” There is nothing to show that the
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- A perusal of the agreements between petitioner ASPAC - The French company may gain access to our courts, in
and the respondents show that there are provisions the first place it was not doing business in the
which are highly restrictive in nature, such as to Philippines
reduce petitioner ASPAC to a mere extension or - The marketing of its products in the Philippines is done
instrument of the private respondents through an exclusive distributor, Rustan Commercial
- ITEC was doing business without a license, however Corporation. The latter is an independent entity which
ASPAC is estopped buys and then markets not only products of the
- by entering into the Representative Agreement” with petitioner but also many other products bearing
ITEC, petitioner is charge with knowledge that ITEC equally well-known and established trademarks and
was not licensed to engage in business activities in the trade-names
country, and is thus stopped from raising in defense
such incapacity of ITEC, having chosen to ignore or
even presumptively take advantage of the same Assuming Rustans had no independent status would
- In top-weld we ruled that a foreign corporation may be the SC grant Lacoste access to our courts?
exempted from the license requirements in order to
institute an action in our courts if its representative in
- Even if Lacoste did business in the Philippines it can
the country maintained an independent status during
bring action because the case involves a violation of
the existence of the disputed contract. Petitioner is
our penal code
deemed to have acceded to such independent
- Such was a violation of article 189 of the RPC, if
character when it entered into the Representative
prosecution follows after the completion of the
Agreement with ITEC
preliminary investigation being conducted by the
Special Prosecutor the information shall be in the
• Western Equipment and Supply Co. vs. Reyes name of the People of the Philippines and no longer
the petitioner which is only an aggrieved party since a
criminal offense is essentially an act against the State.
- The company is not here seeking to enforce any legal It is the latter which is principally the injured party
or contract rights arising from, or growing out of any although there is a private right violated
business which it has transacted in the Philippine - The records show that the goodwill and reputation of
Islands. The sole purpose of the action is to protect its the petitioner’s products bearing the trademark
reputation, its corporate name, its goodwill, whenever Lacoste date back even before 1964 when Lacoste
that reputation, corporate name or goodwill have clothing apparels were forst marketed in the
through the natural development of its trade, Philippines. To allow Hemandas to continue using the
established themselves trademark Lacoste for the simple reason that he was
- And it contends that its rights to the use of its the first registrant in the Supplemental Register of a
corporate and trade name, is a property right, a right trademark used in international commerce and not
in rem, which may assert and protect against all the belonging to him is to render nugatory the very
world, in any of the courts of the world even in essence of the law on trademarks and trade names
jurisdictions where it does not transact business just
the same as it may protect its tangible property, real
or personal, against trespass, or conversion • Atlantic Mutual Insurance Co. vs. Cebu Stevedoring Co.
- Since it is the trade and not the mark that is to be
protected a trademark acknowledges no territorial
- The law denies to a foreign corporation the right to
boundaries or municipalities or states or nations, but
maintain suit unless it has previously complied with a
extends to every market where the trader’s goods
certain requirement, then such compliance, or the fact
have become known and identified by the use of the
that the suing corporation is exempt there from,
mark
becomes a necessary averment in the complaint
- These are matters peculiarly within the knowledge of
• General Garments Corporation vs. Director of Patents appellants alone, and it would be unfair to impose
upon appellee the burden of asserting and proving the
contrary. It is enough that foreign corporations are
- A foreign corporation which has never done business allowed by law to seek redress in our courts under
in the Philippine Islands and which is unlicensed and certain conditions: the interpretation of the law should
unregistered to do business here, but is widely and not go so far as to include, in effect, an inference than
favorably known in the Islands through the use therein those conditions have been met from the mere fact
of its products bearing its corporate and trade name that the party suing is a foreign corporation
has a legal right to maintain an action in the Islands
- Mentholatum case was subsequently derogated when
Congress, purposely to “counteract the effects” of said • Olympia Business Machines Co. vs. E. Razon
case, enacted R.A. 638, inserting Section 21-A in the
Trademark Law, which allows a foreign corporation or
- How do you distinguish this case with Atlantic?
