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February 28, 2019: 1/1 [Altiso]
CHANGES UNDER R.A. 11232 [AN ACT PROVIDING FOR
REVISED CORPORATION CODE OF THE PHILIPPINES]
Discussed by Sir:
CORPORATION CODE (BP
68)
Section 13. Amount of
capital stock to be
subscribed and paid
for the purposes of
incorporation. – At least
twenty-five percent
(25%) of the authorized
capital stock as stated in
the articles of
incorporation must be
subscribed at the time of
incorporation, and at
least twenty-five (25%)
per cent of the total
subscription must be
paid upon subscription,
the balance to be
payable on a date or
dates fixed in the
contract of subscription
without need of call, or in
the absence of a fixed
date or dates, upon call
for payment by the board
of directors: Provided,
however, That in no case
shall the paid-up capital
be less than five
Thousand (P5,000.00)
pesos. (n)
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REVISED CORPORATION
CODE (RA 1132)
No counterpart. No
need for minimum capital
stock. Lets just wait for
the IRR, paano nalang
ang filing fee ni SEC?
Note that meron paring
treasurer’s affidavit but
it is incorporated in your
AOI but the thing is,
pwede mo ng babaan
ang capital stock.
But take note of Sec. 37,
so there is an implication.
SEC. 37. Power to
Increase or Decrease
Capital Stock; Incur,
Create or Increase
Bonded Indebtedness.
xxx
Provided, That the
Commission shall not
accept for filing any
certificate of increase of
capital stock unless
accompanied by a sworn
statement of the
treasurer of the
corporation lawfully
holding office at the time
of the filing of the
certificate, showing
that at least twenty-five
percent (25%) of the
increase in capital stock
has been subscribed and
that at least twenty-five
percent (25%) of the
amount subscribed has
been paid in actual cash
to the corporation or that
property, the valuation of
which is equal to twenty-
five percent (25%) of the
subscription,
has been transferred to
the corporation:
Provided, further, That no
decrease in capital stock
shall be approved by the
Commission if its effect
shall prejudice the rights
of corporate creditors.
Section 13 was actually removed, so namove ang
numbering.
SEC. 29. Compensation of Directors or Trustees. –
xxx In no case shall the total yearly compensation of
directors exceed ten percent (10%) of the net income
before income tax of the corporation during the
preceding year. xxx
No change but during the Senate Bill, 10% was deleted. Sa
final na (RA) hindi nawala ang 10%)
SEC. 11. Corporate Term. – xxx Corporations with
certificates of incorporation issued prior to the
effectivity of this Code, and which continue to exist,
shall have perpetual existence, unless the
corporation, upon a vote of its stockholders
representing a majority of its outstanding capital
stock, notifies the Commission that it elects to retain
its specific corporate term pursuant to its articles of
incorporation:
Take note there is a retroactive effect. So kung existing ka,
deem perpetual.
Provided, that any change in the corporate term under
this section is without prejudice to the appraisal right
of dissenting stockholders in accordance with the
provisions of this Code.
Diba sabi natin noon yung extension lang ang may appraisal
right, ngayon when we say perpetual at kapag inamend mo
yan, magiging shortening so may appraisal right. In effect, it
is the shortening of the corporate term that has appraisal
right.
SEC. 22. The Board of Directors or Trustees of a
Corporation; Qualification and Term. – xxx The
board of the following corporations vested with public
interest shall have independent directors constituting
at least twenty percent (20%) of such board: xxx
Sa independent directors hindi na siya at least 2 or least
20%, whichever is less. 20% na talaga siya.
SEC. 35. Corporate Powers and Capacity. – Every
corporation incorporated under this Code has the
power and capacity: xxx
[i] To make reasonable donations, including those
for the public welfare or for hospital, charitable, Domestic
cultural, scientific, civic, or similar purposes: Corporations
can donate
Provided, That no foreign corporation shall give in aid of
political party
donations in aid of any political party or candidate
or for purposes of partisan political activity;
Tinanggal si domestic corporation. Pwede na siya
magdonate. Ano ng mangyayari ngayon kung inallow?
Section 46. Adoption of by-laws. – Every
corporation formed under this Code must, within one
(1) month after receipt of official notice of the
issuance of its certificate of incorporation by the
Securities and Exchange Commission, adopt a code
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of by-laws for its government not inconsistent with this
Code.
Ito tinangal na to sa Revised. Diba ito lang yung viable na
de facto? Good question: What is now the basis for a de
facto corporation? It appears na wala ng de facto.
SEC. 10. Number and Qualifications of
Incorporators.
– Any person, partnership, association or
corporation, singly or jointly with others but not more
than fifteen (15) in number, may organize a
corporation for any lawful purpose or purposes:
Q: Pwede na ba ngayon maging incorporator ang juridical
person?
Legally merong basis but actually silent siya ngayon and in
practice and reality, di pwede si corporation.
Before, hindi siya pwede. Why? Because if you are an
incorporator, you need to sign and take an oath. So ano
yun? Magboboard resolution ulit for you to incorporate?
Sino ang mag o-oath? Another representative?
But by reading Sec. 10, it is silent you cannot say that a
corporation cannot be an incorporator by reading it. Na-try
ko yan for corporation but ang mag aapear sa AOI is
stockholder lang si juridical, hindi incorporator. Tapos you
have to attach a proof that it exists.
[17] STOCKS
We have already discussed most or some of the
principles under stocks like:
SEC. 59. Subscription Contract. – Any contract for
the acquisition of unissued stock in an existing
corporation or a corporation still to be formed shall be
deemed a subscription within the meaning of this
Title, notwithstanding the fact that the parties refer to
it as a purchase or some other contract
SEC. 60. Pre-incorporation Subscription. – A
subscription of shares in a corporation still to be
formed shall be irrevocable for a period of at least six
(6) months from the date of subscription, unless all of
the other subscribers consent to the revocation, or the
corporation fails to incorporate within the same period
or within a longer period stipulated in the contract of
subscription.
No pre-incorporation subscription may be revoked
after the articles of incorporation is submitted to the
Commission.
[A] CONSIDERATION FOR STOCKS
SEC. 61. Consideration for Stocks. – Stocks shall
not be issued for a consideration less than the par or
issued price thereof. Consideration for the issuance of
stock may be:
[1] Actual cash paid to the corporation;
[2] Property, tangible or intangible, actually received
by the corporation and necessary or convenient
for its use and lawful purposes at a fair valuation
equal to the par or issued value of the stock
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issued;
[3] Labor performed for or services actually rendered
to the corporation;
[4] Previously incurred indebtedness of the
corporation;
[5] Amounts transferred from unrestricted retained
earnings to stated capital;
[6] Outstanding shares exchanged for stocks in the
event of reclassification or conversion;
[7] Shares of stock in another corporation;
and/or
[8] Other generally accepted form of
consideration.
Where the consideration is other than actual cash, or
consists of intangible property such as patents or
copyrights, the valuation thereof shall initially be
determined by the stockholders or the board of
directors, subject to the approval of the Commission.
Shares of stock shall not be issued in exchange for
promissory notes or future service. The same
considerations provided in this section, insofar as
applicable, may be used for the issuance of bonds by
the corporation.
The issued price of no-par value shares may be fixed
in the articles of incorporation or by the board of
directors pursuant to authority conferred by the
articles of incorporation or the bylaws, or if not so
fixed, by the stockholders representing at least a
majority of the outstanding capital stock at a meeting
duly called for the purpose.
The same with the Old Corporation Code it’s just that they
added 7 and 8. It could be previous indebtedness. So a
debt of a corporation, ireclass mo siya into shares pwede
siyang consideration.
REQUIREMENT IF CONSIDERATION IS OTHER THAN
CASH:
Please take note that if the consideration is other than cash,
the valuation thereof shall initially be determined by the SH
or BOD but subject to the approval of the SEC.
Watered stock is shares of a company that are issued at a much
Rationale: greater value than its underlying assets, usually as part of a scheme to
defraud investors, and are thus artificially inflated in value
[Generally, you can pay cash in exchange for shares. But
you have other considerations acceptable for shares. Now if
you go to other consideration aside from cash, you need to
have the approval of the SEC.]
The rationale for that is the SEC is trying to avoid the
issuance of shares that are watered.
Kasi let’s say ang cause ng service mo is 100 in exchange
of share. Tapos kung ikaw lang magbuot buot anang
determination is it 100?
Pwede namang sabihin ko na 1000 ang worth ng service ko
so you give me share worth 1000.
How would the SEC determine na yung issuance ng share
for 1000, hindi siya watered? Hindi siya fluid?
That is why if it other than cash, it needs the approval of the
SEC. Kapag cash, no need of approval. Kaya it’s easier
kapag mag se-setup ka kung ang consideration mo is cash.
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Again, what they are trying to prevent is the issuance of
stocks with watered value.
[B] CERTIFICATE OF STOCK AND TRANSFER OF
SHARES.
SEC. 62. Certificate of Stock and Transfer of
Shares.
– The capital stock of corporations shall be divided
into shares for which certificates signed by the
president or vice president, countersigned by the
secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance
with the bylaws.
WHEN CORPORATE SEAL IS NEEDED
Now question, diba in your Corporate Powers, diba one of
the powers is to have a corporate seal.
Is it really necessary for all transactions or all documents of
the corporation to have a corporate seal?
Hindi. Hindi sa lahat. But it is necessary for purposes of
issuance of certificate of stock. That is why one of the
corporate power is to adopt a corporate seal because of this
provision.
STOCK AND TRANSFER BOOK
________________________________________________
_________
“Shares of stock so issued are personal property and
may be transferred by delivery of the certificate or
certificates indorsed by the owner, his attorney-in-fact,
or any other person legally authorized to make the
transfer.
No transfer, however, shall be valid, except as between
the parties, until the transfer is recorded in the books of
the corporation showing the names of the parties to the
transaction, the date of the transfer, the number of the
certificate or certificates, and the number of shares
transferred.”
________________________________________________
_________
This is very important. I should have brought with me a
Stock and Transfer Book but I forgot. Have you seen a
Stock and Transfer Book? [It’s a book]. Nakalagay dun na
Mr. X was issued this amount of shares na worth ganito.
Now you cannot have erasure, para siyang notarial registry.
As to the government, it is the primary evidence.
Again, no transfer can be made until the transfer is recorded
in that book.
Ang ginagawa ng ibang company, hindi nila sinusulat.
Why? Wala kasing regulation on that. Walang inspection.
Hindi chinicheck ng SEC. The form is may journal, naka
ledger tapos maraming box box both sides. Hindi siya user-
friendly.
You really have to know the legal rules on how to record the
stocks in the Stock and Transfer Book. Kasi halimbawa,
may namatay na holder ng shares of stocks, ang ginagawa
isusurender ang certificate of stocks.
Or lets say may binenta, say binenta ni Chanyee ang shares
niya kay Sara G. Ngayon, sa record ko initially, ilalagay
dun Chanyee—10, 000 shares of PLDT. Binenta niya, may
Deed of Sale. Paano ma iinsure ni Sara G. na yung
certificate of stocks nakapangalan na sa kanya?
Q: Is it enough ba na pupunta ka ngayon sa akin dala dala
ang certificate of stocks mo, deed of sale ang mode of
transfer, then bibigyan na kita ng new certificate of stocks?
Is it sufficient?
A: NO. You need to secure a certificate authorizing
registry (CAR) which is under your tax. So kailangan mong
magbayad ng tax para si BIR mag issue ng CAR.
Now yung
✓ CAR issued by the BIR
✓ together with the Deed of Sale and
✓ the Original Copy of the Certificate of Shares
yun ang ibibigay mo sa Corporate Secretary.
Si CorSec, iiipit niya yun sa Shares and Transfer Book.
Pag na attach na yun tsaka siya mag iisue ng new
Certificate of Shares in favor of Sara G. Otherwise kapag
nagissue si CorSec ng Certificate kay Sara G. without CAR
and without the evidence of transfer, he will be guilty of
violating the Corporation Code. Responsibility yan ni
CorSec.
When it comes to intra-corporate disputes, the record in the
Stock and Transfer Book really has a bearing. Kasi kung
ano man ang agreement mo kung hindi siya nakarecord dun
sa Stock and Transfer Book, hindi siya deemed complied.
You are at an advantage pag na sa iyo ang book. In fact,
big companies – PLDT, BDO, BPI, meron talaga silang legal
team who handles the Stock and Transfer Book.
Nakarecord properly.
UNCERTIFICATED OR SCRIPLESS
________________________________________________
___________
“The Commission may require corporations whose
securities are traded in trading markets and which can
reasonably demonstrate their capability to do so to
issue their securities or shares of stocks in
uncertificated or scripless form in accordance with the
rules of the Commission.”
________________________________________________
___________
Itong uncertificated, this is a creature of the SRC. Now
inadopt siya with the amendment.
What is uncertificated or Scripless Form?
Meaning, hindi na siya tangible. Wala siyang certificate.
Kasi kung nagtatrade ka daily of certificate of shares, it
would now be counter-productive to the system of stock
exchange. So kaya siya uncertificated although naka
encrypt na yan. Please take note that is precisely the
reason why different ang tax for local stock exchange and a
stock which is traded in a stock exchange.
Do you think what is the reason why 6/10 of 1% lang ang sa
stock exchange?
Kung capital gain ka, you are 15%? Now bakit magkaiba
ang taxation?
Kasi dun sa 15% na capital gain, you go to the methodology
of securing a CAR. Dun sa 6/10 of 1% hindi mo na
kailangan mag secure ng CAR kasi it is considered as a
stock business tax; It is considered as stock and transfer
tax. Hindi mo na kailangang magsecure ng CAR kasi
automatic na siya sa system precisely because in trading
shares of stock you have to be fast. Kung may broker bibili,
change dayon. That is why yung certificate mo niyan is
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tinatawag na uncertificated or scrippless. Yan ang sinasabi
ng provision.
WHEN CERTIFICATE OF SHARES OF STOCK IS ISSUED
________________________________________________
_______
“No shares of stock against which the corporation
holds any unpaid claim shall be transferable in the
books of the corporation.”
________________________________________________
_______
When do you issue a certificate of share? IF IT IS FULLY
PAID.
You do not issue if meron pang receivable. Lets say 25%
lang ang binayad ko, tapos mag dedemand ka na ng proof
na may share ka? No. You cannot demand unless you fully
pay your obligations to the corporation and yet you have all
the rights of a stockholder.
RIGHT AS A STOCKHOLDER WHEN ACQUIRED
The holding or non-holding of a certificate of shares does
not prevent you from your rights as a stockholder.
THIS RIGHT AS A STOCKHOLDER ATTACHES THE
MOMENT YOU SUBSCRIBED.
Kung subscriber ka, you have the right to vote, dividends,
inspect the corporate book.
You only have no right to demand the issuance of
certificate of shares unless and until you fully pay your
obligations to the corporation.
TAN V. SEC
206 SCRA 740
FACTS:
Alfonso Tan was an incorporator of Visayan
Educational Supply Corporation. Initially, 400 shares
of stock were in his name, represented by Stock
Certificate Number 2. Alfonso sold 50 shares to his
brother Angelo. Because of the mentioned
transactions, Stock Certificate Number 2 was
cancelled, and the corresponding stock certificates
6 and 8 were issued, with certificate 6 representing
50 shares sold to Angelo, and certificate 8
representing the 350 shares for the petitioner
Alfonso Tan.
Alfonso Tan was asked to endorse the
cancelled Stock Certificate Number 2. However,
Alfonso did not sign Stock Certificate Number 2
and only returned Stock Certificate Number 8.
Later on, Alfonso Tan withdrew from the
corporation because he was dislodged as president.
Due to the withdrawal, the cancellation of Stock
Certificate 2 and 8 was effected and recorded in the
stock and transfer book. Alfonso then filed a case
with SEC, questioning the cancellation of his
aforesaid Stock Certificates 2 and 8.
Petitioner argues that he was deprived of his
shares despite the non-endorsement or surrender of
Stock Certificates 2 and 8 which is contrary to
Section 63 of the Corporation Code which requires:
Shares of stock so issued are personal
property and may be transferred by delivery
of the certificate or certificates indorsed by
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the owner, his attorney-in-fact, or any other
person legally authorized to make the
transfer.
ISSUE: Whether or not the cancellation of Stock
Certificate 2 and the subsequent issuance of Stock
Certificate Number 8 was null and void.
RULING: NO.
The cancellation and the transfers of stock were
valid. Section 63 on delivery uses the word “may”
and not “shall” which mean that it is permissive.
Also, there was delivery.
There was a delivery of Stock Certificate No. 2 made
by Alfonso Tan to the corporation before it was
replaced with Stock Certificate No. 6 for 50 shares to
Angelo Tan and Stock Certificate No. 8 for 350
shares to the Alfonso. There was already delivery of
the deliberately unendorsed Stock Certificate No. 2,
which made the issuance of Stock Certificate Nos. 6
and 8 valid. All the acts required for the transferee to
exercise its rights over the acquired stocks were
attendant and even the corporation was protected
from other parties, considering that the said transfer
was earlier recorded or registered in the corporate
stock and transfer book.
Furthermore, it is necessary to delineate the function
of the stock itself form the actual delivery or
endorsement of the certificate of stock itself because
a certificate of stock is not necessary to render one a
stockholder in a corporation. The certificate is not
stock in the corporation but is merely evidence
of the holder’s interest and status in the
corporation, his ownership of the share
represented thereby, but is not in law the
equivalent of such ownership. It expresses the
contract between the corporation and the
stockholder, but is not essential to the existence of a
share in stock or the nation of the relation of the
shareholder to the corporation.
In Fleisher v. Botica Nolasco Co., Inc., it was held
that a by-law which prohibits a transfer of stock
without the consent or approval of all the
stockholders or of the president or board of directors
is illegal as constituting undue limitation on the right
of ownership and in restraint of trade.
GENERAL INFORMATION SHEET [GIS]
Q: We said that the Stock and Transfer Book is not
regulated and not even inspected by the SEC, how then the
government can know the current stockholdings of a
corporation? Paano malalaman kung sino na ngayon ang
may ari? What is the best evidence?
GIS. Because it is the responsibility of the corporation
that in any changes in the stockholding should be
reported within 30 days of any change of stockholdings.
Every meeting you have to submit, whether or not there are
changes in the stockholdings. Now even if walang meeting
but there is change in the stockholdings, you really have to
update the SEC.
It is the GIS not the Stock and transfer Book which is
inspected by the SEC. Remember the CorSec, mag sworn
siya doon sa GIS na every information given is true and in
fact, there is a new regulation now issued by the SEC
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regarding the proper filling out of the GIS. Nakalagay dun
na dapat TIN ang ilagay mo and you have to report the
beneficial owner. Meron dibang ganyan?
But under the current rules and regulations of the SEC, in
the GIS you have to write the beneficial owner for them to
know if you are circumventing any nationality laws.
PRIVACY NOTICE FOR FILERS OF GENERAL
INFORMATION SHEET (GIS); WHAT PERSONAL
INFORMATION WE COLLECT
SEC collects from incorporators, stockholders, directors,
trustees, officers, beneficial owners, external auditor,
notary public, personal information such as but not limited
to full name, signature, nationality, sex, address,
accreditation number, roll of attorney number and
taxpayer information number. 1
TENG V. SEC
784 SCRA 216
FACTS:
Ting Ping purchased shares of TCL Sales
Corporation (TCL) from Chiu, his brother Teng Ching
Lay (President and operations manager of TCL), and
Maluto. Teng Ching died. Ting Ping, to protect his
shareholdings with TCL, requested petitioner Teng
(TCL's Corporate Secretary), to enter the transfer in
the Stock and Transfer Book of TCL for the proper
recording of his acquisition. He also demanded the
issuance of new certificates of stock in his favor. TCL
and Teng refused despite repeated demands.
Ting Ping filed mandamus with the SEC which was
granted. SEC issued a writ of execution. Teng argued
that prior to registration of stocks in the corporate
books, it is mandatory that the stock certificates are
first surrendered because a corporation will be liable
to a bona fide holder of the old certificate if, without
demanding the said certificate, it issues a new one.
On the other hand, Ting Ping argued that Section 63
of the Corporation Code does not require the
surrender of the stock certificate to the corporation,
nor make such surrender an indispensable condition
before any transfer of shares can be registered in the
books of the corporation. The only limitation imposed
by Section 63 is when the corporation holds any
unpaid claim against the shares intended to be
transferred.
ISSUE: Whether or not the surrender of the
certificates of stock to the corporation is a requisite
before registration of the transfer may be made in the
corporate books and for the issuance of new
certificates in its stead
RULING: NO.
To compel Ting Ping to deliver to the corporation the
certificates as a condition for the registration of the
transfer would amount to a restriction on the right of
Ting Ping to have the stocks transferred to his name,
which is not sanctioned by law.
In a sale of shares of stock, physical delivery of a
stock certificate is one of the essential requisites for
the transfer of ownership of the stocks purchased."
The delivery contemplated in Section 63, however,
pertains to the delivery of the certificate of shares
1http://www.sec.gov.ph/general-information-sheet-gis/ posted on
January 14, 2019
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by the transferor to the transferee, that is, from the
original stockholder named in the certificate to the
person or entity the stockholder was transferring the
shares to, whether by sale or some other valid form of
absolute conveyance of ownership. "[S]hares of stock
may be transferred by delivery to the transferee of the
certificate properly indorsed. Title may be vested in
the transferee by the delivery of the duly indorsed
certificate of stock."
Nevertheless, to be valid against third parties and the
corporation, the transfer must be recorded or
registered in the books of corporation. Upon
registration of the transfer in the books of the
corporation, the transferee may now then exercise all
the rights of a stockholder, which include the right to
have stocks transferred to his name.
Student: The delivery contemplated in Section 63 is the
delivery from the transferor to the transferee and not for the
purpose of registration of the corporation in the Stock and
Transfer Book. The delivery of the Certificate of Stocks to
the transferee is the requirement instead of the delivery to
the corporation.
Q: So ano ang kailangan? How will the corporation know if
may consent sa Deed of Sale?
For purposes of registration in the Stock and
Transfer Book, it is not necessary. But for purposes of
issuance of new certificate of shares of stocks, you have to
submit kasi ika cancel yan. Tatakan niya ng cancelled.
Yung serial number hindi na yun effective. Issue na ng
bago. Sa other country they are very strict to that. Sa atin
kasi nag dedepend lang lahat sa GIS.
INSIGNE V. ABRA VALLEY COLLEGES
764 SCRA 261 (2015)
FACTS:
There was a case filed by Insigne, et.al praying that
they be allowed to inspect corporate books and
records. Abra Valley Colleges questioned the bona
fide ownership of stockholdings by the Insigne in Abra
Valley Colleges. Insigne filed their Motion for
Production/Inspection of Documents] to compel the
respondents to produce the Stock and Transfer Book
to prove their claim, but the RTC did not act on the
motion. During the trial, the STB was not presented.
Abra insisted that Insigne should establish first that
the indorsement of the stock certificates by the
original holders was registered in their favor in the
STB of Abra Valley.
ISSUE:
[1] Whether Insigne are stockholders of Abra
Valley Colleges despite non-production of
their certificate of shares of stock? YES.
[2] Whether Insigne are required to prove that
their subscription are recorded in the STB?
NO. But they may demand its production.
RULING:
[1] Assuming that they bore the burden of
proving their status as stockholders of Abra
Valley, nonetheless Insigne discharged their
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burden despite their non-production of the
stock certificates.
A stock certificate is prima facie evidence that the
holder is a shareholder of the corporation,[28] but
the possession of the certificate is not the sole
determining factor of one’s stock ownership. A
certificate of stock is merely: –
x x x the paper representative or tangible
evidence of the stock itself and of the various
interests therein. The certificate is not stock in
the corporation but is merely evidence of the
holder's interest and status in the
corporation, his ownership of the share
represented thereby, but is not in law the
equivalent of such ownership. It expresses the
contract between the corporation and the
stockholder, but it is not essential to the
existence of a share in stock or the creation of
the relation of shareholder to the
corporation.[29] (Emphasis supplied.)
To establish their stock ownership, the petitioners
actually turned over specifically: the official
receipts of their payments for their subscriptions
of the shares of Abra Valley; and the copies duly
certified by the Securities and Exchange
Commission (SEC) stating that Abra Valley had
issued shares in favor of the petitioners, such as
the issuance of part of authorized and
unissued capital stock; the letter dated June
17, 1987; the secretary’s certificate dated
June 17, 1987; and the general information
sheet. And, thirdly, the petitioners adduced
competent proof showing that the respondents
had allowed the petitioners to become members
of the Board of Directors. According to
the Minutes of the Annual Meeting of
Directors and Stockholders of the Abra Valley
College of January 29, 1989, which was among
the documents submitted to the trial court.
[2] A person becomes a stockholder of a corporation
by acquiring a share through either purchase or
subscription. Here, the petitioners acquired their
shares in Abra Valley:
[1] by subscribing to 36 shares each from
Abra Valley’s authorized and unissued
capital stock;[35]and
[2] by purchasing the shareholdings of
existing stockholders, as borne out by
the latter’s indorsement on the stock
certificates.
In determining the validity of the transfer of
shares through purchase, we resort to Section 63
of the Corporation.
Section 63. Certificate of stock and transfer of
shares. – x x x No transfer, however, shall be
valid, except as between the parties, until the
transfer is recorded in the books of the
corporation xxx
In this regard, the Court has instructed in Ponce
v. Alsons Cement Corporation[37] that:
x x x [A] transfer of shares of stock not
recorded in the stock and transfer book of
the corporation is non-existent as far as the
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corporation is concerned. As between the
corporation on the one hand, and its
shareholders and third persons on the
other, the corporation looks only to its
books for the purpose of determining who
its shareholders are. It is only when the
transfer has been recorded in the stock and
transfer book that a corporation may
rightfully regard the transferee as one of its
stockholders. From this time, the
consequent obligation on the part of the
corporation to recognize such rights as it is
mandated by law to recognize arises.
Nonetheless, in Lanuza v. Court of
Appeals,[38] the Court has underscored that the
STB is not the exclusive evidence of the
matters and things that ordinarily are or should
be written therein, for parol evidence may be
admitted to supply omissions from the records, or
to explain ambiguities, or to contradict such
records, to wit:
xxx However, a stock and transfer
book, like other corporate books and
records, is not in any sense a public
record, and thus is not exclusive
evidence of the matters and things
which ordinarily are or should be
written therein. In fact, it is generally
held that the records and minutes of a
corporation are not conclusive even
against the corporation but are prima
facie evidence only, and may be
impeached or even contradicted by
other competent evidence. Thus,
parol evidence may be admitted to
supply omissions in the records or
explain ambiguities, or to contradict
such records. (Emphasis supplied.)
Considering that Abra Valley’s STB was not in
the possession of the petitioners, or at their
disposal, they could not be reasonably expected
or justly compelled to prove that their stock
subscriptions and purchases were recorded
therein. This, more than any other, was precisely
why they filed their Motion for
Production/Inspection of Documents to compel
the respondents to produce the STB, but the
RTC did not act on the motion.
Sa case na to, di nila prinisent sa trial ang STB
kasi? It would be used against them. So kung meron
talagang kalaban ang corporation, yun talaga ang kunin mo
ang STB. Yung iba nga walang laman. The reason why
they don’t produce that because it might prejudice their
interest.
Again the SC said, a stock certificate is prima
facie evidence that the holder is a shareholder of the
corporation,
BITONG V. CA
292 SCRA 503
FACTS:
Petitioner Bitong allegedly acting for the benefit of Mr.
& Ms. Co. filed a derivative suit before the SEC against
respondent spouses Apostol. Respondent spouses
moved to dismiss on the ground that petitioner had no
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legal standing to bring the suit as she was merely a
holder-in-trust of shares of JAKA Investments which
continued to be the true stockholder of Mr. & Ms.
Petitioner contends that she was a holder of proper
stock certificates and that the transfer was recorded.
She further contends that even in the absence of the
actual certificate, mere recording will suffice for her to
exercise all stockholder rights, including the right to file
a derivative suit in the name of the corporation.
[c] to be valid against third parties, the transfer must
be recorded in the books of the corporation.
At most, in the instant case, petitioner has satisfied
only the third requirement. Compliance with the first
two requisites has not been clearly and sufficiently
shown. Bitong is not a stockholder and no personality
to file the derivative suit.