juristic person to bring an action in Philippine Courts
- In Atlantic it dismissed the case, while in Olympia it did
for infringement of a mark or trade-name, for unfair
not
competition, or false designation of origin and false
description, “whether or not it has been licensed to do
business in the Philippines under Act Numbered • Time Inc. vs. Reyes
Fourteen hundred and fifty-nine, as amended,
otherwise known as Corporation Law, at the time it
brings complaint. - We fail to see how these doctrines can be a propos in
the case at bar, since the petitioner is not
“maintaining any suit” but is merely defending one
• Puma Sporschufabriken Rudolf Dassler, K.G. vs. IAC against itself; it did not file any complaint but only a
and MIL-ORO MFG. Corp. corollary defensive petition to prohibit the lower court
from further proceeding with a suit that it had no
jurisdiction to entertain
- Treaties for part of the law of the land
- Quoting the Paris Convention and the case of Vanity
Fair Mills Inc. vs. T. Eaton Co. this court further said: What law govern foreign corporation doing and
transacting business in the Philippines with a license
“By the same token, the petitioner should be
given the same treatment in the Philippines - Laws of the Republic of the Philippines save and
as we make available to our own citizens. except that would normally be those matters which
We are obliged to assure to nationals of concern its formation, organization or dissolution, or
countries of the Union an effective those fixing the relationship, liabilities, responsibilities,
protection against unfair competition on the or duties of the stockholders, members or officers of
same way that they are obligated to the foreign corporation or their relations to each other.
similarly protect Filipino Citizen and firms - In effect, intra-corporate or internal matters not
affecting creditors or the public in general are
- The ruling in the aforecited case is in consonance with governed not by Philippine laws but the law under
the Convention of the Union of Paris for the protection which the foreign corporation was formed or organized
of Industrial Property to which the Philippines became
a party. Article 8 thereof provides that a trade name Section 129. Law applicable. - Any foreign
shall be protected in all the countries of the Union corporation lawfully doing business in the Philippines
without the obligation of filing or registration, whether shall be bound by all laws, rules and regulations
or not it forms part of the trademark applicable to domestic corporations of the same class,
except such only as provide for the creation,
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68
formation, organization or dissolution of corporations the appropriate government agency in the proper
or those which fix the relations, liabilities, cases.
responsibilities, or duties of stockholders, members, or
officers of corporations to each other or to the
corporation. (73a) The Securities and Exchange Commission
shall also mail to the corporation at its registered
office in the Philippines a notice of such revocation
Will the pre-emptive rights of a foreign corporation be accompanied by a copy of the certificate of revocation.
governed by the same section of the code? Is the pre- (n)
emptive rights of a stockholder in a domestic
corporation same as the pre-emptive of a stockholder
of a foreign corporation. Voluntary withdrawal of license
• M.E. Grey vs. Insular Lumber Company Section 136. Withdrawal of foreign
corporations. - Subject to existing laws and
regulations, a foreign corporation licensed to transact
- PNB vs. Gonzales, will this apply to a foreign business in the Philippines may be allowed to withdraw
corporation? How do you distinguish this case from a from the Philippines by filing a petition for withdrawal
Philippine law? of license. No certificate of withdrawal shall be issued
- Since it concerns the rights of stockholders it is the law by the Securities and Exchange Commission unless all
of New York that should govern the following requirements are met;
Is the license to do business of a foreign corporation 1. All claims which have accrued in the Philippines
subject to suspension or revocation? What are the have been paid, compromised or settled;
grounds?
2. All taxes, imposts, assessments, and penalties, if
- Section 134 provides: any, lawfully due to the Philippine Government or any
of its agencies or political subdivisions have been paid;
and
Section 134. Revocation of license. -
Without prejudice to other grounds provided by special
laws, the license of a foreign corporation to transact 3. The petition for withdrawal of license has been
business in the Philippines may be revoked or published once a week for three (3) consecutive weeks
suspended by the Securities and Exchange in a newspaper of general circulation in the
Commission upon any of the following grounds: Philippines.
9. Any other ground as would render it unfit to - Allegation corporate officers employing schemes in
transact business in the Philippines. (n) diverting
- Sole criteria is there must be an intra-corporate What is the reason for suspension of all claims?