ISSUE: Whether or not there is a valid transfer of stock PRINCIPLE OF INDIVISIBILITY

to Bitong?
Scenario:
RULING: NO.
Let’s say gumawa ka ng corporation, ilan dapat ang
Sec 63 of the Corporation Code envisions a formal incorporators? What’s the maximum? 15. Let’s say
certificate of stock which can be issued only upon kailangan ng corporation ng capitalization na 15M.
compliance with certain requisites:

[1] First, the certificates must be signed by the

president or vice-president, countersigned by the
secretary or assistant secretary, and sealed with
the seal of the corporation. A mere typewritten
statement advising a stockholder of the extent of
his ownership in a corporation without qualification
and/or authentication cannot be considered as a
formal certificate of stock.

[2] Second, delivery of the certificate is an essential

element of its issuance. Hence, there is no
issuance of a stock certificate where it is never
detached from the stock books although blanks
therein are properly filled up if the person whose
name is inserted therein has no control over the with 15 incorporators =
books of the company. 1M each

[3] Third, the par value, as to par value shares, or the

full subscription as to no par value shares, must
first be fully paid.
[4] Fourth, the original certificate must be surrendered
where the person requesting the issuance of a
certificate is a transferee from a stockholder.
So each of the 15, tag 1M. Let’s say sa isang 1M, sabi
niya, “Di ko man kaya ang 1M!” Pero kaya kong down-nan.
So sabi ni Person 1 – okay 1M pero ang magbabayad niyan
lima kami.

The certificate of stock itself once issued is a

continuing affirmation or representation that the stock
described therein is valid and genuine and is at
least prima facie evidence that it was legally issued in
the absence of evidence to the contrary. However, this
presumption may be rebutted. Aside from petitioner’s
own admissions, several corporate documents disclose
that the true party-in-interest is not petitioner but JAKA.
It should be emphasized that JAKA executed, a deed
of sale over 1,000 Mr. & Ms. shares in favor of
respondent Eugenio D. Apostol. On the same day, So let’s say ang paid up lang ni Person 1 initially is 200k.
respondent Apostol signed a declaration of trust stating Ang 800k receivables ni corporation. Follow?
that she was the registered owner of 1,000 Mr. & Ms.
shares covered by a Certificate of Stock. And, there is Ngayon naging due and demandable na. When is the
nothing in the records which shows that JAKA had receivables due and demandable? Kailan ka mag pay?
revoked the trust it reposed on respondent Eugenia D. Pwede bang after 20 years ko pa siya bayaran? What is the
Apostol. Neither was there any evidence that the rule?
principal had requested her to assign and transfer the
shares of stock to petitioner. In fine, the records are [1] At the period stipulated in the subscription
unclear on how petitioner allegedly acquired the shares agreement;
of stock of JAKA.
[2] If the subscription agreement is silent, then upon
Thus, for a valid transfer of stocks, the requirements call of the BOD.
are as follows:
Let’s say nag call na, we need money. So si Person 1 sabi
[a] There must be delivery of the stock certificate; niya sa apat na downline niya, “UY bayad na kayo!” So
nagbayad. Ngayon, fully paid na. Pagfully paid na, ano ang
[b] The certificate must be endorsed by the owner or consequence? Mag issue ng certificate of stocks.
his attorney-in-fact or other persons legally
authorized to make the transfer; and, Question: Now upon issuance of the certificate of stocks,
can that be issued in the name of each of the five persons
(yung nagbayad ng tag 200k each)?
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No. The concept is a share of stock is indivisible. A
subscription agreement is indivisible. Why? Because
that is an agreement between the corporation and the
original subscriber. Now, it can only be transferred if it is
already DELINQUENT. That’s the only time that you can
transfer that.
Question: Say client mo yung mga downline, how then can
you accommodate the gusto of your clients?
So ang gawin mo, issue kay Person 1. Since sayo na yan,
pwede mo bang ibenta? Pwede issue ka ng Deed of Sale.
Now ibenta sa apat na downline tag 200k each. Now ang
problema pag sale, merong tax. Bayad kayo ng tax. Issue
ng CAR. Macancel ang original certificate of stocks issued.
Then mag issue ng limang new certificates. Once mag
cancel yung original, mag issue ng lima. So paso na. But
we have to consider sa ganitong setup, there is what we call
the SRC. You cannot issue shares of stock more than 19
per year. But may exemption yan. And this only applies
kapag unissued.
Are these (certificates of 5)unissued? NO. Issued na to kasi
sa certificate ni Person 1 nag originate. So yung 19 it
pertains to unissued yung additional. So you have to know
that.
Again, we have to know the principle of indivisibility.
Saan galling ang indivisibility? Now there is this SEC
Opinion No. 5-16:
“To amplify, the Commission consistently opined that
a stockholder shall only be entitled to the issuance of
his certificate of stock upon payment of the full
amount of his subscription together with the interest
and expenses (in case of delinquent share), if any is
due.
This is pursuant to the doctrine of indivisibility of the
subscription contract implicitly set forth under
Section 642 of the Code, that is, a subscription is
one, entire and indivisible contract. It cannot be
divided into portions so that the stockholder shall not
be entitled to a certificate of stock until he has
remitted the full payment of his subscription together
with the interest and expenses if any is due.
The purpose of the prohibition is to prevent the
partial disposition of a subscription which is not fully
paid, because if it is permitted, and the subscriber
subsequently becomes delinquent in the payment of
his subscription, the corporation may not be able to
sell as many as his subscribed shares as would be
necessary to cover the total amount due from him,
which is authorized under Section 683. “
2
Now Section 63 of RA 11232 (Revised Corporation Code)
3
Now Section 67 of RA 11232 (Revised Corporation Code)
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So you have the Implicit or Implied Indivisibility of
Subscription Contract. SEC Opinion dated January 8, 1987
also mentioned the indivisibility of subscription contract.
So ito na yun:
[C] ISSUANCE OF STOCK CERTIFICATES
SEC. 63. Issuance of Stock Certificates. – No
certificate of stock shall be issued to a subscriber until
the full amount of the subscription together with
interest and expenses (in case of delinquent shares),
if any is due, has been paid.
Let’s go to Section 64. What if nag validation, property in
exchange of shares. Diba it shall be initially determined by
the BOD then it is subject to the approval (not concurrence
or affirmation) of the SEC.
The SEC has to approved the valuation. It is very tedious. In
fact, yung mga valuators hindi sila abogado, they are CPAs.
So ngayon ano ang liability ni Directors if they knowingly
issued watered stocks?
[D] WATERED STOCKS
SEC. 64. Liability of Directors for Watered Stocks. –
A director or officer of a corporation who:
[a] consents to the issuance of stocks for a
consideration less than its par or issued value;
[b] consents to the issuance of stocks for a
consideration other than cash, valued in excess
of its fair value; or
[c] having knowledge of the insufficient
consideration, does not file a written objection
with the corporate secretary,
shall be liable to the corporation or its creditors,
solidarily with the stockholder concerned for the
difference between the value received at the time of
issuance of the stock and the par or issued value of the
same.
The water in the stock will be the liability now of the director.
Again, it is erroneous to say na kapag corporation, wala
kang liability especially if director ka, you still have your
liability.
[E] UNPAID SUBSCRIPTIONS
SEC. 65. Interest on Unpaid Subscriptions. –
Subscribers to stocks shall be liable to the corporation
for interest on all unpaid subscriptions from the date
of subscription, if so required by and at the rate of
interest fixed in the subscription contract.4 If no
rate of interest is fixed in the subscription contract, the
prevailing legal rate shall apply.
INTEREST
When are you liable for interest? Kapag nag poll na tapos
hindi ka pa nagbayad unless there is a stipulation to the
contrary.
4
Fixed in the by-laws (under the Corpo Code; Sir still read BP 68 and not
the Revised Corpo Code)
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SEC. 66. Payment of Balance of Subscription. –
Subject to the provisions of the subscription contract,
the board of directors may, at any time, declare due
and payable to the corporation unpaid
subscriptions and may collect the same or such
percentage thereof, in either case, with accrued
interest, if any, as it may deem necessary.
Payment of unpaid subscription or any percentage
thereof, together with any interest accrued, shall be
made on the date specified in the subscription
contract or on the date stated in the call made by
the board.
Failure to pay on such date shall render the entire
balance due and payable and shall make the
stockholder liable for interest at the legal rate on
such balance, unless a different interest rate is
provided in the subscription contract.
The interest shall be computed from the date
specified, until full payment of the subscription. If no
payment is made within thirty (30) days from the
said date, all stocks covered by the subscription
shall thereupon become delinquent and
shall be subject to sale as hereinafter provided,
unless the board of directors orders otherwise.
DELINQUENT SHARE
Ito yung sabi ko kanina na call made by the BOD. This is
what you call Delinquent Share. Please note the process of
selling delinquent shares.
Again if may unpaid subscription, you pay that on the period
agreed upon on the subscription contract. Pag wala, on the
day of the call of the BOD.
Now, pag hindi magbayad within 30 days, it is considered
delinquent. Delinquent ka na so anong mangyayari?
It is just like in-execute yung property mo. Since delinquent
ka na, the corporation is now authorized to sell it to the
public through bidding. Again, if your shares are
delinquent, it is now subject to sale under Section 67:
[F] DELINQUENCY SALE
SEC. 67. Delinquency Sale. – The board of directors
may, by resolution, order the sale of delinquent
stock and shall specifically state the amount due on
each subscription plus all accrued interest, and the
date, time and place of the sale which shall not be
less than thirty (30) days nor more than sixty (60)
days from the date the stocks become delinquent.
So you have a call from the BOD or the due date and you
have 30 days for you to become delinquent. After that you
have the 30 to 60 days. Within that time, you should
conduct your delinquency sale.
Notice of the sale, with a copy of the resolution, shall
be sent to every delinquent stockholder either
personally, by registered mail, or through other
means provided in the bylaws.5 The same shall be
published once a week 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.
5This is the amendment. So pwede na ngayon hindi lang
personal or registered mail
Unless the delinquent stockholder pays to the
corporation, on or before the date specified for the
sale of the delinquent stock, the balance due on the
former’s subscription, plus accrued interest, costs of
advertisement and expenses of sale,6 or unless the
board of directors otherwise orders, said delinquent
stock shall be sold at a public auction to such bidder
who shall offer to pay the full amount of the
balance on the subscription together with accrued
interest, costs of advertisement and expenses of
sale, for the smallest number of shares or fraction
of a share7. The stock so purchased shall be
transferred to such purchaser in the books of the
corporation and a certificate for such stock shall be
issued in the purchaser’s favor.
The remaining shares, if any, shall be credited in
favor of the delinquent stockholder who shall
likewise be entitled to the issuance of a certificate of
stock covering such shares.
EXCEPTION OF THE CONCEPT OF INDIVISIBILITY
So meron paring shares si delinquent stockholder. That is
an exception to those na hindi siya divisible.
Again, the exception of the concept of indivisibility is in
delinquency share. Kasi pwedeng paghatian ng delinquent
stockholder and ng bidder. Please take note who is the
highest bidder? The person who shall offer to pay all
expenses at the least number of shares.
Now what if walang bidder? Anong mangyayari? Mapupunta
kay corporation.
Should there be no bidder at the public auction who
offers to pay the full amount of the balance on the
subscription together with accrued interest, costs of
advertisement, and expenses of sale, for the smallest
number of shares or fraction of a share, the
corporation may, subject to the provisions of this
Code, bid for the same, and the total amount due
shall be credited as fully paid in the books of the
corporation.
Title to all the shares of stock covered by the
subscription shall be vested in the corporation as
treasury shares and may be disposed of by said
corporation in accordance with the provisions of this
Code.
Question: Now what is the difference between having a
bidder and having no bidder?
Aside sa kung may bidder, mapupunta sa kanya kung wala
mapupunta kay corporation, ano pa? Anong mangyayari?
Anong difference?
Answer: Diba pag may bidder, hati sila (delinquent
stockholder)? Pag walang bidder anong mangyayari dun sa
Subscription Agreement? What does the last sentence of
the provision provide?
Title to all the shares of stock covered by the
subscription shall be vested in the corporation as
treasury shares and may be disposed of by said
corporation in accordance with the provisions of this
6 So lalaki na ngayon yung amount
7 Please take note sino ang highest bidder.
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Code. Please take note na kapag delinquent stockholder ka na,
you are limited in your rights. So what is the remaining right
as a delinquent stockholder? The right to dividends.
In other words, may maiisue pa ba sa delinquent
stockholder? Question: Can you say na kapag may dividends ka, ibayad
nalang yan sa aking delinquency? Pwede bang ioffset mo
Wala na because title to all shares covered by the nalang sa aking utang ang dividends ko? Can that be
subscription is given na to the corporation. That is one of possible?
the differences of having a bidder or non-bidder.
Tell me the requirements of Offsetting or Legal
So kung ikaw delinquent, mag bid ka nalang? Para ikaw Compensation:
yung bidder, ikaw din yung lowest.
Legal Compensation8 requires:
Can a delinquent stockholder also be a bidder? Pwede diba.
Pwede siyang magbid. But can he be the ONLY bidder? [1] that both parties must be mutually creditors
May proscription? May prohibition ba kung siya ang only and debtors to each other and be bound
bidder? principally.