relationship
- The reason for suspending actions for claims against
- Pertaining to a controversy (speaks also of intra- the corporation is not really to enable the
partnership controversy, that partnership must be management committee or the rehabilitation receiver
registered with the SEC) to substitute the defendant in any pending action
against it before any court, tribunal or body. The real
Rule now justification is to enable the management committee
or rehabilitation receiver to effectively exercise his
1. Necessarily be an intra-corporate relationship; and, powers free from any Judicial or extra-judicial
interference that might unduly hinder or prevent the
2. The controversy must arise out of said relationship “rescue” of the debtor company. To allow such other
actions to continue would only add to the burden of
Intra-corporate relationship alone will not suffice to put the management committee pr rehabilitation receiver,
it in the ambit of special commercial courts and courts whose time, effort and resources would be wasted in
of general jurisdiction may take cognizance defending claims against the corporation instead of
being directed towards restructuring and
rehabilitation.(PAL vs. Spouses Sadic and Kurangking)
Case of a transferee of shares of stock to compel the
corporation to recognize him as a stockholder
- To enable the receiver to effectively exercise his or her
power free form any judicial or extra-judicial that may
How can it be intra-corporate when he is not yet fully
disturb
paid
- Corporate officers dismissal is always a corporate act - Their liability was almost wiped out they became
or intra-corporate controversy stockholders instead of creditors
Main consideration
What if walang amendment, e mas maraming liabilities
kesa assets
- Asserts his right to the office or questions the
propriety or validity of his ouster or removal, it will be
the special commercial courts and not the NLRC Suspension order- all actions for claims against the
corporation are accordingly suspended at whatever
stage the proceedings maybe
Securities Regulation Code
What are claims? - Save and except in the case of a close corporation in
case of deadlock management committee is allowed to
- Debts or demands of pecuniary nature. Assertion of a take over right away
right to have money paid
• Jacinto case
- Claims against the corporation shall be suspended,
assertion of a right to have money paid; it must
- 2nd par of page 676
present a monetary claim, liquidated or unliquidated
• Union vs. CA
• Sy Chim
- Section 5(B)
- Special commercial courts where principal office is
located/established (section 5 rule 1)
- Sole criteria is whether there exists an intra-corporate
dispute is that if there is an intra-corporate
- Matters of payment/suspension must be filed in the
relationship
city/ municipality where corporation is located
Rehabilitation receiver shall not subject to any action, f) Proprietary or non proprietary membership certificates
claim or demand in connection with any act done incorporations; and
omitted by him in good faith in the exercise of his
functions and powers herein conferred
g) Shares of stock, bonds, debentures, notes, evidences
of indebtedness, asset-backed securities;
Claim GR: Securities shall not be sold or offered for sale or distribution
within the PH, without a registration statement filed with and
- Right to payment, whether or not it is reduced to approved by SEC. Prior to such sale, information on the
judgment, liquidated or unliquidated, fixed or securities, in such form and with such substance as the
Commission may prescribe, shall be made available to each
contingent, matured or unmatured, disputed or
prospective purchaser. (Sec 8)
undisputed, legal or equitable and secured or
unsecured EXCEPT: Exempt Securities under Sec 9
a) Any security issued or guaranteed by the
Investment contracts Government of the PH, or by any political subdivision
or agency thereof, or by any person controlled or
supervised by, and acting as an instrumentality of said
- A contract, transaction or scheme whereby a person Government.
invests his money in a common enterprise and is led b) Any security issued or guaranteed by the
to expect profits primarily from the effects of others government of any country with diplomatic relations
with the PH, or by any state, province or political
The management committee and rehabilitation subdivision thereof on the basis of reciprocity:
Provided, that the SEC may require compliance with
receiver are empowered to: the form and content of disclosures the Commission
may prescribe.
1. Take custody and control of all assets of the c) Certificates issued by a receiver or by a
corporation trustee in bankruptcy duly approved by the proper
adjudicatory body.
d) Any security or its derivatives the sale or
2. Evaluate assets and liabilities, earnings operations of
transfer of which, by law, is under the supervision and
the corporation regulation of the Office of the Insurance Commission,
Housing and Land Use Regulatory Board, or the Bureau
3. Determine the best way to protect the investors and of Internal Revenue.
creditors e) Any security issued by a bank except its own
shares of stock.
4. Study, review evaluate the feasibility of continuing
AND Exempt Transactions under Sec 10
operation and structures a) A judicial sale, or sale by an executor,
administrator, guardian or receiver or trustee in
5. Submit recommendations to the RTC regarding insolvency or bankruptcy.
rehabilitation plan b) By or for the account of a pledge holder, or
mortgagee or any other similar lien holder selling or
offering for sale or delivery in the ordinary course of
6. Rehabilitate the corporation if determined to be
business and not for the purpose of avoiding the
feasible by the RTC provisions of this Code, to liquidate a bona fide debt, a
security pledged in good faith as security for such
7. Report to the RTC until the corporation is dissolved debt.
c) An isolated transaction in which any security
is sold, offered for sale, subscription or delivery by the
THE SECURITIES REGULATION CODE (RA8799)
owner thereof, or by his representative for the owner’s
account, such sale or offer for sale, subscription or
- Also known as the Blue Sky Law since it was enacted to
delivery not being made in the course of repeated and
protect the public from unscrupulous promoters who stake
successive transactions of a like character by such
business which have no basis and sell shares and interest
owner, or on his account by such representative and
therein to investors, who are then left holding certificates
such owner or representative not being the
representing nothing more than a claim to a square of the blue
underwriter of such security.
sky.
d) Distribution by a corporation, actively
engaged in the business authorized by its AOI, of
-SEC. 2. Declaration of State Policy. – The State shall establish a
securities to its stockholders or other security holders
socially conscious, free market that regulates itself, encourage
as a stock dividend or other distribution out of surplus.
the widest participation of ownership in enterprises, enhance the
e) Sale of capital stock of a corporation to its
democratization of wealth, promote the development of the
own stockholders exclusively, where no commission or
capital market, protect investors, ensure full and fair disclosure
other remuneration is paid or given directly or
about securities, minimize if not totally eliminate insider trading
indirectly in connection with the sale of such capital
and other fraudulent or manipulative devices and practices
stock.
which create distortions in the free market.
f) Issuance of bonds or notes secured by
mortgage upon real estate or tangible personal
BROKER - person who buys and sells securities for the account of
property, where the entire mortgage together with all
others.
the bonds or notes secured thereby are sold to a single
purchaser at a single sale.