Would you think that there is an instance na siya lang ang [2] that both debts must consist in sum of
bidder? Papayagan ba yan ng corporation? money or if consumable, of the same kind
or quality.
Kung ako ang corporation, tatapatan ko yung ibibid niya.
Kasi kung ako ang mananalo, akin lahat. Wala siyang [3] that both debts be due at the same time.
share. Matigas ang ulo niya, ayaw magbayad tapos ngayon
gusto pa niya ng share? You think that way. [4] that both debts be liquidated and
demandable.
WHEN CAN YOU QUESTION THE SALE?
[5] that neither debt is held by any retention or
controversy commenced by third persons,
SEC. 68. When Sale may be Questioned. – No and communicated in due time to the
action to recover delinquent stock sold can be debtor.
sustained upon the ground of irregularity or defect in
the notice of sale, or in the sale itself of the delinquent [6] that the debts are allowed by law.
stock, unless the party seeking to maintain such
action first pays or tenders to the party holding the A compensation shall take effect by operation of
stock the sum for which the same was sold, with law when all the aforementioned requisites are
interest from the date of sale at the legal rate. No present, even though the creditors and debtors
such action shall be maintained unless a complaint is are not aware.
filed within six (6) months from the date of sale.
Now you have:

So please take note that it must be filed within 60 days from UNPAID SHARES DELINQUENT
the date of the sale. SHARES

CAN YOU FILE A CASE TO RECOVER UNPAID BOTH DEBTS Kapag unpaid ka Yes. Kasi
SUBSCRIPTION? BE DUE AND palang, it is not yet delinquent na siya.
DEMANDABLE due and Na call na. So due
demandable kasi and demandable
SEC. 69. Court Action to Recover Unpaid kailangan pa ng
Subscription. – Nothing in this Code shall prevent call diba?
the corporation from collecting through court action,
the amount due on any unpaid subscription, with Kung kailangan pa
accrued interest, costs and expenses. siya ng call, in that
essence, it is not
due and
In other words, the subscription contract is a contract demandable.
between the corporation and the stockholder and it shall be
the basis for a court action for the corporation to file for the So based on the requisite of compensation, pwede
unpaid subscription. siya for delinquent shares kasi both debts are due and
demandable.

SEC. 70. Effect of Delinquency. – No delinquent
stock shall be voted for, be entitled to vote, or be
represented at any stockholder’s meeting, nor shall
the holder thereof be entitled to any of the rights of a
stockholder except the right to dividends in
accordance with the provisions of this Code, until and
unless payment is made by the holder of such
delinquent stock for the amount due on the
subscription with accrued interest, and the costs and
expenses of advertisement, if any.
Pag unpaid, unless an unpaid is called and still
unpaid for 30 days and it becomes delinquent, it now
becomes due and demandable, then you can offset.
MARCH 01, 2019: 1/2 [Masanguid]
[G] LOST OR DESTROYED CERTIFICATES
What if nawala ang Certificate of stocks mo? Pwede bang
mag-affidavit of loss na lang?
so, here is the procedure:

8
Article 1279 of the New Civil Code
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Sec. 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
those which have been lost, stolen or destroyed:
[1] The registered owner of a certificate of stock in
a corporation or his legal representative shall file
with the corporation an affidavit in triplicate
setting forth, if possible, the circumstances as to
how the certificate was lost, stolen or destroyed,
the number of shares represented by such
certificate, the serial number of the certificate
and the name of the corporation which issued
the same. He shall also submit such other
information and evidence which he may deem
necessary;
[2] After verifying the affidavit and other information
and evidence with the books of the corporation,
said corporation shall publish a notice in a
newspaper of general circulation published in
the place where the corporation has its principal
office, once a week for three (3) consecutive
weeks at the expense of the registered owner
of the certificate of stock which has been lost,
stolen or destroyed.
The notice shall state the name of said corporation,
the name of the registered owner and the serial
number of said certificate, and the number of shares
represented by such certificate, and that after the
expiration of one (1) year from the date of the last
publication, if no contest has been presented to
said corporation regarding said certificate of
stock, the right to make such contest shall be
barred and said corporation shall cancel in its
books the certificate of stock which has been lost,
stolen or destroyed and issue in lieu thereof new
certificate of stock, unless the registered owner files
a bond or other security in lieu thereof as may be
required, effective for a period of one (1) year, for
such amount and in such form and with such sureties
as may be satisfactory to the board of directors, in
which case a new certificate may be issued even
before the expiration of the one (1) year period
provided herein: Provided, That if a contest has been
presented to said corporation or if an action is
pending in court regarding the ownership of said
certificate of stock which has been lost, stolen or
destroyed, the issuance of the new certificate of stock
in lieu thereof shall be suspended until the final
decision by the court regarding the ownership of said
certificate of stock which has been lost, stolen or
destroyed.
Except in case of fraud, bad faith, or negligence on
the part of the corporation and its officers, no action
may be brought against any corporation which shall
have issued certificate of stock in lieu of those lost,
stolen or destroyed pursuant to the procedure above-
described. (R. A. 201a)
Discussion: Ang certificate mo, isa lang yan. HIndi yan per
share. The corporation will only issue you one. It is not per
share. It is per stockholder.
Q: Pwede bang magkaroon ang isang tao with maraming
certificates?
A: Pwede.
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Example: May benenta sa iyo na Certificates from different
persons na nakapangalan na sa iyo. But initially, isa lang
talaga yang i-issue sa iyo kahit ilang shares pa yan ang
gusto mo unless nabili mo from different persons. Hindi nila
pwede i-consolidate ang shares kasi may sariling serial
number ka.
2ND PARAGRAPH, SECTION 73
Q: What if ayaw ko na magantay ng 1 year, pwede ba
akong magpaissue ng certificate of stock?
A: Pwede. Nasa provision ang answer: unless the
registered owner files a bond or other security in lieu
thereof as may be required, effective for a period of one
(1) year, for such amount and in such form and with such
sureties as may be satisfactory to the board of directors,
in which case a new certificate may be issued even
before the expiration of the one (1) year period
provided herein.
Rationale: Because if the Certificates are not really lost,
destroyed, or stolen, the real owner of the Certificate has
a cause of action against the corporate secretary.
This provision is really important. If the procedure is not
followed, the corporate secretary, officers, members of
the board consenting to issue certificates in violation of
this procedure will be liable.
RULE ON UNCERTIFICATED SHARES
SECURITIES REGULATION CODE
SECTION 43.1
SEC. 43. Uncertificated Securities. -
Notwithstanding Section 63 of the Corporation Code
of the Philippines:
43.1. A corporation whose securities are registered
pursuant to this Code or listed on a securities
Exchange may:
[a] If so resolved by its Board of Directors and
agreed by a shareholder, investor or securities
intermediary, issue shares to, or record the
transfer of some or all of its shares into the
name of said shareholders, investors or,
securities intermediary in the form of
uncertificated securities. The use of
uncertificated securities in these circumstances
shall be without prejudice to the rights of the
securities intermediary subsequently to require
the corporation to issue a certificate in respect
of any shares recorded in its name; and
[b] If so provided in its articles of incorporation and
by-laws, issue all of the shares of a particular
class in the form of uncertificated securities and
subject to a condition that investors may not
require the corporation to issue a certificate in
respect of any shares recorded in their name.
DISCUSSION:
Hindi lahat may tangible certificate shares of stock
especially if you are listed because the is an expedite
process of transfer of shares of stock. Kaya siya
"uncertificated".
Can an uncertificated shares of stock be pledged?
Yes, but you have to look for an intermediate. In relation to
stock exchange.
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43.3. Transfers of securities, including an
uncertificated securities, may be validly made and
consummated by appropriate book-entries in the
securities accounts maintained by securities
intermediaries, or in the stock and transfer book held
by the corporation or the stock transfer agent and
such bookkeeping entries shall be binding on the
parties to the transfer. A transfer under this
subsection has the effect of the delivery of a security
in bearer form or duly indorsed in blank representing
the quantity or amount of security or right
transferred, including the unrestricted negotiability of
that security by reason of such delivery. However,
transfer of uncertificated shares shall only be valid,
so far as the corporation is concerned, when a
transfer is recorded in the books of the corporation
so as to show the names of the parties to the
transfer and the number of shares transferred. [id]
CORPORATE BOOKS AND RECORDS
Section 74. Books to be kept; stock transfer
agent. – Every corporation shall keep and carefully
preserve at its principal office ALL INFORMATION
RELATIVE TO THE CORPORATION INCLUDING,
BUT NOT LIMITED TO:
[a] THE ARTICLES OF INCORPORATION AND
BY-LAWS OF THE CORPORATION AND ALL
THEIR AMENDMENTS,
[b] THE CURRENT OWNERSHIP STRUCTURE
AND VOTING RIGHTS OF THE
CORPORATION, INCLUDING LISTS OF
STOCKHOLDERS OR MEMBERS, GROUP
STRUCTURES, INTRA-GROUP RELATIONS,
OWNERSHIP DATA, AND BENEFICIAL
OWNERSHIP,
[c] THE NAMES AND ADDRESSES OF ALL THE
MEMBERS OF THE BOARD OF DIRECTORS
OR 1 TRUSTEES AND OF THE EXECUTIVE
OFFICERS,
[d] a record of all business transactions,
[e] A RECORD OF THE RESOLUTIONS OF THE
BOARD OF DIRECTORS OR TRUSTEES AND
OF THE STOCKHOLDERS OR MEMBERS,
[f] COPIES OF THE LATEST REPORTORIAL
REQUIREMENTS SUBMITTED TO THE
COMMISSION, and
[g] THE minutes of all meetings of stockholders or
members, or of the board of directors or
trustees, SUCH MINUTES in which shall be set
forth in detail, AMONG OTHERS: the time and
place of holding the meeting, how authorized,
the notice given, THE AGENDA THEREFOR,
whether the meeting was regular or special, if
special its object, those present and absent,
THE VOTING AND VOTE TABULATION
PROCEDURES USED AND THE RESULTS OF
ALL VOTING DONE, THE OPPORTUNITY
GIVEN TO STOCKHOLDERS OR MEMBERS
TO ASK QUESTIONS, AS WELL AS A
RECORD OF THE QUESTIONS THEY ASKED
AND THE ANSWERS RECEIVED, and every
act done or ordered done at the meeting. Upon
the demand of any director, trustee, stockholder
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
or member, the time when any director, trustee,
stockholder or member entered or left the
meeting must be noted in the minutes; and on a
similar demand, the yeas and nays must be
taken on any motion or proposition, and a
record thereof carefully made. The protest of
any director, trustee, stockholder or member on
any action or proposed action must be recorded
in full on his demand.
The FORGOING records SHALL BE RATAINED
FOR SUCH PERIODS AS THE COMMISSION MAY
PRESCRIBE BY RULE AND, REGARDLESS OF
THE FORM IN WHICH THEY ARE STORED, shall
be open to inspection by any director, trustee,
stockholder or member of the corporation, IN
PERSON OR BY COUNSEL OR OTHER
REPRESENTATIVE POSSESSING AND
EXHIBITING DUE AUTHORITY, at reasonable
hours on business days and he may demand, in
writing, for a COPIES of SUCH RECORDS OR
excerpts from said records , at his expense. THE
INSPECTING OR REPRODUCING PARTY UNDER
THIS SECTION SHALL REMAIN BOUND BY
CONFIDENTIALITY UNDER PREVAILING LAWS.
IF A REQUEST FOR INSPECTION AND/OR
REPRODUCTION IS DENIED, THE AGGRIEVED
PARTY MAY REPORT THE DENIAL TO THE
COMMISSION. WITHIN FIVE (5) DAYS FROM
RECEIPT OF SUCH REPORT, THE COMMISSION
SHALL CONDUCT A SUMMARY INVESTIGATION
AND ISSUE AN ORDER EITHER DIRECTING THE
INSPECTION/REPRODUCTION REQUESTED OR
FINDING THAT THE REQUESTING PARTY, NOT
BEING A STOCKHOLDER OR MEMBER OF
RECORD, IS NOT ENTITLED TO THE RIGHT.
Any officer or agent of the corporation who shall
refuse to allow, THE INSPECTION AND/OR
REPRODUCTION OF RECORDS in accordance
with the provisions of this Code, shall be liable to
such director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an
offense which shall be punishable under Section 144
of this Code: Provided, That if such refusal is made
pursuant to a resolution or order of the board of
directors or trustees, the liability under this section
for such action shall be imposed upon the directors
or trustees who voted for such refusal.
THE DIRECTOR, TRUSTEE, STOCKHOLDER OR
MEMBER WHOSE RIGHT TO INSPECTION
AND/OR REPRODUCTION OF RECORDS WAS
DENIED MAY FILE, BEFORE A COURT OF
COMPETENT JURISDICTION, AN ACTION TO
COMPEL INSPECTION OF CORPORATE
RECORDS SHOWING THAT, DESPITE THE
LAPSE OF FIVE (5) DAYS FROM RECEIPT OF
HIS WRITTEN REQUEST OR DEMAND AND
DESPITE HAVING BEEN ORDERED BY THE
COMMISSION TO DO SO, THE CORPORATION,
OR AN OFFICER OR AGENT THEREOF,
REFUSED TO ALLOW THE INSPECTION AND/OR
REPRODUCTION OR FAILED TO REPLY TO THE
WRITTEN REQUEST OR DEMAND OR THE
ORDER OF THE COMMISSION. THE COURT
MAY, AFTER SUMMARY PROCEEDINGS, ORDER
THE CORPORATION TO PERMIT THE
INSPECTION AND/OR REPRODUCTION OR
ISSUE ANY SUCH OTHER OR FURTHER RELIEF
AS IT MAY DEEM JUST AND PROPER.
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 names of
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the stockholders alphabetically arranged; the
installments paid and unpaid on all stock for which
subscription has been made, and the date of
payment of any installment; a statement of every
alienation, sale or transfer of stock made, the date
thereof, and by and to whom made; and such other
entries as the by-laws may prescribe. The stock and
transfer book shall be kept in the principal office of
the corporation or in the office of its stock transfer
agent and shall be open for inspection by any
director or stockholder of the corporation at
reasonable hours on business days.
No stock transfer agent or one engaged principally in
the business of registering transfers of stocks in
behalf of a stock corporation shall be allowed to
operate in the Philippines unless he secures a
license from the Securities and Exchange
Commission and pays a fee as may be fixed by the
Commission, which shall be renewable annually:
Provided, That a stock corporation is not precluded
from performing or making transfer of its own stocks,
in which case all the rules and regulations imposed
on stock transfer agents, except the payment of a
license fee herein provided, shall be applicable.;
PROVIDED, FURTHER, THAT THE COMMISSION
MAY (not compulsory) REQUIRE AN
INDEPENDENT TRANSFER AGENT IN THE CASE
OF STOCK CORPORATIONS WHICH TRANSFER
AND/OR TRADE STOCKS IN SECONDARY
MARKETS.
Discussion: Saan tinatago ang corporate books and
records?
Sa Principal Office.
Ang mga important information na nakalagay sa corporate
books and records can be found in the General Information
Sheet. The holding or keeping of the corporate books is
called Corporate House Keeping. Kaya every meeting dapat
nandyan talaga ang corporate secretary to record all the
agenda and agreements in the meeting called for the
purpose.
Section 75. Right to financial statements. Within
ten (10) days from receipt of a written request of any
stockholder or member, the corporation shall furnish
to him its most recent financial statement, IN THE
FORM AND SUBSTANCE OF THE FINANCIAL
REPORTING REQUIRED BY THE COMMISSION.
At the regular meeting of stockholders or members,
the board of directors or trustees shall present to such
stockholders or members a financial report of the
operations of the corporation for the preceding year,
which shall include financial statements, duly signed
and certified IN ACCORDANCE WITH THIS CODE
AND THE RULES THE COMMISSION MAY
PRESCRIBE.
However, if the TOTAL ASSETS OR TOTAL
LIABILITIES of the corporation ARE less than
P500,000.00 OR SUCH HIGHER AMOUNT AS MAY
BE LATER SET BY THE COMMISSION, the financial
statements may be certified under oath by the
CORPORATION’S INTERNAL AUDITOR, AND
SHALL BE ACCOMPANIED BY THE FURTHER
CERTIFICATION BY THE CORPORATION’S
OFFICERS AS REQUIRED UNDER SECTION 180
OF THIS CODE.
Discussion: Kailangan ba ang financial statement audited?
Look at the provision.
[18] STOCKHOLDERS AND MEMEBERS:
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
[A] RIGHTS OF STOCKHOLDER
[I] PRE-EMPTIVE RIGHT
[1] A preemptive right is a privilege that may be extended
to certain shareholders of a corporation that grants
them the right to purchase additional shares in the
company prior to shares being made available for
purchase by the general public in the event of a
seasoned offering, which is a secondary issuing of
stock shares.
[2] A preemptive right, also referred to as preemption
rights, anti-dilution provisions, or subscription rights, is
written into the contract between the stock purchaser
and the company, although a few states grant
preemptive rights as a matter of law unless specifically
negated in a company's articles of incorporation.
[3] A preemptive right does not, however, function like a
put option that gives a shareholder the right to sell back
their stock at a specified price.
All stockholders have pre-emptive rights, unless there is a
specific denial of this right in the articles of incorporation or
an amendment thereto. They shall have the right to
subscribe to the capital stock of the corporation. The Articles
of Incorporation may lay down the specific rights and powers
of shareholders with respect to the particular shares they
hold, all of which are protected by law so long as they are
not in conflict with the Corporation Code.
Discussion: When a majority shareholder of a company, or
a shareholder committing large amounts of capital to a
startup company, purchases stock shares, he often wants to
ensure his ownership interest or voting power as a
shareholder cannot be diminished or diluted by a secondary
stock offering where the company issues a substantial
amount of new shares with voting rights. By securing
preemptive rights at the time of his initial stock purchase, the
shareholder can make sure he is able to prevent any
seasoned offering from diluting his ownership percentage.
The preemptive right grants the shareholder an opportunity,
but does not confer an obligation, to buy an amount of
shares prior to a seasoned offering that is proportionate to
his existing equity ownership percentage - therefore it
operates similarly to an option, although it is more like a
right of first refusal. Here is a simple example: assume a
company's initial stock offering consists of 100 shares, and
an individual purchases 10 of the shares, giving him a 10
percent equity interest in the company. At a later point in
time, the company makes a secondary (seasoned) offering
of 500 additional shares. If the original shareholder holds a
preemptive right, he must be granted the opportunity to
purchase up to 50 shares of the new offering, which
maintains his 10 percent equity interest in the company.
MAJORITY STOCKHOLDERS OF RUBY INDUSTRIAL
CORPORATION vs. LIM
FACTS: RUBY has been experiencing severe
liquidity problem. The majority stockholders wanted to
infuse more capital into the corporation through
issuance of additional shares. Hence, the Revised
BENHAR/RUBY Rehabilitation Plan of the majority
stockholders proposed to call for subscription of
unissued shares for P11.814M. This led to the special
meeting of RUBY’s board meeting whose resolution
authorized the issuance of the unissued portion of the
authorized capital stocks of the corporation in the
form of common stocks. However, the minority
stockholders contended, among others, that they
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were not given notice as required and reasonable
time to exercise their pre-emptive rights. Hence, the
minority stockholders wanted to nullify the acts of the
majority stockholders in implementing the capital
infusion. Pre-emptive right refers to the right of a
stockholder of a stock corporation to subscribe to all
issues or disposition of shares of any class, in
proportion to their respective shareholdings. SC ruled
in favor of the minority stockholders.
ISSUE: WON the additional capital infusion is valid?
HOLDING:
[No because the issuance of additional shares was
done in breach of trust by the controlling
stockholders. Here, the majority sought to impose
their will and, through fraudulent means, attempt to
siphon off Ruby’s valuable assets to the great
prejudice of Ruby itself, as well as the minority
stockholders and the unsecured creditors.]
The SEC remained indifferent to the reliefs sought by
the minority stockholders, saying that the issue of the
validity of the additional capital infusion was belatedly
raised. Even assuming the October 2, 1991 board
meeting indeed took place, the SEC did nothing to
ascertain whether indeed, as the minority claimed:
[1] the minority stockholders were not given notice
as required and reasonable time to exercise their
pre-emptive rights; and
[2] the capital infusion was not for the purpose of
rehabilitation but a mere ploy to divest the
minority stockholders of their 40.172%
shareholding and reduce it to a mere 25.25%.
Pre-emptive right under Sec. 39 of the Corporation
Code refers to the right of a stockholder of a stock
corporation to subscribe to all issues or disposition of
shares of any class, in proportion to their respective
shareholdings. The right may be restricted or denied
under the articles of incorporation, and subject to
certain exceptions and limitations. The stockholder
must be given a reasonable time within which to
exercise their preemptive rights. Upon the expiration
of said period, any stockholder who has not exercised
such right will be deemed to have waived it.
The validity of issuance of additional shares may be
questioned if done in breach of trust by the controlling
stockholders. Thus, even if the pre-emptive right does
not exist, either because the issue comes within the
exceptions in Section 39 or because it is denied or
limited in the articles of incorporation, an issue of
shares may still be objectionable if the directors acted
in breach of trust and their primary purpose is to
perpetuate or shift control of the corporation, or to
“freeze out” the minority interest. In this case, the
following relevant observations should have signaled
greater circumspection on the part of the SEC -- upon
the third and last remand to it pursuant to our January
20, 1998 decision -- to demand transparency and
accountability from the majority stockholders, in view
of the illegal assignments and objectionable features
of the Revised BENHAR/RUBY Plan, as found by the
CA and as affirmed by this Court:
There can be no gainsaying the well-established rule
in corporate practice and procedure that the will of the
majority shall govern in all matters within the limits of
the act of incorporation and lawfully enacted by-laws
not proscribed by law. It is, however, equally true that
other stockholders are afforded the right to intervene
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
especially during critical periods in the life of a
corporation like reorganization, or in this case,
suspension of payments, more so, when the majority
seek to impose their will and through fraudulent
means, attempt to siphon off Ruby’s valuable assets
to the great prejudice of Ruby itself, as well as the
minority stockholders and the unsecured creditors.
Certainly, the minority stockholders and the
unsecured creditors are given some measure of
protection by the law from the abuses and impositions
of the majority, more so in this case, considering the
give-away signs of private respondents’ perfidy
strewn all over the factual landscape. Indeed, equity
cannot deprive the minority of a remedy against the
abuses of the majority, and the present action has
been instituted precisely for the purpose of protecting
the true and legitimate interests of Ruby against the
Majority Stockholders. On this score, the Supreme
Court, has ruled that:
“Generally speaking, the voice of the majority of the
stockholders is the law of the corporation, but there
are exceptions to this rule. There must necessarily be
a limit upon the power of the majority. Without such a
limit the will of the majority will be absolute and
irresistible and might easily degenerate into absolute
tyranny. x x x”
Lamentably, the SEC refused to heed the plea of the
minority stockholders and MANCOM for the SEC to
order RUBY to commence liquidation proceedings,
which is allowed under Sec. 4-9 of the Rules on
Corporate Recovery. Under the circumstances,
liquidation was the only hope of the minority
stockholders for effecting an orderly and equitable
settlement of RUBY’s obligations, and compelling the
majority stockholders to account for all funds,
properties and documents in their possession, and
make full disclosure on the nullified credit
assignments.
Discussion: Merong breach of trust. It was done
maliciously. Dito there is no restriction of pre-emptive right
sa AOI.
DATU TAGORANAO BENITO, PETITIONER, VS. SEC
FACTS: On February 6, 1959, the Articles of
Incorporation of respondent Jamiatul Philippine-Al
Islamia, Inc. (originally Kamilol Islam Institute, Inc.)
were filed with the Securities and Exchange
Commission (SEC) and were approved on December
14, 1962. The corporation had an authorized capital
stock of P200,000.00 divided into 20,000 shares at a
par value of P10.00 each. Of the authorized capital
stock, 8,058 shares worth P80,580.00 were
subscribed and fully paid for. Herein petitioner Datu
Tagoranao Benito subscribed to 460 shares worth
P4,600.00.
On October 28, 1975, the respondent corporation filed
a certificate of increase of its capital stock from
P200,000.00 to P1,000,000.00. It was shown in said
certificate that P191,560.00 worth of shares were
represented in the stockholders' meeting held on
November 25, 1975 at which time the increase was
approved. Thus, P110,980.00 worth of shares were
subsequently issued by the corporation from the
unissued portion of the authorized capital stock of
P200,000.00. Of the increased capital stock of
P1,000,000.00, P160,000.00 worth of shares were
subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A.
Lucman and Mrs. Moki-in Alonto.
On November 18, 1976, petitioner Datu Tagoranao
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filed with respondent Securities and Exchange
Commission a petition alleging that the additional
issue (worth P110,980.00) of previously subscribed
shares of the corporation was made in violation of his
pre-emptive right to said additional issue and that the
increase in the authorized capital stock of the
corporation from P200,000.00 to P1,000,000.00 was
illegal considering that the stockholders of record
were not notified of the meeting wherein the proposed
increase was in the agenda. Petitioner prayed that the
additional issue of shares of previously authorized
capital stock as well as the shares issued from the
increase in capital stock of respondent corporation be
cancelled; that the secretary of respondent
corporation be ordered to register the 2,540 shares
acquired by him (petitioner) from Domocao Alonto
and Moki-in Alonto; and that the corporation be
ordered to render an accounting of funds to the
stockholders.
In their answer, respondents denied the material
allegations of the petition and, by way of special
defense, claimed that petitioner has no cause of
action and that the stock certificates covering the
shares alleged to have been sold to petitioner were
only given to him as collateral for the loan of
Domocao Alonto and Moki-in Alonto.
ISSUE: W/N
[1] the issuance of the 11,098 shares without the
consent of the stockholders or of the Board of
Directors, and in the absence of consideration, is
null and void;
[2] the increase in the authorized capital stock from
P200,000.00 to P1,000,000.00 without the
consent or express waiver of the stockholders,
is null and void
HOLDING: As aptly stated by the Securities and
Exchange Commission in its decision:
xxx
... the questioned issuance of the unsubscribed
portion of the capital stock worth P110,980.00 is
' not invalid even if assuming that it was made
without notice to the stockholders as claimed by
petitioner. The power to issue shares of stocks
in a corporation is lodged in the board of
directors and no stockholders' meeting is
necessary to consider it because additional
issuance of shares of stocks does not need
approval of the stockholders. The by-laws of the
corporation itself states that 'the Board of
Trustees shall, in accordance with law, provide
for the issue and transfer of shares of stock of
the Institute and shall prescribe the form of the
certificate of stock of the Institute. (Art. V, Sec.
1).
Petitioner bewails the fact that in view of the lack of
notice to him of such subsequent issuance, he was
not able to exercise his right of pre-emption over the
unissued shares. However, the general rule is that
pre-emptive right is recognized only with respect
to new issue of shares, and not with respect to
additional issues of originally authorized shares.
This is on the theory that when a corporation at its
inception offers its first shares, it is presumed to have
offered all of those which it is authorized to issue. An
original subscriber is deemed to have taken his
shares knowing that they form a definite proportionate
part of the whole number of authorized shares. When
the shares left unsubscribed are later re-offered, he
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
cannot therefore claim a dilution of interest.
Discussion: Let's say your existing capital stock is 1 Million.
Tapos may subscribed and fully-paid kang 500. So may
certificate of stock na. Now, gusto nilang mag-increase ng
capitalization, let's say 5 Million. So all in all, magkano i-
increase nila? 4. So inincrease nila na 4, ang gagawin nila,
isususcribe nila ang remaining. 500 and a portion of 5
Million, let's say 2 Million. Now sabi ng Court, there is pre-
emptive right. Kasi if the stockholder is not notified about the
increase, they can exercise their pre-emptive right. Can they