DEALER - person who buys and sells securities for his/her own
g) Issue and delivery of any security in
account in the ordinary course of business.
exchange for any other security of the same issuer
pursuant to a right of conversion entitling the holder of
NOTE: No person shall engage in the
the security surrendered in exchange to make such
business of buying or selling securities in the
conversion: Provided, That the security so surrendered
Philippines as a broker or dealer, or act as a
has been registered under this Code or was, when
salesman, or an associated person of any broker
sold, exempt from the provisions of this Code, and that
or dealer unless registered as such with the
the security issued and delivered in exchange, if sold
Commission. (Sec 28)
at the conversion price, would at the time of such
conversion fall within the class of securities entitled to
SECURITES - shares, participation or interests in a corporation or
registration under this Code. Upon such conversion
in a commercial enterprise or profit-making venture and
the par value of the security surrendered in such
evidenced by a certificate, contract, instrument, whether written
exchange shall be deemed the price at which the
or electronic in character. It includes:
securities issued and delivered in such exchange are
CODE: COFDIPS
sold.
a) Certificates of assignments, certificates of h) Broker’s transactions, executed upon
participation, trust certificates, voting trust certificates customer’s orders, on any registered Exchange or
or similar instruments; other trading market.
i) Subscriptions for shares of the capital stock
b) Other instruments as may in the future be determined
of a corporation prior to the incorporation thereof or in
by the Commission; pursuance of an increase in its authorized capital stock
c) Fractional undivided interests in oil, gas or other under the Corporation Code, when no expense is
mineral rights; incurred, or no commission, compensation or
remuneration is paid or given in connection with the
d) Derivatives like option and warrants; sale or disposition of such securities, and only when
e) Investment contracts, certificates of interest or the purpose for soliciting, giving or taking of such
participation in a profit sharing agreement, certificates subscriptions is to comply with the requirements of
of deposit for a future subscription; such law as to the percentage of the capital stock of a
corporation which should be subscribed before it can
Notes on Corporation Law
“Notes come in handy only when you have studied…”
©GTan; ASoguilon; VVillanueva
72
1. Wash Sale (Sec 24.1(a)(i)) – any transaction in a Note: Who is an “insider”? - “Insider” means: (a)
security which involves no change in the beneficial ownership the issuer; (b) a director or officer (or person
thereof. performing similar functions) of, or a person controlling
the issuer; (c) a person whose relationship or former
2. Matched Order (Sec 24.1(a)(ii)) – order or orders for relationship to the issuer gives or gave him access to
the purchase or sale of security with the knowledge that a material information about the issuer or the security
simultaneous order or orders of substantially the same size, time that is not generally available to the public; (d) a
and price for the sale or purchase of such security has, or will be government employee, or director, or officer of an
entered by or for the same or different parties. exchange, clearing agency and/or self-regulatory
organization who has access to material information
Note: Wash sale and matched orders become illegal about an issuer or a security that is not generally
when they are used as a means to create false available to the public; or (e) a person who learns such
appearance of active trading in the security information by a communication from any of the
concerned. foregoing insiders.
SETTLEMENT OFFERS
At any time, during an investigation or proceeding
under this Code, parties being investigated and/or charged may
propose in writing an offer of settlement with the Commission.
The Commission may only agree to a settlement offer based on
its findings that such settlement is in the public interest. Any
agreement to settle shall have no legal effect until publicly
disclosed. Such decision may be made without a determination
of guilt on the part of the person making the offer.
DAMAGES
All suits to recover damages shall be brought before
the Regional Trial Court, which shall have exclusive jurisdiction to
hear and decide such suits. The Court is authorized to award
damages in an amount not exceeding triple the amount of the
transaction plus actual damages.
NOTES
• If there are goods involved in the multimarket, it is
beyond the jurisdiction of SEC (Ex First Quadrant)
• Criminal charge for violation of SRC is a specialized
dispute, hence it must be first referred with SEC (Baviera vs.
Paglinawan G.R. No. 168380 Feb 8, 2007)
• T3 Rule in trading of Securities – Trading day + 3
more days you must comply with your obligations.