waive it? Yes. Nangyari dito he was not notified of the
increase of the capitalization.
[II] RIGHT OF FIRST REFUSAL
Question: Is the right of pre-emption the same with right of
first refusal?
A ROFR [RIGHT OF FIRST REFUSAL] provides non-selling
shareholders with the right to accept or refuse an offer by a
selling shareholder after the selling shareholder has solicited
an offer for their shares from a third-party buyer.
The non-selling shareholders receive the selling
shareholder’s offer on the same terms as presented by the
third-party buyer. This right allows non-selling shareholders
to control the process of adding a new shareholder, while
preserving liquidity for the selling shareholder.
RIGHT OF PRE-EMPTION V. RIGHT OF FIRST REFUSAL
RIGHT OF PRE-EMPTION RIGHT OF FIRST REFUSAL
[by] default contractual: there must be an
agreement
is always attached to a
contract
It need not have a separate
consideration.
Kasi if separate
consideration, it now
becomes an option.
[III] RIGHT TO VOTE
Q: Does the government has the right to vote over the
sequestered shares? NO.
In Cojuangco vs Roxas:
d. Voting of Sequestered Stock; Conditions
Therefor
So, too, it is within the parameters of these
conditions and circumstances that the PCGG may
properly exercise the prerogative to vote
sequestered stock of corporations, granted to it by
the President of the Philippines through a
memorandum dated June 26, 1986. That
memorandum authorizes the PCGG "pending the
outcome of proceedings to determine the ownership
of . . . (sequestered) shares of stock," "to vote such
shares of stock as it may have sequestered in
corporations at all stockholders" meetings called for
the election of directors, declaration of dividends,
amendment of the Articles of Incorporation, etc." The
Memorandum should be construed in such a manner
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as to be consistent with, and not contradictory of the
Executive Orders earlier promulgated on the same
matter. There should be no exercise of the right to
vote simply because the right exists, or because the
stocks sequestered constitute the controlling or a
substantial part of the corporate voting power. The
stock is not to be voted to replace directors, or revise
the articles or by-laws, or otherwise bring about
substantial changes in policy, program of practice of
the corporation except for demonstrably weighty and
defensible grounds, and always in the context of the
stated purposes of sequestration or provisional
takeover, i.e., to prevent the dispersion or undue
disposal of the corporate assets. Directors are not to
be voted out simply because the power to do so
exists. Substitution of directors is not to be done
without reason or rhyme, should indeed be shunned
if at all possible, and undertaken only when essential
to prevent disappearance or wastage of corporate
property, and always under such circumstances as
to assure that the replacements are truly possessed
of competence, experience and probity
Discussion: The rule in this jurisdiction is, therefore, clear.
The PCGG cannot perform acts of strict ownership of
sequestered property. It is a mere conservator. It may not
vote the shares in a corporation and elect the members of
the board of directors. The only conceivable exception is in
a case of a takeover of a business belonging to the
government or whose capitalization comes from public
funds, but which landed in private hands.
[3] RIGHT TO VOTE OF PLEDGORS, MORTGAGORS,
AND ADMINISTRATORS
Sec. 55. Right to vote of pledgors, mortgagors,
and administrators. - In case of pledged or
mortgaged shares in stock corporations, the pledgor
or mortgagor shall have the right to attend and vote
at meetings of stockholders, unless the pledgee or
mortgagee is expressly given by the pledgor or
mortgagor such right in writing which is recorded on
the appropriate corporate books. (n)
Executors, administrators, receivers, and other legal
representatives duly appointed by the court may
attend and vote in behalf of the stockholders or
members without need of any written proxy. (27a)
Discussion: Bakit sila may right to vote?
Because they are still the owners of the Certificate of stock.
Pwede nila i-waive in favor of pledgee. Ito usually ginagamit
to defeat the 60-40 nationality requirement.
[4] VOTING IN CASE OF JOINT OWNERSHIP OF STOCK
Sec. 56. Voting in case of joint ownership of
stock. - In case of shares of stock owned jointly by two
or more persons, in order to vote the same, the
consent of all the co-owners shall be necessary,
unless there is a written proxy, signed by all the co-
owners, authorizing one or some of them or any other
person to vote such share or shares: Provided, That
when the shares are owned in an "and/or" capacity by
the holders thereof, any one of the joint owners can
vote said shares or appoint a proxy therefor. (n)
Discussion: May voting rights ba ang treasury shares?
Wala kasi these are owned by corporation.
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
[V] APPRAISAL RIGHT
[See 2nd exam discussion]
[VI] DERIVATIVE SUIT
A derivative suit is one commenced by a stockholder for and
in behalf of the corporation to question or enjoin a corporate
act which is prejudicial to the interest of the corporation and
the stockholder/s has left with no other remedy because the
board itself which is supposed to safeguard the interest of
the corporation refuses to act or is the one involved in the
questioned corporate act.
ANGELES VS SANTOS
FACTS: The minority group of the board of directors
in Parañaque Rice Mill, Inc. sued the majority group
alleging mismanagement, unauthorized use of funds,
and corporate sabotage. They wanted the
corporation be put under receivership and the
majority members held liable, then kicked out of the
board. The lower court ruled for the minority group
and gave them everything they wanted. Majority
members question the court’s power to terminate
them from their positions in the boardamong other
things)
ISSUE: WON it was proper for the court to order the
removal of Santos et al from their offices as
members of the board of directors of the corporation.
(NO)
HOLDING: There is ample evidence showing that
Santos et al are guilty of breach of trust as directors
of the corporation. The board of directors of a
corporation is a creation of the stockholders and
controls and directs the affairs of the corporation by
allegation of the stockholders. But the board of
directors, or the majority thereof, in drawing to
themselves the power of the corporation, occupies a
position of trusteeship in relation to the minority of
the stock in the sense that the board should exercise
good faith, care and diligence in the administration of
the affairs of the corporation and should protect not
only the interest of the majority but also those of the
minority of the stock. Where a majority of the board
of directors wastes or dissipates the funds of the
corporation or fraudulently disposes of its properties,
or performs ultra vires acts, the court, in the exercise
of its equity jurisdiction, and upon showing that
intracorporate remedy is unavailing, will entertain a
suit filed by the minority members of the board of
directors. Where corporate directors are guilty of
a breach of trust — not of mere error of judgment
or abuse of discretion — and intracorporate
remedy is futile or useless, a stockholder may
institute a suit in behalf of himself and other
stockholders and for the benefit of the
corporation, to bring about a redress of the
wrong inflicted directly upon the corporation and
indirectly upon the stockholders.
CHUA VS CA
ISSUE: Is the criminal complaint in the nature of a
derivative suit?
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HOLDING:
Under Section 3613 of the Corporation Code, read in
relation to Section 23,14 where a corporation is an
injured party, its power to sue is lodged with its board
of directors or trustees.15 An individual stockholder is
permitted to institute a derivative suit on behalf of the
corporation wherein he holds stocks in order to
protect or vindicate corporate rights, whenever the
officials of the corporation refuse to sue, or are the
ones to be sued, or hold the control of the
corporation. In such actions, the suing stockholder is
regarded as a nominal party, with the corporation as
the real party in interest.16
A derivative action is a suit by a shareholder to
enforce a corporate cause of action. The corporation
is a necessary party to the suit. And the relief which is
granted is a judgment against a third person in favor
of the corporation. Similarly, if a corporation has a
defense to an action against it and is not asserting it,
a stockholder may intervene and defend on behalf of
the corporation.17
Under the Revised Penal Code, every person
criminally liable for a felony is also civilly
liable.18 When a criminal action is instituted, the civil
action for the recovery of civil liability arising from the
offense charged shall be deemed instituted with the
criminal action, unless the offended party waives the
civil action, reserves the right to institute it separately
or institutes the civil action prior to the criminal
action.19
In Criminal Case No. 285721, the complaint was
instituted by respondent against petitioner for
falsifying corporate documents whose subject
concerns corporate projects of Siena Realty
Corporation. Clearly, Siena Realty Corporation is an
offended party. Hence, Siena Realty Corporation has
a cause of action. And the civil case for the corporate
cause of action is deemed instituted in the criminal
action.
However, the board of directors of the corporation in
this case did not institute the action against petitioner.
Private respondent was the one who instituted the
action. Private respondent asserts that she filed a
derivative suit in behalf of the corporation. This
assertion is inaccurate. Not every suit filed in behalf of
the corporation is a derivative suit. For a derivative
suit to prosper, it is required that the minority
stockholder suing for and on behalf of the corporation
must allege in his complaint that he is suing on a
derivative cause of action on behalf of the corporation
and all other stockholders similarly situated who may
wish to join him in the suit.20 It is a condition sine qua
non that the corporation be impleaded as a party
because not only is the corporation an indispensable
party, but it is also the present rule that it must be
served with process. The judgment must be made
binding upon the corporation in order that the
corporation may get the benefit of the suit and may
not bring subsequent suit against the same
defendants for the same cause of action. In other
words, the corporation must be joined as party
because it is its cause of action that is being litigated
and because judgment must be a res adjudicata
against it.21
In the criminal complaint filed by herein respondent,
nowhere is it stated that she is filing the same in
behalf and for the benefit of the corporation. Thus, the
criminal complaint including the civil aspect thereof
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could not be deemed in the nature of a derivative suit.
R.N. SYMACO TRADING CORPORATION VS.SANTOS
[G.R. NO. 142474. AUGUST 18, 2005]
HOLDING: The Court also agrees with the
petitioners’ contention that as respondent Santos
was not a legitimate MFBAI member, he had no
standing to file a derivative suit for and in its behalf.
One of the requisites of a derivative suit is that the
party bringing the suit should be a
stockholder/member at the time of the action or
transaction complained of.33 The right to sue
derivatively is an attribute of corporate ownership
which, to be exercised, requires that the injury
alleged be indirect as far as the
stockholders/members are concerned, and direct
only insofar as the corporation is concerned. The
whole purpose of the law authorizing a derivative suit
is to allow the stockholder/member to enforce rights
which are derivative (secondary) in nature. 34 A
derivative action is a suit by a shareholder/member
to enforce a corporate cause of action.35
The Court notes that several MFBAI members, like
Brigida Baustista, Jose Cruz, Constantino Lopez,
Eduardo del Rosario, Rogelio Vicente, Araceli
Banaag and Rosalinda Reyes, intervened as
plaintiffs. However, they failed to file their Brief in the
CA, which impelled the appellate court to dismiss
their appeal. The resolution of the court, likewise,
became final and executory.
The Court also agrees with the petitioners’
contention that the CA erred in ordering that all the
original members of the MFBAI should be impleaded
as parties in respondent Santos’ complaint.
Contrary to the CA ruling, all the MFBAI members
are not indispensable parties in a derivative suit. It is
enough that a member or a minority of such
members file a derivative suit for and in behalf of the
corporation. After all, the members/stockholders who
filed a derivative suit are merely nominal parties, the
real party-in-interest being the corporation itself for
and in whose behalf the suit is filed.36 Any monetary
benefits under the decision of the court shall pertain
to the corporation.37
CHUA VS TAN
HOLDING: The Court finds specious the averment of
respondents Miguel, et al., that appraisal rights were
not available to them, because appraisal rights may
only be exercised by stockholders who had voted
against the proposed corporate action; and that at
the time respondents Miguel, et al., instituted Civil
Case No. 07-610, PRCI stockholders had yet to vote
on the intended property-for-shares exchange
between PRCI and JTH. Respondents Miguel, et al.,
themselves caused the unavailability of appraisal
rights by filing the Complaint in Civil Case No. 07-
610, in which they prayed that the 11 May 2007
Resolution of the Board of Directors approving the
property-for-shares exchange between PRCI and
JTH be declared null and void, even before the said
Resolution could be presented to the PRCI
stockholders for approval or rejection. More than
anything, the argument of respondents Miguel, et al.,
raises questions of whether their derivative suit was
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prematurely filed for they had failed to exert all
reasonable efforts to exhaust all other remedies
available under the articles of incorporation, by-laws,
laws, or rules governing the corporation or
partnership, as required by Rule 8, Section 1(2) of
the IRPICC. The obvious intent behind the rule is to
make the derivative suit the final recourse of the
stockholder, after all other remedies to obtain the
relief sought have failed.
SAN MIGUEL CORPORATION VS KAHN
The bona fide ownership by a stockholder of stock in
his own right suffices to invest him with standing to
bring a derivative action for the benefit of the
corporation. The number of his shares is immaterial
since he is not suing in his own behalf, or for the
protection or vindication of his own particular right, or
the redress of a wrong committed against him,
individually, but in behalf and for the benefit of the
corporation
REYES VS. RTC
G.R. No. 165744 August 11, 2008
HOLDING:
DERIVATIVE SUIT:
Rodrigo’s bare claim that the complaint is a
derivative suit will not suffice to confer jurisdiction on
the RTC (as a special commercial court) if he cannot
comply with the requisites for the existence of a
derivative suit.
These requisites are:
[a] the party bringing suit should be a shareholder
during the time of the act or transaction
complained of, the number of shares not being
material;
[b] the party has tried to exhaust intra-corporate
remedies, i.e., has made a demand on the
board of directors for the appropriate relief, but
the latter has failed or refused to heed his plea;
and
[c] the cause of action actually devolves on the
corporation; the wrongdoing or harm having
been or being caused to the corporation and not
to the particular stockholder bringing the suit.34
Based on these standards, we hold that the
allegations of the present complaint do not amount
to a derivative suit.
[1] Rodrigo is not a shareholder with respect to the
shareholdings originally belonging to Anastacia;
he only stands as a transferee-heir whose rights
to the share are inchoate and unrecorded. With
respect to his own individually-held
shareholdings, Rodrigo has not alleged any
individual cause or basis as a shareholder on
record to proceed against Oscar.
[2] in order that a stockholder may show a right to
sue on behalf of the corporation, he must allege
with some particularity in his complaint that he
has exhausted his remedies within the
corporation by making a sufficient demand upon
the directors or other officers for appropriate
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relief with the expressed intent to sue if relief is
denied.35 Paragraph 8 of the complaint hardly
satisfies this requirement since what the rule
contemplates is the exhaustion of
remedies within the corporate setting:
8. As members of the same family,
complainant Rodrigo C. Reyes has
resorted [to] and exhausted all legal
means of resolving the dispute with the
end view of amicably settling the case,
but the dispute between them ensued.
[3] Lastly, we find no injury, actual or threatened,
alleged to have been done to the corporation
due to Oscar’s acts. If indeed he illegally and
fraudulently transferred Anastacia’s shares in
his own name, then the damage is not to the
corporation but to his co-heirs; the wrongful
transfer did not affect the capital stock or the
assets of Zenith. As already mentioned,
neither has Rodrigo alleged any particular
cause or wrongdoing against the corporation
that he can champion in his capacity as a
shareholder on record.36
In summary, whether as an individual or as a
derivative suit, the RTC – sitting as special
commercial court – has no jurisdiction to hear
Rodrigo’s complaint since what is involved is the
determination and distribution of successional
rights to the shareholdings of Anastacia Reyes.
Rodrigo’s proper remedy, under the circumstances,
is to institute a special proceeding for the
settlement of the estate of the deceased Anastacia
Reyes, a move that is not foreclosed by the
dismissal of his present complaint.
WESTERN INSTITUTE OF TECHNOLOGY, INC.,VS.
SALAS
G.R. NO. 113032 AUGUST 21, 1997
HOLDING: A derivative suit is an action brought by
minority shareholders in the name of the corporation
to redress wrongs committed against it, for which the
directors refuse to sue.12 It is a remedy designed by
equity and has been the principal defense of the
minority shareholders against abuses by the
majority.13 Here, however, the case is not a
derivative suit but is merely an appeal on the
civil aspect of Criminal Cases Nos. 37097 and
37098 filed with the RTC of Iloilo for estafa and
falsification of public document. Among the basic
requirements for a derivative suit to prosper is that
the minority shareholder who is suing for and on
behalf of the corporation must allege in his complaint
before the proper forum that he is suing on a
derivative cause of action on behalf of the
corporation and all other shareholders similarly
situated who wish to join.14 This is necessary to vest
jurisdiction upon the tribunal in line with the rule that
it is the allegations in the complaint that vests
jurisdiction upon the court or quasi-judicial body
concerned over the subject matter and nature of the
action.15 This was not complied with by the
petitioners either in their complaint before the court a
quo nor in the instant petition which, in part, merely
states that "this is a petition for review
on certiorari on pure questions of law to set aside a
portion of the RTC decision in Criminal Cases Nos.
37097 and 37098"16 since the trial court's judgment
of acquittal failed to impose any civil liability against
the private respondents. By no amount of equity
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considerations, if at all deserved, can a mere appeal
on the civil aspect of a criminal case be treated as a
derivative suit.
MARCH 01, 2019: 2/2 [Publico]
One of the powers of a corporation is to enter into a merger.
[C] REPUBLIC ACT NO. 10667 [PHILIPPINE
COMPETITION ACT]
Section 4. Definition of Terms. – As used in this
Act:
[a] Acquisition refers to the purchase of securities
or assets, through contract or other means, for
the purpose of obtaining control by:
[1] One (1) entity of the whole or part of another;
[2] Two (2) or more entities over another; or
[3] One (1) or more entities over one (1) or more
entities;
x x x
[j] Merger refers to the joining of two (2) or more
entities into an existing entity or to form a new
entity;
Even joint venture is considered as merger under the PCA
rules.
ACQUISITION THROUGH OTHER MEANS. Note that it is
not only through a contract but also through other means.
ACQUISITION BY AN ENTITY THROUGH ITS
SUBSIDIARY OR AFFILIATE. Meaning, the acquiring entity
used its subsidiary affiliate to acquire another corporation. In
that case, that is also considered as the acquisition by the
parent, the ultimate parent.
BANK OF COMMERCE VS. RADIO PHILIPPINES
NETWORK, INC.,
G.R. No. 195615 April 21, 2014
MERGER AND DE FACTO MERGER
Merger is a re-organization of two or more
corporations that results in their consolidating into a
single corporation, which is one of the constituent
corporations, one disappearing or dissolving and the
other surviving. To put it another way, merger is the
absorption of one or more corporations by another
existing corporation, which retains its identity and
takes over the rights, privileges, franchises,
properties, claims, liabilities and obligations of the
absorbed corporation(s). The absorbing corporation
continues its existence while the life or lives of the
other corporation(s) is or are terminated.
The Corporation Code requires the following steps for
merger or consolidation:
[1] The board of each corporation draws up a plan
of merger or consolidation. Such plan must
include any amendment, if necessary, to the
articles of incorporation of the surviving
corporation, or in case of consolidation, all the
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statements required in the articles of
incorporation of a corporation.
[2] Submission of plan to stockholders or members
of each corporation for approval. A meeting
must be called and at least two (2) weeks’ notice
must be sent to all stockholders or members,
personally or by registered mail. A summary of
the plan must be attached to the notice. Vote of
two-thirds of the members or of stockholders
representing two thirds of the outstanding capital
stock will be needed. Appraisal rights, when
proper, must be respected.
[3] Execution of the formal agreement, referred to
as the articles of merger o[r] consolidation, by
the corporate officers of each constituent
corporation. These take the place of the articles
of incorporation of the consolidated corporation,
or amend the articles of incorporation of the
surviving corporation.
[4] Submission of said articles of merger or
consolidation to the SEC for approval.
[5] If necessary, the SEC shall set a hearing,
notifying all corporations concerned at least two
weeks before.
[6] Issuance of certificate of merger or
consolidation.
x x x
The idea of a de facto merger came about
because, prior to the present Corporation Code,
no law authorized the merger or consolidation of
Philippine Corporations, except insurance
companies, railway corporations, and public
utilities. And, except in the case of insurance
corporations, no procedure existed for bringing about
a merger. Still, the Supreme Court held in Reyes v.
Blouse, that authority to merge or consolidate can be
derived from Section 28½ (now Section 40) of the
former Corporation Law which provides, among
others, that a corporation may "sell, exchange, lease
or otherwise dispose of all or substantially all of its
property and assets" if the board of directors is so
authorized by the affirmative vote of the stockholders
holding at least two-thirds of the voting power. The
words "or otherwise dispose of," according to the
Supreme Court, is very broad and in a sense, covers
a merger or consolidation.
x x x
In his book, Philippine Corporate Law, Dean
Cesar Villanueva explained that under the
Corporation Code, "a de facto merger can be
pursued by one corporation acquiring all or
substantially all of the properties of another
corporation in exchange of shares of stock of the
acquiring corporation. The acquiring corporation
would end up with the business enterprise of the
target corporation; whereas, the target
corporation would end up with basically its only
remaining assets being the shares of stock of the
acquiring corporation."
”that a corporation may "sell, exchange, lease or
otherwise dispose of all or substantially all of its
property and assets" if the board of directors is so
authorized by the affirmative vote of the stockholders
holding at least two-thirds of the voting power”
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Remember SLEMP. Dati yun yung kino-consider
because you have all the right to sell your assets. ‘Pag
ganun daw, it is a de facto merger. In fact, there is no
other provision for acquisitions under our corporation law
other than that – the right to sell all or substantially all
assets or properties.
Under the Corporation Code, it expressly
provides for a title on merger and consolidation. It was
retained in the RCC so it is still applicable.
Why is there a need to acquire?
M&A’s are costly and tedious. However, because
of the need of synergy, corporations still push through with
“deals.” You need to synergize because two is always better
than one (if cooperative).
Synergy is the concept that the combined value
and performance of two companies will be greater than the
sum of the separate individual parts. Synergy is a term that
is most commonly used in the context of mergers and
acquisitions (M&A). Essentially, a business will attempt to
merger with a business that has complementary strengths
and weaknesses.
TYPES OF SYNERGY
[1] REVENUE SYNERGY
Baka kung magko-combine tayo, mas malaki ang
kikitain natin as one. We bothe get the market share
and a larger company will attract more customers and
more brand awareness.
Example. Smart and Sun, lumaki lalo nung nag-merge
sila. They have eaten the market share.
COMPLEMENTARY PRODUCTS OR VERTICAL
MERGER
Example. Coffee and coffee mate. I am producing
coffee. You are producing coffee mate. Let us merge
because our products are complementary so we can
gain more revenues.
Reduced Competition
Example: Smart, Sun and Globe. Natalo na si Globe
kasi nag-merge na si Sun and Smart.
[2] COST SYNERGY
Baka naman in combining the assets of the business,
we will reduce costs and therefore, we will increase
our profits. Discounts, to be able to attract better
prices.
MARKET EFFICIENCY. Why are we doing
advertisements (instead of two)? We can streamline all
our operations so we can reduce costs.
REDUCE OVERHEAD COSTS AND OVERLAPPING
OF DEPARTMENTS NAD RESOURCES. Let us have
one HR instead of two, one production unit since we
produce the same goods.
[3] FINANCIAL SYNERGY
Why? Because kung mas malaki ka, mas malaki yung
assets, mas malaki yung pwede mong i-collateral for a
bigger amount of financing. You can borrow more than
you having to individually borrow from the bank. You
get better rates, diversification of risks and offsetting
tax losses?
Do companies merge to save on taxes? Is it ta-driven?
When you do corporate restructuring, it is always driven by
something else, by another objective. Most companies
merge because they want to tipid on taxes. Most companies
restructure because they want to avoid exposure from labor
risks.
Synergy is the driving force for mergers and
acquisitions.
It is not really tax and labor. When you construct a merger
deal, you have to consider the stages, planning, due
diligence, etc. You have to consider the potential benefits
and what are the costs. They only push through with the
deal if the potential benefit is exponentially good compared
to the cost. Otherwise, it is very costly. Of course, there are
also mergers and acquisitions that fail. We will discuss the
reasons later.
GROWTH.
Merger can give the acquiring company opportunity to grow
market share...by doing the work themselves.
Ito na yung trend ngayon – cross border merger. Let us say
I am producing cellphones but I wanted to penetrate Nigeria.
But gagawa pa ba ako ng factory doon? Why not acquire
existing telco company? Acquire ko yun then streamline our
businesses so that I would get the market share in Nigeria.
So that is growth when it comes to M&As. That is we
synergize, magko-cooperate kami so we can get the market
share.
Merger has been in existence ever since commercial world
ever existed in some or different places.
HORIZONTAL CONSOLIDATION
So you are talking about the same. This actually in relation
to monopoly yung 1897-1904. Usually, public utilities, they
are monopolized by entities. We have the Vanderbilt. For
railways, we have the famous…
Is there a difference between merger and
consolidation?
A and B, let us say mag-merge sila. Yung isa absorbed, the
other the surviving entity. This is merger, strictly speaking.
Si A and B, they become a new entity, this is consolidation.
If you have read the annotations, some of them consider
consolidation as part of merger. Kaya nga M&A, kaya nga
M&C kasi subsumed na siya doon sa merger. Kaya ganun
nag tawag. Kasi kung hindi, MCA sana.
HORIZONTAL/LATERAL.
Let us say we are producing Coke and Pepsi products. We
consolidated, form into a new entity which is RC-Cola.
INCREASE IN CONCENTRATION.
This pertains to…getting the market.
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CONGLOMERATE.
This is the acquisition of entirely different products. Let us
say, I am selling Coke. I will acquire a manufacturer of
cellphones. Totally unrelated.
RETRENCHMENT ERA.
They call it de-merger or reverse merger.
AGE OF STRATEGIC MEGA-MERGER.
This pertains to really big corporations acquiring, you have
in the States, you have the different telcos and public
utilities.
AGE OF CROSS BORDER MERGER.
Meaning, you are merging with an entity of different
jurisdiction. The legal implications became more difficult to
consider.9
If you try to look at it, mas maganda ang merger if less
regulated ang jurisdiction on monopolies and cartels. The
more regulated, mas mahirap mag-merge. There’s a
reduction of 8% because almost all the jurisdiction have
their own laws on competition. They have determined that it
is not really beneficial on markets. It is beneficial for the
corporation. It increases the shareholder value but it does
not increase the services given to the public.
Let us say, isa lang ang nagpo-produce ng cellphone.
Would there be a motivation to innovate? Wala because
there is no competition. There is no motivation to innovate.
There is no efficiency or increase thereto.
Uruguay is the leading country on the growth of M&As. Also,
New Zealand. These countries are less regulated. The
Philippines has a decrease of -14% because of the
Philippine Competition Commission (PCC). From 1985, the
trend is increasing. You have read mega-merger. In fact.
This is now a sub-specialty in law, M&As. It is not even the
same with corporation law. It is different.
BASIC LEGAL FORMS OF ACQUISITIONS
MERGER OR CONSOLIDATION. In strict merger, there is a
surviving entity. In consolidation, there is a new entity.
There can also be acquisition if there is ACQUISITION OF
STOCKS AND ASSETS. Some only considers acquisition if
inacquire yung assets then there is control kasi eventually
they become owners of the majority of the shares. That is
the traditional way of acquisition.
But, the trend now is that they do not really care of the
shares, but the assets. So pwede naman i-acquire nila is
assets, not the shares.10
Acquisition could be share purchase of business purchase.
Under business purchase, it could be itemized sale or lump-
sum sale. For capital report, it could be buy-back and capital
reduction.
9
*presentation of heat map on global merger
10
***introduction to corporate structuring
We have merger and de-merger. Amalgamation is another
term for consolidation. We have de-merger in relation to
spin-offs.
SPIN-OFF
What is a spin-off?
Spin-off is that if you have a department, gagawin mo siyang
separate entity. Let us say, SM, I have my grocery. Gagawin
ko siyang separate entity. It is a concept of de-merger. The
concept of merger is combining. But here, dumami kayo.
“A spin-off has the opposite effect of merger or
consolidation, whereby a department, division or
portions of the corporate business enterprise is
sold-off or assigned into a new corporation that will
arise by the process which may constitute it into a
subsidiary of the original corporation.
It exists when a parent corporation organizes a
subsidiary, to which the parent corporation transfers
parts of its assets to a new corporation and stock of
transferee is distributed to shareholders of
transferor without surrender by them of stock in
transferor.”
MARCH 02, 2019: 1/2 [Masanguid]
Consolidation is subsumed under the definition of merger.
Basically when you acquire, the very common is share
purchase.
What is that? That is acquiring the shares of the corporation.
Bilhin mo yung shares then you get a control over the
corporation. Meron ding business purchase. Either it could
be a lump-sum sale or itemize sale. Sometimes, instead of
purchasing the shares, yung assets na lang ang binibili. Kasi
somehow, when you want to control a corporation, you have
to have control over the assets. Meron ding iba na they buy
the shares first in order to contol the assets. What is the
rationale? Kasi minsan mahirap i-convince ang stockholders
to sell their shares. Another reason is to avoid restrictions
(for foreigners).
CAPITAL REORGANIZATION
[1] BUY BACK
An example of buy back is you buy the shares os the
stockholders. You buy them back. To increase the
value of these shares from their original value.
What is Reverse Stock Split?
A reverse stock split is a type of corporate action in
which a company reduces the total number of
its outstanding shares in the open market. A reverse
stock split involves the company dividing its existing
total quantity of shares by a number such as five or ten,
which would then be called a 1-for-5 or 1-for-10 reverse
split, respectively. A reverse stock split is also known as
a stock consolidation, stock merge or share rollback
and is the opposite exercise of stock split where a share
is divided (split) into multiple parts.
Now, bakit usually pinipili ang Buy Back than Stock
Split? Kasi in Stock Split, wala masyadong impact sa
economy. The value of these shares remains. At may
ibang shares na detrimental to the market. Market
works for both Quantitative and Qualitative Information.
Hindi lang puro lang finances ang ibibigay mo sa
market kailangan din ang information.
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[2] CAPITAL REDUCTION
Capital reduction is the process of decreasing a
company's shareholder equity through share
cancellations and share repurchases, also known as
share buybacks. The reduction of capital is done by
companies for numerous reasons, including increasing
shareholder value and producing a more
efficient capital structure. After a capital reduction, the
number of shares in the company will decrease by the
reduction amount. While the company's market
capitalizationwill not change as a result of such a move,
the float, or number of shares outstanding and available
to trade, will be reduced.
Caveat: Itong Capital Reduction will not be easily
approved by the SEC. You have to prove that it is done
not to defraud the creditors.
[3] MERGER and DEMERGER
A merger is the voluntary fusion of two companies on
broadly equal terms into one new legal entity. The firms
that agree to merge are roughly equal in terms of size,
customers, scale of operations, etc. For this reason, the
term "merger of equals" is sometimes used.
A de-merger is a corporate restructuring in which a
business is broken into components, either to operate
on their own, to be sold or to be liquidated. A de-merger
(or "demerger") allows a large company, such as
a conglomerate, to split off its various brands or
business units to invite or prevent an acquisition, to
raise capital by selling off components that are no
longer part of the business's core product line, or to
create separate legal entities to handle different
operations.
[4] SPIN-OFF
A spinoff is the creation of an independent company
through the sale or distribution of new shares of an
existing business or division of a parent company. A
spinoff is a type of divestiture. The spun-off companies
are expected to be worth more as independent entities
than as parts of a larger business. A spinoff is also
known as a spin out or starbust.
How it works? When a corporation spins off a business
unit that has its own management structure, it sets it up
as an independent company under a renamed business
entity. The company that initiates the spinoff is referred
to as the parent company. A spinoff retains its assets,
employees, and intellectual property from the parent
company, which gives it support in a number of ways,
such as investing equity in the newly formed firm and
providing legal, technology or financial services.
RATIONALE OF SPIN-OFF:
A spinoff may occur for various reasons. A company
may conduct a spinoff so it can focus its resources and
better manage the division that has more long-term
potential. Businesses wishing to streamline their
operations often sell less productive or
unrelated subsidiary businesses as spinoffs. For
example, a company might spin off one of its mature
business units that are experiencing little or no growth
so it can focus on a product or service with higher
growth prospects. Alternatively, if a portion of the
business is headed in a different direction and has
different strategic priorities from the parent company, it
may be spun off so it can unlock value as an
independent operation.
MERGER AND ACQUISITION PROCESS
[1] FORMULATE:
You research both the quantitative and qualitative
aspects. Lawyers and business development
managers usually do this.
[2] LOCATE:
You have to locate saan ba talaga pwede.
[3] INVESTIGATE
[4] NEGOTIATE:
Here, medyo matagal. Kasi may iba-iba kayong terms
and conditions kaya long ang process ng negotiation.
LEGAL IMPLICATIONS OF MERGERS AND
ACQUISITION
You have to consider the 1. Corporation Law of that
specific jurisdiction. Consider BOTH Corporation Codes
of the companies for Merger and Acqusition.
Also consider the 2. Employment Law. Kasi usually the
people working will be transferred. We now call it Human
Capital or Human Resources. Even in transferring, you need
clearance from NLRC and DOLE. that there is no diminution
of benefits.
[3] REGULATION AND REGULATORY POWERS
(see Philippine Competition Act)
A hostile takeover occurs when one corporation, the
acquiring corporation, attempts to take over another
corporation, the target corporation, without the
agreement of the target corporation’s board of
directors.
A friendly takeover occurs when one corporation
acquires another with both boards of directors
approving the transaction. There is agreement. Most
takeovers are friendly, but hostile takeovers and
activist campaigns have become more popular lately
with the risk of activist hedge funds.
A hostile takeover is usually accomplished by a tender
offer or a proxy fight. In a tender offer, the corporation
seeks to purchase shares from outstanding
shareholders of the target corporation at a premium to
the current market price. This offer usually has a
limited time frame for shareholders to accept. The
premium over the market price is an incentive for
shareholders to sell to the acquiring corporation. The
acquiring company must file a Schedule TO with the
SEC if it controls more than 5% of a class of the target
corporation’s securities. Often, target corporations
acquiesce to the demands of the acquiring corporation
if the acquiring corporation has the financial ability to
pull off a tender offer.
Question: Bakit walang hostile merger, only take
over?
Kasi in essence, merger has to be friendly. Kailangan
may agreement.
When it comes to acquisitions or take overs, it can be
hostile. Kasi hindi na man kailangan ng consent ng
acquired eh.
Sa hostile acquisitions, ang pwede gawin ng acquired
is to merge with another company of their choice. It is
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called the White Knight. A white knight is an individual
or company that acquires a corporation on the verge of
being taken over by an unfriendly bidder/acquirer,
otherwise known as a black knight. Although the target
company does not remain independent, acquisition by
a white knight is still preferred to a hostile takeover.
Unlike a hostile takeover, current management
typically remains in place in a white knight scenario,
and investors receive better compensation for their
shares.
LIFE CYCLE OF MERGER AND ACQUISITION
What is the life cycle of Merger and Acquisition?
First ano ba ang reason behind M(erger) and A(cquisition)?
Synergy: the interaction or cooperation of two or more
organizations, substances, or other agents to produce a
combined effect greater than the sum of their separate effects.
Before M and A, there must be a study or what we call
feasibility study. we have,
[1] Pre-Merger Negotiation.
Sometimes, sa bug companies may outsourcing. If may
Officer or Director sa other companies na magaling mag-
PR then they will hire him or her for the pre-merger
negotiation.
[2] Contract Formulation
[3] Deal Implementation
[4] Commissioning
[5] Post implementation feedback
Once approved, there are lot of things to consider. This is very
tedious. Without adequate planning your merger could fail
miserably.
Why do some M and As fail?
[1] There is inability to agree with the terms. No meeting of
the minds.
[2] Overestimation of the throw value of the market. You
have to consider due diligence on both sides.
[3] Synergy is not practicable. Dapat feasible.
[4] External change. If there is a change in law.
[5] Inability to implement change. Consider the cultural
differences.
[6] Failure to achieve technological fit.
[7] Conflicting Culture
Now that is an overview. Now let's go to the legal provisions of
M and As.
For you to have M and As, you have to draft a plan.
What are the terms and mode? Mode can be shares or
shares plus paid in capital. It could be an average buy out.
Do you need approval of the members and BODs/BOTs?
Section 77. Stockholder’s or member’s approval.
– Upon approval by majority vote of each of the
board of directors or trustees of the constituent
corporations of the plan of merger or
consolidation, the same shall be submitted for
approval by the stockholders or members of each
of such corporations at separate corporate
meetings duly called for the purpose. Notice of
such meetings shall be given to all stockholders or
members of the respective corporations IN THE
SAME MANNER AS NOTICE OF REGULAR OR
SPECIAL MEETINGS UNDER SECTION 51. Said
notice shall state, IN ADDITION TO THE
REQUIREMENTS FOR NOTICE OF REGULAR OR
SPECIAL MEETINGS UNDER SECTION 51, the
purpose of the meeting and shall include a copy or a
summary of the plan of merger or consolidation. The
affirmative vote of stockholders representing at
least two-thirds (2/3) of the outstanding capital
stock of each corporation in the case of stock
corporations or at least two-thirds (2/3) of the
members in the case of non-stock corporations
shall be necessary for the approval of such plan.
Any dissenting stockholder in stock corporations may
exercise his appraisal right in accordance with the
Code: Provided, That if after the approval by the
stockholders of such plan, the board of directors
decides to abandon the plan, the appraisal right shall
be extinguished.
Example: Company X and Y
Assets:1,000
Liability: 500
Value: 500
I-aacquire sya through shares. So ang value yan ang
consideration. So pwedeng bayaran through cash. Or it can
be a portion only. Let's say 200. Ang 300 i-loloan ko. And
there would be collateral over the assets. That is Leverage
Buy Out.
What should be in the Articles of M and As?
Section 78. Articles of merger or consolidation. –
After the approval by the stockholders or members as
required by the preceding section, articles of merger
or articles of consolidation shall be executed by each
of the constituent corporations, to be signed by the
president or vice-president and certified by the
secretary or assistant secretary of each corporation
setting forth:
[1] The plan of the merger or the plan of
consolidation;
[2] As to stock corporations, the number of shares
outstanding, or in the case of non-stock
corporations, the number of members; and
[3] As to each corporation, the number of shares or
members voting for and against such plan,
respectively.
[4] THE CARRYING AMOUNTS AND FAIR
VALUES OF THE ASSETS AND LIABILITIES OF
THE RESPECTIVE COMPANIES AS OF CUT-
OFF DATE AGREED BY THE PARTIES;
[5] THE METHOD THAT WILL BE USED IN THE
MERGER OR CONSOLIDATION OF
ACCOUNTS OF THE COMPANIES;
[6] THE PROVISIONAL OR PRO-FORMA VALUES,
AS MERGED OR CONSOLIDATED, USING THE
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ACCOUNTING METHOD; AND
[7] SUCH OTHER INFORMATION AS MAY BE
PRESCRIBED BY THE COMMISSION.
Please take note that Articles of Merger and Plan of Merger
are different from each other.
Also take note of the agreed cut-off.
When is the merger or consolidation effective?
Section 79. Effectivity of merger or
consolidation. – The articles of merger or of
consolidation, signed and certified as herein
above required, shall be submitted to the
Commission in quadruplicate for its approval:
Provided, That in the case of merger or
consolidation of banks or banking institutions,
building and loan associations, trust companies,
insurance companies, public utilities, educational
institutions and other special corporations
governed by special laws, the favorable
recommendation of the appropriate government
agency shall first be obtained. ; PROVIDED,
FURTHER, THAT THE SUBMISSION OF
ARTICLES OF MERGER OR CONSOLIDATION,
IN THE FORM OF AN ELECTRONIC
DOCUMENT, SHALL BE IN ACCORDANCE
WITH THE RULES AND REGULATIONS OF
THE COMMISSION ON THE USE OF
ELECTRONIC DATA MESSAGES. If the
Commission is satisfied that the merger or
consolidation of the corporations concerned
is not inconsistent with the provisions of this
Code and existing laws, it shall issue a
certificate of merger or of consolidation, at
which time the merger or consolidation shall
be effective. If, upon investigation, the
Commission has reason to believe that the
proposed merger or consolidation is contrary to
or inconsistent with the provisions of this Code or
existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be
heard. Written notice of the date, time and place
of hearing shall be given to each constituent
corporation at least two (2) weeks before said
hearing. The Commission shall thereafter
proceed as provided in this Code.
Pwede bang mauna ang Certificate of Merger sa Articles of
Merger? Diba dili? The basis of the issuance of Certificate of
Merger is ang Articles of Merger.
Now here is the problem: The merger is effective kapag may
issuance of the Certificate of Merger. But please remember
you agreed with the cut-off date. In other words, there are
changes in between these dates. What if naiba ang result.
Sa agreed Cut off may net assets of 1,000, but nalugi pala
kay nasunogan.
Question: What if the heirs of the namatay na member sa
absorbed corporation will file a claim against the absorbed
corporation? So sabihin ng absorbed, wala na, cut-off na sa
surviving corporation ka na magclaim, pwede ba yun?
Ang surviving naman sasabihin, wala pa man kami na-
issuehan ng Certificate of Merger. So hindi pa kami liable.
Pano na?
SEC OPINION JUNE 15, 2004:
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
In the exercise of supervisory function over company,
partnership, registered with the Commission, the
Corporation Code must be given a liberal interpretation that
will best execute its purpose.
Now, even if the provision says that the merger will be
effective only upon the issuance of the Cert of Merger, it is
the cut-off date which is controlling. The agreement of the
parties will prevail.
MARCH 02, 2019: 2/2 [Vallente]
SCOPE AND APPLICATION
Section 3. Scope and Application. — This Act shall
be enforceable against any person or entity engaged in
any trade, industry and commerce in the Republic of
the Philippines. It shall likewise be applicable to
international trade having direct, substantial, and
reasonably foreseeable effects in trade, industry, or
commerce in the Republic of the Philippines, including
those that result from acts done outside the Republic
of the Philippines.
This Act shall not apply to the combinations or
activities of workers or employees nor to agreements
or arrangements with their employers when such
combinations, activities, agreements, or arrangements
are designed solely to facilitate collective bargaining in
respect of conditions of employment.
“…shall be enforceable against any person or entity
engaged in any trade, industry and commerce in the
Republic of the Philippines. It shall likewise be
applicable to international trade having direct,
substantial, and reasonably foreseeable effects in trade,
industry, or commerce in the Republic of the
Philippines, including those that result from acts done
outside the Republic of the Philippines.”
In other words, it has an iota of extraterritoriality. It still
has its penal sanctions over international trade having
direct, substantial, and reasonably foreseeable effects in
trade, industry, or commerce in the Philippines.
As to the execution of that, that is another question. How
can they execute that na wala namang tao doon. Can
they arrest the officers na wala naman dito. Diba hindi.
The most that they can do is to blacklist. In the event that
they would come in the Philippines, they are already
blacklisted. They cannot penetrate the market of the
Philippines. Most of the criminal sanctions in different
jurisdictions tend to have that (blacklisting).
“This Act shall not apply to the combinations or
activities of workers or employees nor to agreements or
arrangements with their employers when such
combinations, activities, agreements, or arrangements
are designed solely to facilitate collective bargaining in
respect of conditions of employment.”
CBA. Kasi anti-competitive din naman ‘yang mga CBA. It
is so pro-labor to the fact that it curtails business. You
have your recently approved longer maternity leave.
Would businesses hire females than males? If you want
to make a policy, you have to consider all sectors. You
cannot make a policy that is one-sided. Walang
discrimination but do you think i-hihire talaga nila?
Employers have the freedom to choose the employees.
Pwede naman sabihin nila na open to all but at the time
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that they selected, ise-segregate nila yung mga babae
sa mhga lalaki. They would hire the lalaki over the
babae. Kasi anung mangyayari kung sabay-sabay
nagbubuntisan? Wala ng tao.
ANTI-COMPETITIVE AGREEMENTS
Section 14. Anti-Competitive Agreements. –
[a] The following agreements, between or among
competitors, are per se prohibited:
[1] Restricting competition as to price, or
components thereof, or other terms of
trade;
[2] Fixing price at an auction or in any form of
bidding including cover bidding, bid
suppression, bid rotation and market
allocation and other analogous practices
of bid manipulation;
[b] The following agreements, between or among
competitors which have the object or effect of
substantially preventing, restricting or
lessening competition shall be prohibited:
[1] Setting, Kmiting, or controlling production,
markets, technical development, or
investment;
[2] Dividing or sharing the market, whether by
volume of sales or purchases, territory,
type of goods or services, buyers or
sellers or any other means;
[c] Agreements other than those specified in (a)
and (b) of this section which have the object or
effect of substantially preventing, restricting or
lessening competition shall also be prohibited:
Provided, Those which contribute to improving
the production or distribution of goods and
services or to promoting technical or economic
progress, while allowing consumers a fair
share of the resulting benefits, may not
necessarily be deemed a violation of this Act.
An entity that controls, is controlled by, or is under
common control with another entity or entities, have
common economic interests, and are not otherwise
able to decide or act independently of each other,
shall not be considered competitors for purposes of
this section.
xxx
[a] The following agreements, between or among
competitors, are per se prohibited…”
Note that these are “per se” prohibited and
between or among competitors. Hindi pwede ‘yung
magka-iba ang mga products.
xxx
[1] Restricting competition as to price, or components
thereof, or other terms of trade;
[2] Fixing price at an auction or in any form of bidding
including cover bidding, bid suppression, bid
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
rotation and market allocation and other
analogous practices of bid manipulation;
Q: Is this the only law that provides for penal
sanctions anti-competition?
A: No. We have the RPC. This gives details of
what consists that penal sanction.
Kaya kung meron kang nagawa na anti-competitive
agreement, you can be liable under this law and
the RPC, because these are different laws.
The first two is per se prohibited.
“(b) The following agreements, between or among
competitors which have the object or effect of
substantially preventing, restricting or lessening
competition shall be prohibited:”
The first two mentioned are per se prohibited but
under this, when the agreements have the object or
effect of substantially preventing, restricting or
lessening competition (SLC), that is the only time that
it is prohibited. So there is a condition.
What are these acts?
[1] Setting, Kmiting, or controlling production,
markets, technical development, or investment;
[2] Dividing or sharing the market, whether by
volume of sales or purchases, territory, type of
goods or services, buyers or sellers or any other
means;”
“xxx (c) Agreements other than those specified in (a)
and (b) of this section which have the object or effect of
substantially preventing, restricting or lessening
competition shall also be prohibited:”
In other words, if hindi siya mapasok sa 1 and 2, it can
only be prohibited if it has the effect of substantially
preventing, restricting or lessening competition.
“Provided, those which contribute to improving the
production or distribution of goods and services or to
promoting technical or economic progress, while
allowing consumers a fair share of the resulting
benefits, may not necessarily be deemed a violation of
this Act.”
It’s a double negative. May act which is not number 1
and 2, because number 1 and 2 are per se prohibited,
then you have to question “Is it substantially
preventing, restricting or lessening competition?”
If no, hindi prohibited, if yes, you have to question now
“Does it contribute to improving the production or
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distribution of goods and services or to promoting
technical or economic progress, while allowing
consumers a fair share of the resulting benefits?”
If the answer is yes, it cannot be prohibited. But if the
answer is no, that’s the only time that it could be
prohibited.
Illustration:
In other words, it is only 1 and 2 that is per se prohibited.
Pag hindi 1 or 2, depende.
ABUSE OF DOMINANT POSITION
Section 15. Abuse of Dominant Position. – It shall be
prohibited for one or more entities to abuse their
dominant position by engaging in conduct that would
substantially prevent, restrict or lessen
competition:
[a] Selling goods or services below cost with the
object of driving competition out of the relevant
market: Provided, That in the Commission’s
evaluation of this fact, it shall consider whether
the entity or entities have no such object and the
price established was in good faith to meet or
compete with the lower price of a competitor in
the same market selling the same or comparable
product or service of like quality;
[b] Imposing barriers to entry or committing acts that
prevent competitors from growing within the
market in an anti-competitive manner except
those that develop in the market as a result of or
arising from a superior product or process,
business acumen, or legal rights or laws;
[c] Making a transaction subject to acceptance by
the other parties of other obligations which, by
their nature or according to commercial usage,
have no connection with the transaction;
[d] Setting prices or other terms or conditions that
discriminate unreasonably between customers or
sellers of the same goods or services, where
such customers or sellers are
contemporaneously trading on similar terms and
conditions, where the effect may be to lessen
competition substantially: Provided, That the
following shall be considered permissible price
differentials:
[1] Socialized pricing for the less fortunate
sector of the economy;
[2] Price differential which reasonably or
approximately reflect differences in the
cost of manufacture, sale, or delivery
resulting from differing methods, technical
conditions, or quantities in which the goods
or services are sold or delivered to the
buyers or sellers;
[3] Price differential or terms of sale offered in
response to the competitive price of
payments, services or changes in the
facilities furnished by a competitor; and
[4] Price changes in response to changing
market conditions, marketability of goods
or services, or volume;
[e] Imposing restrictions on the lease or contract
for sale or trade of goods or services
concerning where, to whom, or in what forms
goods or services may be sold or traded, such
as fixing prices, giving preferential discounts or
rebate upon such price, or imposing conditions
not to deal with competing entities, where the
object or effect of the restrictions is to prevent,
restrict or lessen competition
substantially: Provided, That nothing contained
in this Act shall prohibit or render unlawful:
[1] Permissible franchising, licensing,
exclusive merchandising or exclusive
distributorship agreements such as those
which give each party the right to
unilaterally terminate the agreement; or
[2] Agreements protecting intellectual
property rights, confidential information,
or trade secrets;
[f] Making supply of particular goods or services
dependent upon the purchase of other goods
or services from the supplier which have no
direct connection with the main goods or
services to be supplied;
[g] Directly or indirectly imposing unfairly low
purchase prices for the goods or services of,
among others, marginalized agricultural
producers, fisherfolk, micro-, small-, medium-
scale enterprises, and other marginalized
service providers and producers;
[h] Directly or indirectly imposing unfair purchase
or selling price on their competitors, customers,
suppliers or consumers, provided that prices
that develop in the market as a result of or due
to a superior product or process, business
acumen or legal rights or laws shall not be
considered unfair prices; and
[i] Limiting production, markets or technical
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development to the prejudice of consumers,
provided that limitations that develop in the
market as a result of or due to a superior
product or process, business acumen or legal
rights or laws shall not be a violation of this
Act:
Provided, That nothing in this Act shall be construed
or interpreted as a prohibition on having a dominant
position in a relevant market or on acquiring,
maintaining and increasing market share through
legitimate means that do not substantially prevent,
restrict or lessen competition:
Provided, further, That any conduct which
contributes to improving production or distribution of
goods or services within the relevant market, or
promoting technical and economic progress while
allowing consumers a fair share of the resulting
benefit may not necessarily be considered an abuse
of dominant position:
Provided, finally, That the foregoing shall not
constrain the Commission or the relevant regulator
from pursuing measures that would promote fair
competition or more competition as provided in this
Act.
[a] Selling goods or services below cost with the
object of driving competition out of the relevant
market…”
‘Yung mga cut-throat competition. I will lessen to a
price na to the point di mo na kayang tapatan.
“Provided, That in the Commission’s evaluation of this
fact, it shall consider whether the entity or entities have
no such object and the price established was in good
faith to meet or compete with the lower price of a
competitor in the same market selling the same or
comparable product or service of like quality;”
There could be abuse of dominant position if you lower
your cost or price. But if the object was in good faith
and for the purpose of selling the same in the market,
that cannot be considered as abuse of dominant
position.
[b] Imposing barriers to entry or committing acts that
prevent competitors from growing within the
market in an anti-competitive manner except those
that develop in the market as a result of or arising
from a superior product or process, business
acumen, or legal rights or laws;”
Q: What do you think is a classic example of a barrier?
A: Sobrang taas ng capitalization. That’s a barrier!
TELCO. Pagpapasok sa TELCO, you need trillions of
money. That is a barrier of entry. Pero hindi siya per se
prohibited unless [mahulog sa 1 and 2].
[c] Making a transaction subject to acceptance by the
other parties of other obligations which, by their
nature or according to commercial usage, have no
connection with the transaction;”
Yung ipapa-alam mo pa sa competitors, yung may
cartel, that they have to agree. That is an example.
[d] Setting prices or other terms or conditions that
discriminate unreasonably between customers or
sellers of the same goods or services, where such
customers or sellers are contemporaneously
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
trading on similar terms and conditions, where the
effect may be to lessen competition substantially:”
There can only be abuse of dominant position if your
criteria in determining such is SLC- kung meron ba
talaga siyang SLC.
[Sir just read the rest of the Section 15]
Exceptions: Paragraph A (2) (h) and (i) [Sir’s
numbering: Par. A (2) (8) and (9)]
The concerned entity invoking the exception shall
clearly establish in the Commission’s satisfaction that
the barrier to entry or the anti-competitive act is an
indispensable and natural result of a superior product or
process, business acumen or legal rights or laws shall
not be considered unfair prices.
May barriers to entry na…
[h] Directly or indirectly imposing unfair purchase or
selling price on their competitors, customers,
suppliers or consumers, provided that prices that
develop in the market as a result of or due to a
superior product or process, business acumen or
legal rights or laws shall not be considered unfair
prices; and
[i] Limiting production, markets or technical
development to the prejudice of consumers,
provided that limitations that develop in the market
as a result of or due to a superior product or
process, business acumen or legal rights or laws
shall not be a violation of this Act:
If you prove na is an indispensable and natural result of
a superior product or process, business acumen or
legal rights or laws, that cannot be considered as abuse
of dominant position.
For example you have a technology that can make
somebody fall in love. Ofcourse hindi ka naman kayang i-
compete ng ibang competitor, so there’s a barrier to entry.
That is presumed to be anti-competitive. But if you have
proven to the Commission that this is because of our
developed technology or enhanced product, not because we
would want to really bar the entry to this market, that cannot
be considered as anti-competitive. It cannot be considered
as an abuse of dominant position. This is because you have
proven that such is a result of a superior product or process,
business acumen or legal rights or laws, as a result of your
patented invention. It cannot be considered as a barrier to
entry, hence, it cannot be considered as abuse of dominant
position.
Ang ginagawa niyan, ni-rereview ng Philippine Competition
Commission (PCC). If you have a merger or acquisition, you
have to check kasi meron silang mandatory threshold.
Kapag papasok ka sa mandatory, you have to notify them.
Then, they will review. Kung sasabihin nila na hindi naman
to anti-competitive, hindi naman to abuse of dominant
position. They would approve the merger and acquisition.
But if they say na this will result to SLC, ang sasabihin nila
you may continue but please provide this as a condition,
unless nalang kung prohibited. That is the mandate of the
PCC- they have the right to review merger and acquisitions.
MERGER AND ACQUISITIONS
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
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Section 1. Review of mergers and acquisitions.-
The Commission, motu proprio or upon notification as
provided under these Rules, shall have the power to
review mergers and acquisitions having a direct,
substantial and reasonably foreseeable effect on
trade, industry, or commerce in the Philippines, based
on factors deemed relevant by the Commission.
In conducting the review, ang criteria lang nila talaga is if it
is likely to SLC the relevant market for goods and services
to be determined by the Commission. And they would take
into account any substantiated efficiencies put forward by
the parties to the proposed merger or acquisition, which are
likely to arise from the transaction.
Situation: You have a plan of merger and acquisition. You
have to ask, kailangan ko ba mag notify sa PCC? We will
discuss the threshold kung ano yung mandatory
qualification. If the answer is yes, you have to go to Phase
1, which is review of the PCC. If hindi mo kailangan mag-
notify, then go ahead sa merger and acquisition. Now dito
tayo sa review. Si PCC ise-set niya. Kung ikaw ang client,
you really have to prove that there is no SLC. Si PCC hindi
yan siya bigla mag-gigive up. Mag evaluate na siya based
lang sa imong ihatag na documents. Ang gawin ni PCC,
magtan-aw nan a siya og news. Kung mu-ingon ka nga na
you will get only 60% of company X, pero nagpa-presscon
ka unya you will get 100% control of company X diay, i-
coconsider yan ng PCC.
The results of the review is confidential. Kasi they would
have access to trade secrets. Kasi titingnan nila yung
technology, ‘yung lahat. ‘Yan ang gagawin ni PCC.
Now if they say na di naman to anti-competitive, they will
proceed to Phase 2. Eton a ‘yung in depth. Economic na to
sya. They will compare with the relevant market. Kunwari
may Jollibee dito sa Davao. Kunwari magtatayo ka ng
“Chicken Joy”. Tapos ‘yung chicken joy mo mas masarap, i-
cocompare nila yan sa relevant market. So they would
consider Davao, and other applicable factors, yung
ingredients mo, etc. Kung sabihin nila na hindi siya SLC,
then go ahead.
Q: Pag sabihin nila na may SLC, can they prohibit?
A: No. Hindi nila ipro-prohibit yan. Ang gagwin nila, yes go
ahead provided that may conditions.
Q: Pwede bang sabihin na di naman na wala ang conditions
kasi may enhanced or may gains in efficiencies?
A: The burden of proof in proving that there is gain and
efficiencies is on the applicant. Pag ma prove nila na there
is gain and efficiency, despite the fact that it will result to
SLC, then the PCC will approve you application.
Kung tan-awon nimo tanan, mag boil down siya kung
mandatory ang notification. So kung ako ang abogado, i-
ensure nako na dili siya muabot sa threshold. Para sili nako
mag undergo sa process. Dili na nako kailangan i-notify.
But take note that PCC has “motu proprio”… can review any
entities. So pag hindi ka dumaan sa kanila, pag kita nila na
“Oy, let’s check this.” What happened to grab and uber?
They didn’t notify. Pag tiningnan mo si Grab and uber,
sobrang baba ng total assets. So hindi siya under the
mandatory. Pero ang ultimate parent niya, ‘dun ang
malaking kita. So pag-tingin doon, they notified and
penalized grab.
NOTIFYING ENTITIES
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
SECTION 2. Notifying entities.
[a] Parties to a merger or acquisition that satisfy
the thresholds in Section 3 of this Rule are
required to notify the Commission before the
execution of the definitive agreements relating
to the transaction.
[b] If notice to the Commission is required for a
merger or acquisition, then all acquiring and
acquired pre-acquisition ultimate parent entities
or any entity authorized by the ultimate parent
entity to file notification on its behalf must each
submit a Notification Form (the “Form”) and
comply with the procedure set forth in Section
5 of this Rule. The parties shall not
consummate the transaction before the
expiration of the relevant periods provided in
this Rule.
[c] In the formation of a joint venture (other than in
connection with a merger or consolidation), the
contributing entities shall be deemed acquiring
entities, and the joint venture shall be deemed
the acquired entity.
“xxx (a) Parties to a merger or acquisition that satisfy
the thresholds”
‘yun lang yung mandatory entities which are required to
notify the Commission.
“…before the execution of the definitive agreements
relating to the transaction.”
I have a personal experience on this kasi may minerge
ako na company, there was yet no PCC. Tapos nag
plan of merger na kami, nag execute na kami ng kung
anu-ano, then you have to provide long and short term
financial statements, nag pa-audit na, tapos biglang na-
implement ang IRR. Ang sabi dapat i-determine muna
baka mag-qualify doon sa mandatory entities for
notification. Ang sabi ko “sir, kung hihintayin ko pa na
mag-notify kayo, mapapaso na ‘yung financial
statements, ksi dapat at least 6 months up to the plan of
merger. If I will wait for you to review the documents, I
will have to re-audit again. It will be another expense.
Tapos hindi naman mag-quaqualify dun sa mandatory
notification. Pwede bang hindi na kami dumaan sa
inyo?” But pag pumunta ka naman sa SEC, they will not
approve the merger if you have no clearance from the
PCC. So part na siya ng requirement.
The problem with the IRR is that there is no remedy for
a merger or acquisition of entities that do not need to
notify. Tingnan mo sa rules, di naman sila nagsabi na
you do not need to notify.
Paano kung di ka mag-qualify doon sa threshold. Ano
ang ipapakita mo sa SEC? Anon a document ang
ipapakita kung di naman magsasabi ang PCC na “hey,
you don’t need to notify.” Ang ginawa naming, gumawa
kami ng letter na pina-receive lang naming sa PCC then
yun na yung sinubmit naming kay SEC. Pumayag
naman si SEC.
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But the reason talaga bakit ayaw gumawa ng definite
ruling ng PCC saying you are not required to notify, kasi
kung gagawa sila nyan tapos later on meron ka palang
tinatago kang information, tapos subject ka pala for
notification, then you can use that against the PCC. So
yes, they can receive the letter saying na you are not
required to notify but that is not binding to them,
because they still have the power to motu proprio
review.
THRESHOLDS FOR COMPULSORY NOTIFICATION
[Base of the threshold in determining the threshold: Gross
revenues or assets.]
No other deduction except sales discounts, returns and
allowances.
PHILIPPINE COMPETITION COMMISSION
Guidelines on The Computation Of Merger Notification
Thresholds
I. Deductions
2.6 Except for sales discounts, sales returns and
allowances, and value added tax or percentage tax;
no other deduction shall be made against gross
revenues from sales.
Q: Ano ang basis to say that an entity is required to notify
the PCC?
A: You have two tests.
[1] Size of the party test.
a. Titingnan mo yung kanyang total asset.
[2] Size of the transaction test.
a. Titingnan mo yung value ng transaction.
Q: What are the basis to determine the size of the party or
the size of transaction?
A: It can be either gross revenue or assets.
Q: Ano ang pwede mong ideduct sa gross revenue?
A: Sales discounts, allowances, returns.
I don’t know pero nakalagay dito, pwede mo i-deduct ang
VAT and percentage tax. Strictly speaking, when you record
your sales, that is exclusive of your VAT. Wala naming VAT
component yan. So pag ide-deduct ko ang VAT, mag de-
deduct ako ng something na di naman kasali in the first
place.
May benta ako na cellphone. May VAT yan diba? Tingnan
mo ‘yung resibo, diba ang ginagawa, tinatanggal yung VAT
sa net. So my problem with the definition is sa sales mo
wala na yung VAT pero pwede mo siyang ide-duct kahit di
naman sya kasali sa Sales.
Only sales that have a Philippine nexus will be included in
calculating the value of the gross revenues for purposes of
determining the size of party and of the transaction.
So you only consider the sales that have a connection in the
Philippines. Kasi based on definition, these are sales na “in”,
“into” and “from” the Philippines.
PHILIPPINE COMPETITION COMMISSION
Guidelines on The Computation Of Merger Notification
Thresholds
A. Gross revenues from sales in, into or from the
Philippines-
xxx
2.5 Thus, in most cases, gross revenues from sales
are considered “in”, “into” or “from” the Philippines if:
[a] Sales “in” the Philippines – gross revenues from
sales in the Philippines are those revenues from
sales by a seller located in the Philippines to a
purchaser located in the Philippines.
[b] Sales “into” the Philippines – gross revenues
from sales into the Philippines are those
revenues generated by a seller located outside
the Philippines from a purchaser located in the
Philippines (e.g., import).
[c] Sales “from” the Philippines – gross revenues
from sales from the Philippines are those
revenues generated by a seller located in the
Philippines from a purchaser not located in the
Philippines (e.g., export).
“In” means domestic, “into” means we are dealing with
imports, and “from” means export.
Only these sales shall be considered.
i. Deductions
2.22 Except for allowance for depreciation and
amortization, allowance for impairment losses and
other allowances used to derive the carrying values
of the assets, no other deduction shall be made
against the value of the assets.
Q: Sa assets naman, ano ang ico-consider mo?
A: No other deductions unless allowance for depreciation
and amortization.
Tangible assets, pag considered in the Philippines, you
consider that. Now there is an issue kapag intangible.
Q: Kasi pag intangible, paano mo masasabi na sa
Philippines yun?
A: It is considered in the Philippines if its rights and
privileges are conferred by Philippine laws.
So if it is patent or trademark registered in the IPO, it is
considered in the Philippines.
THRESHOLD AMOUNT
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
SECTION 3. Thresholds for compulsory
notification.-
Parties to a merger or acquisition are required to
provide notification when:
[a] The aggregate annual gross revenues in, into
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or from the Philippines, or value of the assets
in the Philippines of the ultimate parent entity
of at least one of the acquiring or acquired
entities, including that of all entities that the
ultimate parent entity controls, directly or
indirectly, exceeds One Billion Pesos
(PhP1,000,000,000.00). xxx
That is the size of the party test. Anung nangyari sa uber
and grab? Pag tiningnan mo ‘yung Uber and Grab sa
Philippines, hindi naman sila aabot ng 1 Billion. Pero yun
pala, pagii-trace mo yung ultimate parent. Sobrang laki ‘nun.
Kaya sabi nila hindi naman kami required mag-notify kasi di
naman kami umabot sa threshold. But because PCC has
the motu proprio right to review, nalaman na more then P1B
ang ultimate parent, so they penalized it for not notifying.
You have to qualify for the size of the party and the size of
the transaction. Ano ‘yung Size of the transaction test?
[b] The value of the transaction exceeds One
Billion Pesos (PhP1,000,000,000.00), as
determined in subsections (1), (2), (3) or (4), as
the case may be.
[1] With respect to a proposed merger or
acquisition of assets in the Philippines if
either
[i] the aggregate value of the assets in
the Philippines being acquired in the
proposed transaction exceeds One
Billion Pesos (PhP1,000,000,000.00);
or
[ii] the gross revenues generated in the
Philippines by assets acquired in the
Philippines exceed One Billion Pesos
(PhP1,000,000,000.00)
[2] With respect to a proposed merger or
acquisition of assets outside the
Philippines, if
[i] the aggregate value of the assets in
the Philippines of the acquiring entity
exceeds One Billion Pesos
(PhP1,000,000,000.00); and
[ii] the gross revenues generated in or
into the Philippines by those assets
acquired outside the Philippines
exceed One Billion Pesos
(PhP1,000,000,000.00).
[3] With respect to a proposed merger or
acquisition of assets inside and outside
the Philippines, if
[i] the aggregate value of the assets in
the Philippines of the acquiring entity
exceeds One Billion Pesos
(PhP1,000,000,000.00); and
[ii] the aggregate gross revenues
generated in or into the Philippines
by assets acquired in the Philippines
and any assets acquired outside the
Philippines collectively exceed One
Billion Pesos
(PhP1,000,000,000.00).
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
[4] With respect to a proposed acquisition of
(i) voting shares of a corporation or of (ii)
an interest in a non-corporate entity
[i] If the aggregate value of the assets
in the Philippines that are owned by
the corporation or non-corporate
entity or by entities it controls, other
than assets that are shares of any of
those corporations, exceed One
Billion Pesos
(PhP1,000,000,000.00); or
[ii] The gross revenues from sales in,
into, or from the Philippines of the
corporation or non-corporate entity
or by entities it controls, other than
assets that are shares of any of
those corporations, exceed One
Billion Pesos
(PhP1,000,000,000.00); and
Q: How do you determine your P1B?
A: [All in the provision] If it’s with respect to merger
acquisition of assets in the Philippines, outside the
Philippines, assets inside and outside the Philippines…etc.
If it’s about the voting shares, P1B-P1B.
[iii] If
[A] as a result of the proposed acquisition of
the voting shares of a corporation, the
entity or entities acquiring the shares,
together with their affiliates, would own
voting shares of the corporation that, in
the aggregate, carry more than the
following percentages of the votes
attached to all the corporation’s
outstanding voting shares:
I. Thirty-five percent (35%), or
II. Fifty percent (50%), if the entity or
entities already own more than the
percentage set out in subsection I above,
as the case may be, before the proposed
acquisition; or
[B] as a result of the proposed acquisition of
an interest in a non-corporate entity, the
entity or entities acquiring the interest,
together with their affiliates, would hold
an aggregate interest in the non-
corporate entity that entitles the entity or
entities to receive more than the following
percentages of the profits of the
noncorporate entity or assets of that non-
corporate entity on its dissolution:
I. Thirty-five percent (35%), or
II. Fifty percent (50%), if the entity or
entities acquiring the interest are
already entitled to receive more than
the percentage set out in subsection I
immediately above before the
proposed acquisition.
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Now, if mag-aacquire lang ako ng shares, but more than
35%, it will be considered as a notifying entity. If I already
acquired, mage-exceed ng 50%, I could also be considered
as a notifying entity. This presumably becomes another
regulatory in the tender offer rule.
Q: What if 35% ako this year then another 35% next year,
kailangan ko pa ba mag-notify again sa second?
[c] Where an entity has already
exceeded the 35% threshold for an
acquisition of voting shares, or the
35% threshold for an acquisition of an
interest in a non-corporate entity,
another notification will be required if
the same entity will exceed 50%
threshold after making a further
acquisition of either voting shares or
an interest in a non-corporate entity.
Let’s say sa first acquisition ko, 35%, then you need to
notify. Tapos sa second mo, 25%, you need to again notify
because kasi nag-exceed ng 50%.
Kahit joint-venture is required to notify. The problem with
joint-venture is wala naman kasi yang acquisitions. Joint
venture lang to.
Q: So how do you get the value of the joint venture?
[d] In a notifiable joint venture
transaction, an acquiring entity shall
be subject to the notification
requirements if either
[i] the aggregate value of the assets that will
be combined in the Philippines or
contributed into the proposed joint venture
exceeds One Billion Pesos
(PhP1,000,000,000.00) or
[ii] the gross revenues generated in the
Philippines by assets to be combined in the
Philippines or contributed into the proposed
joint venture exceed One Billion Pesos
(PhP1,000,000,000.00). In determining the
assets of the joint venture, the following
shall be included:
[1] All assets which any entity contributing to the
formation of the joint venture has agreed to
transfer, or for which agreements have been
secured for the joint venture to obtain at any
time, whether or not such entity is subject to the
requirements of the act; and
[2] Any amount of credit or any obligations of the
joint venture which any entity contributing to the
formation has agreed to extend or guarantee, at
any time.
If ang combined assets niyo is P1B, [then you have to
notify]. So hindi dahil joint venture, dahil kanya-kanya
naman kayo ng assets, but if combined, you exceed P1B,
you are still considered as notifying entity.
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
[e] A merger or acquisition consisting of
successive transactions, or acquisition of
parts of one or more entities, which shall
take place within a one-year period
between the same parties, or any entity
they control or are controlled by or are
under common control with another entity
or entities, shall be treated as one
transaction. If a binding preliminary
agreement provides for such successive
transactions or acquisition of parts, the
entities shall provide notification on the
basis of such preliminary agreement. If
there is no binding preliminary agreement,
notification shall be made when the parties
execute the agreement relating to the last
transaction which, when taken together
with the preceding transactions, satisfies
the thresholds under this Section.
Take note of this successive transaction. Ano pala ang
ginagawa? Pag ako ang abagoda, I will make the merger na
hindi mag comply sa notification requirement para hindi na
kailangan mag-notify. So, gagawin kung successive, within
2 years or 3years bago siya ma full-blown. Naisip din nila
‘yun. Sabi nila “a merger or acquisition consisting of
successive transactions… shall be treated as one
transaction”. In other words, may 1 year. So ang gawin ko,
more than 1 year para hindi ako pumasok sa threshold.
Q: Is internal restructuring considered under the compulsory
notification?
PCC CLARIFICATORY NOTE NO. 16-002
SUBJECT: COVERAGE OF COMPULSORY
NOTIFICATION
SEPTEMBER 16, 2016
[2] Internal restructuring. -
[a] An internal restructuring within a group of
companies is exempt from notification if
the acquiring and acquired entities have
the same ultimate parent entity (UPE).
[b] Notwithstanding the foregoing, mergers or
acquisitions are not considered purely
internal and, therefore, do not qualify for
the exemption, if the restructuring leads to
a change in control.
[3] The foregoing shall not prevent the Commission
from commencing a motu proprio review of
mergers and acquisitions under the IRR.
Eto talaga ‘yung problema ng IRR kasi meron silang motu
proprio.
In restructuring, there is no change of ownership. There is
no competition. That’s why it is an exemption. 11
PRE-NOTIFICATION CONSULTATION
Q: Pwede ban a mag-consult ako before notification?
A: Pwede. In fact ang lawyers ng PCC, very welcoming.
Pwede naman tanungin kung ang transaction kailangan pa
ipa-notify.
11
Sir scribbled a sample of internal restructuring on the board
but no copy is available.
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IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
SECTION 4. Consultations preceding the
submission of notification.
[a] Prior to filing a notification pursuant to this
Rule, parties to a proposed merger or
acquisition that are required to notify may
inform the Commission of their proposed
merger or acquisition and request a
prenotification consultation with the staff of the
Commission. To request a meeting, the parties
must provide the following information in
writing:
[1] the names and business contact
information of the entities concerned;
[2] the type of transaction; and
[3] the markets covered or lines of businesses
by the proposed merger or acquisition.
[b] During such pre-notification consultations, the
parties may seek nonbinding advice on the
specific information that is required to be in the
notification.
But please take note that even if they say na di ka required
mag notify, that doesn’t bar them to motu proprio review.
Yun yung pangit kasi they cannot give you a definite
clearance or ruling. So you can do a pre-notification
consultation.
PROCEDURE FOR NOTIFICATION AND REVIEW
May i-susubmit ka na mga affidavits. [Full procedure in
Implementing Rules and Regulation of RA 10667, Rule 4:
Mergers and Acquisitions, Section 5)
Very important is the confidentiality rule. Very important din
tong waiting period.
Q: Antayin ko pa ba magdecide ang PCC bago ang merger?
What if ipitin nila ako? Para makabigay ng lagay.
A: Precisely because of that problem, they provided the
waiting period.
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
Section 5: Procedure for notification and
review.
xxx
[g] The waiting period under this Section shall
commence only upon the Commission’s
determination that the notification has been
completed in accordance with applicable rules
and guidelines.
Ang mangyayari noyan, you will notify tapos ipapasubmit ka
ng documents. Now pag sinabi ng your documents are
complete, from that moment, your waiting period will start.
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
Section 5: Procedure for notification and review.-
[i] xxx Provided, that, in no case shall the total
period for review by the Commission of the
subject agreement exceed ninety (90) days
from the time the initial notification by the
parties is deemed complete as provided under
paragraph (f) of this Section; Provided further,
that should the parties fail to provide the
requested information within fifteen (15) days
from receipt of the said request, the notification
shall be deemed expired and the parties must
refile their notification. xxx
May 90 days lang talaga ang PCC na mag review. If
lumampas wala pa ring decision, it is deemed approved.
So they cannot go after you. That is the importance of that
waiting period.
Q: What if hindi mo hinintay ang lapse ng waiting period?
A: It is considered void.
CONFIDENTIAL INFORMATION
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
SECTION 13. Treatment of confidential information.
[a] Information, including documents, shall not be
communicated or made accessible by the
Commission, insofar as it contains trade
secrets or other confidential information, the
disclosure of which is not considered
necessary by the Commission for the purpose
of the review.
[b] Any entity or party that supplies information,
including documents, to the Commission, shall
clearly identify any material that it considers to
be confidential, provide a justification for the
request of confidential treatment of the
information supplied and the time period within
which confidentiality is requested, and provide
a separate non-confidential version by the date
set by the Commission.
[c] The Commission may require the parties to the
merger or acquisition and other interested
parties to identify any part of a decision or case
summary adopted by the Commission, if any,
which in their view contains trade secrets or
other confidential information. Where trade
secrets or other confidential information are
identified, the parties to the merger or
acquisition and other interested parties shall
provide a justification for the request of
confidential treatment and provide a separate
non-confidential version by the date set by the
Commission.
[d] Whenever the Commission, pursuant to
Section 13(c) of this Rule, deems that the
justification for confidential treatment provided
by the party is insufficient or not grounded, it
shall inform the interested party of its decision
to make the information accessible.
[e] If a merger or acquisition is under review in
multiple jurisdictions, parties to the transaction
may waive the confidentiality protections
contained in this Rule, so as to allow the
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Commission to exchange otherwise protected
information with competition authorities in other
countries.
Ang pangit lang nito is “Any entity or party that supplies
information, including documents, to the Commission, shall
clearly identify any material that it considers to be
confidential…” Ikaw as a client, you really have to clearly
say na “Oy, confidential ‘to”.
If you look at the decisions of the PCC, walang facts. Ang
nakalagay lang ay abstract. Kasi nga confidential. 1 page
lang siya.
Exception to the confidentiality rule:
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
SECTION 11. Burden of proof. The burden of
proof under Section 10 of this Rule lies with the
parties seeking the exemption. A party seeking to
rely on the exemption specified in Section 21(a) of
the Act or Section 10(a) of this Rule must
demonstrate that if the agreement were not
implemented, significant efficiency gains would not
be realized.
IMPLEMENTING RULES AND REGULATION OF RA
10667
RULE 4: MERGERS AND ACQUISITIONS
Section 3: xxx
[o] All notices, documents, and information
provided to or emanating from the Commission
under Sections 4 and 5 of this Rule shall be
subject to the confidentiality rule under Section
34 of the Act and Section 13 of this Rule,
except for the purpose of enforcing the Act
or these Rules, or when the release of
information contained therein is with the
consent of the notifying entity or is
mandatorily required to be disclosed by law
or by a valid order of a court of competent
jurisdiction, or of a government or
regulatory agency, including an exchange.
Q: Let’s say may ni-require si PCC na documents, pwede
bang i-extend?
A: Yes. Wala naming problema.
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
EXCEPTIONS FROM PROHIBITED MERGERS AND
ACQUISITIONS
IMPLEMENTING RULES AND REGULATION OF RA 10667
RULE 4: MERGERS AND ACQUISITIONS
SECTION 10. Exemptions from prohibited
mergers and acquisitions.
Merger or acquisition agreements prohibited under
Section 20 of the Act and Section 9 of this Rule
may, nonetheless, be exempt from prohibition by
the Commission when the parties establish either of
the following:
[a] The concentration has brought about or is likely
to bring about gains in efficiencies that are
greater than the effects of any limitation on
competition that result or are likely to result from
the merger or acquisition agreement; or
[b] A party to the merger or acquisition agreement is
faced with actual or imminent financial failure,
and the agreement represents the least
anticompetitive arrangement among the known
alternative uses for the failing entity’s assets.
Provided, that an entity shall not be prohibited from
continuing to own and hold the stock or other share
capital or assets of another corporation, which it
acquired prior to the approval of the Act, or from
acquiring or maintaining its market share in a
relevant market through such means without
violating the provisions of the Act and these Rules;
Provided, further, that the acquisition of the stock
or other share capital of one or more corporations
solely for investment and not used for voting or
exercising control and not to otherwise bring about,
or attempt to bring about the prevention, restriction
or lessening of competition in the relevant market
shall not be prohibited.
Q: Ano ba ng SLC?
A: There is SLC when there is a significant effect in the
competition preventing the competitive pressure on firms to
reduce prices, improve quality, to become more efficient or
innovative.
What propels an entity to improve their product? It’s
competition. Yang Samsung and Apple, improve nang
improve, kahit ano na ang ginagawa, because that is
competition. What if isa lang ang owner nila? Wala na ‘yung
pressure. Kasi wala na silang competitior.
Even if it is SLC, you can still be exempt if it provides for
gains in efficiencies. Efficiencies that increase competition in
the market and other benefits. If you can site basis of
verifiable evidence that it actually provides efficiencies,
example it’s an anti-competitive agreement but it gives
efficiencies to the public, then it is not considered.
Q: Who has the burden of proof?
A: It is on the party saying there is gain in efficiency.
SECTION 12. Finality of rulings on mergers and
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acquisitions. Merger or acquisition agreements
that have received a favorable ruling from the
Commission, except when such ruling was obtained
on the basis of fraud or false material information,
may not be challenged under the Act or these
Rules.
So pag sinabing approved by the Commission, it cannot be
challenged. Except if it is based on fraud or false material
information.
Q: Are there other remedies? Example may SLC. Anon a
mga conditions ang pwedeng iprovide ni Commission?
A: It could provide structural remedies or behavioral
remedies.
Behavioral – obliging the Entity to engage in, or refrain
from, specific conduct;
Structural – changing the structure of the market.
Q: Bakit as a lawyer, you don’t want your company to
undergo the notification procedure?
A: Because the filing fee itself is P250, 000. That is only for
filing for notification. Phase I pa lang yan ha. What if they
want to proceed to phase 2, the fee is 1% of 1% of the value
of the transaction which shall not be less than PhP
1,000,000.00 nor exceed PhP 5,000,000.00.
A transaction that meets the thresholds and does not
comply with the notification requirements and waiting
periods shall be considered void will subject the parties to
an administrative fine of one percent (1%) to five percent
(5%) of the value of the transaction.
MARCH 06, 2019: 1/2 [Balgoa]
[20] CLOSE CORPORATION
A close corporation is more akin to what we refer to in the
layman’s term as a “family corporation.”
We do not have a family corporation under our Corporation
Code. We just use this term because the owners are just
people from the same family. A family corporation is akin to
a close corporation because there are restrictions as to
the transfer of shares. You cannot just transfer your
shares to another person. That’s why it’s referred to as a
close corporation.
Take note, this is contrary to the concept in your Property
law that if you have full ownership of a property, you have
jus disponendi (right to dispose).
That is the issue with a close corporation. Is it really a
property right?
Is the shareholding of a shareholder in a close corporation
really a property right in the fullest sense knowing the
restrictions as to transferability of shares?
Take note that shares are personal property.
AMERICAN JURISPRUDENCE
One of the most distinctive characteristics of a close
corporation is the identity of stockholders and its corporate
management, whereby all, or most of all, the stockholders
are active in the corporate affairs as directors of the
corporation.
This is akin, again, to what we call ‘family corporation.’
[A] CONCEPT AND DEFINITION
Section 95. Definition and Applicability of Title.—
A close corporation, within the meaning of this Code,
is one whose articles of incorporation provides that:
[a] all the corporation’s issued stock of all classes,
exclusive of treasury shares, shall be held of
record by not more than a specified number of
persons, not exceeding twenty (20);
[b] all the issued stock of all classes shall be
subject to one (1) or more specified restrictions
on transfer permitted by this Title; and
[c] the corporation shall not list in any stock
exchange or make any public offering of its
stocks of any class.
Notwithstanding the foregoing, a corporation shall not
be deemed a close corporation when at least two-
thirds (2⁄3) of its voting stock or voting rights is owned
or controlled by another corporation which is not a
close corporation within the meaning of this Code.
Any corporation may be incorporated as a close
corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public
utilities, educational institutions and corporations
declared to be vested with public interest in
accordance with the provisions of this Code.
The provisions of this Title shall primarily govern
close corporations: Provided, That other Titles in this
Code shall apply suppletorily, except as otherwise
provided under this Title.
“A close corporation, within the meaning of this Code,
is one whose articles of incorporation provides”
If walang ganitong provision or restriction in your Articles
of Incoporation (AOI), then you cannot say that that is a
close corporation.
Remember that a ‘close corporation’ is a technical
concept. You can only say that a corporation is a close
corporation if the AOI has the abovementioned
provisions, (a) to (c).
SECTION 95 (A)
The concept of it being a close corporation is because
close lang talaga ang magiging stockholder. Hindi
pwedeng mag-exceed ng 20.
SECTION 95 (B) AND (C)
Because again, if it is allowed to make the shareholdings
available to the public, it will run contrary to the very
purpose of a close corporation.
Notwithstanding the foregoing, a corporation shall not
be deemed a close corporation when at least two-thirds
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(2⁄3) of its voting stock or voting rights is owned or
controlled by another corporation which is not a close
corporation within the meaning of this Code.
Therefore, hindi nga nag-exceed ng 20 ang
stockholders of record, but if one of the stockholders is
a corporation and the stockholder which is a corporation
is NOT a close corporation, then it cannot be deemed a
close corporation. This is because you have here the
illusion of control.
General Rule: Any corporation may be incorporated as a
close corporation.
Exceptions:
[1] mining or oil companies;
[2] stock exchanges;
[3] banks;
[4] insurance companies;
[5] public utilities;
[6] educational institutions; and
[7] corporations declared to be vested with public interest
in accordance with the provisions of this Code.
SECTION 96. Articles of Incorporation.— The
articles of incorporation of a close corporation may
provide for:
[a] A classification of shares or rights, the
qualifications for owning or holding the same,
and restrictions on their transfers, subject to the
provisions of the following section;
[b] A classification of directors into one (1) or more
classes, each of whom may be voted for and
elected solely by a particular class of stock; and
[c] Greater quorum or voting requirements in
meetings of stockholders or directors than those
provided in this Code.
The articles of incorporation of a close corporation
may provide that the business of the corporation shall
be managed by the stockholders of the corporation
rather than by a board of directors. So long as this
provision continues in effect, no meeting of
stockholders need be called to elect directors:
Provided, That the stockholders of the corporation
shall be deemed to be directors for the purpose of
applying the provisions of this Code, unless the
context clearly requires otherwise: Provided, further,
That the stockholders of the corporation shall be
subject to all liabilities of directors.
The articles of incorporation may likewise provide that
all officers or employees or that specified officers or
employees shall be elected or appointed by the
stockholders, instead of by the board of directors.
SECTION 96 (B)
Pwede nilang sabihin na kailangan ang stockholder
Chanyee lang. Kailangan ‘yung nag mamay-ari si
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
Chanyee lang, hindi pwedeng iba ang magmamay-ari.
Pwede rin nilang sbaihin na kailangan within a
particular degree lang yung nagmamay-ari ng
stockholding.
SECTION 96 (C)
Pwede nilang ilagay na hindi majority vote ang mag a-
apply.
The articles of incorporation of a close corporation may
provide that the business of the corporation shall be
managed by the stockholders of the corporation rather
than by a board of directors
They can also provide that the business should be
managed by the stockholders directly. This is because
there is the maxim of _______ . Even if the
stockholders are at the same time managers, that
would not be a problem because konti lang din ang
stockholders.
“So long as this provision continues in effect, no
meeting of stockholders need be called to elect
directors: Provided, That the stockholders of the
corporation shall be deemed to be directors for the
purpose of applying the provisions of this Code, unless
the context clearly requires otherwise: Provided,
further, That the stockholders of the corporation shall
be subject to all liabilities of directors.”
The stockholder now becomes the director. Why?
Because close nga lang ang corporation and sila-sila
lang din. So there is no need now for the stockholders
to vote for the BOD because in a close corporation your
stockholders essentially are your BOD.
The articles of incorporation may likewise provide that
all officers or employees or that specified officers or
employees shall be elected or appointed by the
stockholders, instead of by the board of directors.
[B] VALIDITY OF RESTRICTIONS ON TRANSFER OF
SHARES
SECTION 97. Validity of Restrictions on Transfer
of Shares.— Restrictions on the right to transfer
shares must appear in the articles of incorporation, in
the bylaws, as well as in the certificate of stock;
otherwise, the same shall not be binding on any
purchaser in good faith. Said restrictions shall not be
more onerous than granting the existing stockholders
or the corporation the option to purchase the shares
of the transferring stockholder with such reasonable
terms, conditions or period stated. I
f, upon the expiration of said period, the existing
stockholders or the corporation fails to exercise the
option to purchase, the transferring stockholder may
sell their shares to any third person.
“…must appear in the articles of incorporation, in
the bylaws, as well as in the certificate of stock.”
What is the purpose of this?
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That constitutes NOTICE to the purchaser of the
certificates of stock.
“If, upon the expiration of said period, the existing
stockholders or the corporation fails to exercise the
option to purchase, the transferring stockholder may
sell their shares to any third person.”
Because of the seemingly contrary principle of
restriction of the transfer of rights as against the rights
of an owner of a property to dispose it freely, the law
provides that you can put a restriction and it shall not be
more onerous than granting the existing stockholders or
the corporation the option to purchase the shares of the
transferring stockholder with such reasonable terms
conditions or period stated.
Question: Pwede mo bang sabihin na hindi talaga
pwedeng e-transfer ang shares pag hindi Chanyee ang
apelyedo? Can you provide that as a restriction?
Answer: NO, because then it becomes more onerous
than granting the existing stockholders to purchase the
shares of the transferring stockholder.
Therefore, the restriction is not really an absolute
restriction. It has to be reasonable, such that it would
not impair the concept of ownership under your property
law.
ANDAYA V. RURAL BANK OF CABADBARAN
799 SCRA 325 (2016)
Section 98 only applies to close corporation for you to
validly restrict the transfer of rights. Hence, before the
Court can allow the operation of this section in the
case at bar, there must first be a factual determination
that Respondent Rural bank of Cabadbaran is indeed
a close corporation. there needs to be a presentation
of evidence eon the relevant restrictions in the articles
of incorporation and bylaws of the said bank.
From the records of the RTC decision, there is
apparently no such determination or allegation that
would assist this court in ruling on these two major
factual matters.
In this particular case, was it proven that the
corporation is a close corporation? NO.
TAKE NOTE that before you apply the provisions of the
Corporation Code with regard to close corporations, you
have to first determine whether or not the corporation is
really a close corporation.
[C] ISSUANCE OF TRANSFER OF STOCK OF A CLOSE
CORPORATION IN BREACH OF QUALIFYING
CONDITIONS
SECTION 98. Effects of Issuance or Transfer of
Stock in Breach of Qualifying Conditions.—
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[a] If a stock of a close corporation is issued or
transferred to any person who is not eligible to be
a holder thereof under any provision of the articles
of incorporation, and if the certificate for such
stock conspicuously shows the qualifications
of the persons entitled to be holders of record
thereof, such person is conclusively presumed
to have notice of the fact of the ineligibility to be a
stockholder.
[b] If the articles of incorporation of a close
corporation states the number of persons, not
exceeding twenty (20), who are entitled to be
stockholders of record, and if the certificate for
such stock conspicuously states such number,
and the issuance or transfer of stock to any
person would cause the stock to be held by more
than such number of persons, the person to whom
such stock is issued or transferred is conclusively
presumed to have notice of this fact.
[c] If a stock certificate of a close corporation
conspicuously shows a restriction on transfer of
the corporation’s stock and the transferee
acquires the stock in violation of such restriction,
the transferee is conclusively presumed to have
notice of the fact that the stock was acquired in
violation of the restriction.
[d] Whenever a person to whom stock of a close
corporation has been issued or transferred has or
is conclusively presumed under this section to
have notice of: (1) the person’s ineligibility to be a
stockholder of the corporation; or (2) that the
transfer of stock would cause the stock of the
corporation to be held by more than the number of
persons permitted under its articles of
incorporation; or (3) that the transfer violates a
restriction on transfer of stock, the corporation
may, at its option, refuse to register the transfer in
the name of the transferee.
[e] The provisions of subsection (d) shall not be
applicable if the transfer of stock, though contrary
to subsections (a), (b) or (c), has been consented
to by all the stockholders of the close corporation,
or if the close corporation has amended its articles
of incorporation in accordance with this Title.
[f] The term “transfer”, as used in this section, is not
limited to a transfer for value.
[g] The provisions of this section shall not impair any
right which the transferee may have to either
rescind the transfer or recover the stock under
any express or implied warranty.
SECTION 98 (A)
Therefore, the requirement that it must be included in the
AOI, bylaws, and certificate of stock, is evidentiary in that it
provides a conclusive presumption that the purchaser has
knowledge that it cannot be a stockholder because of the
restriction.
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What happens if hindi siya maging holder of the
restriction?
The corporation may, at its option, refuse to register the
transfer of the stocks in the name of the transferee.
Going back to the [ordinary] corporations, you can compel a
corporation to transfer the shares of stocks. Kasi karapatan
‘yan ng owner if gusto niyang e-transfer.
When it comes to close corporations, if there are
restrictions, and the transferee violated the restrictions, the
transferee is conclusively presumed to have knowledge of
such fact. Therefore, the transferee cannot compel, even by
mandamus, the corporation to transfer the certificate of
shares in his name.
SECTION 98 (F)
Therefore, it also consists of what kind of transfer?
An example would be by donation, by succession, etc. So
hindi lang siya limited to transfer for value. Please take note
of this.
[D] AGREEMENT BY STOCKHOLDERS
SECTION 99. Agreements by Stockholders.—
[a] Agreements duly signed and executed by and
among all stockholders before the formation
and organization of a close corporation shall
survive the incorporation and shall continue to
be valid and binding between such
stockholders, if such be their intent, to the
extent that such agreements are consistent with
the articles of incorporation, irrespective of
where the provisions of such agreements are
contained, except those required by this Title to
be embodied in said articles of incorporation.
[b] A written agreement signed by two (2) or more
stockholders may provide that in exercising any
voting right, the shares held by them shall be
voted as provided or as agreed, or in
accordance with a procedure agreed upon by
them.
[c] No provision in a written agreement signed by
the stockholders, relating to any phase of
corporate affairs, shall be invalidated between
the parties on the ground that its effect is to
make them partners among themselves.
[d] A written agreement among some or all of the
stockholders in a close corporation shall not be
invalidated on the ground that it relates to the
conduct of the business and affairs of the
corporation as to restrict or interfere with the
discretion or powers of the board of directors:
Provided, That such agreement shall impose on
the stockholders who are parties thereto the
liabilities for managerial acts imposed on
directors by this Code.
[e] Stockholders actively engaged in the
management or operation of the business and
affairs of a close corporation shall be held to
strict fiduciary duties to each other and among
themselves. The stockholders shall be
personally liable for corporate torts unless the
corporation has obtained reasonably adequate
liability insurance.
Can the stockholders execute an agreement giving such
restrictions?
SECTION 99 (A) AND (B)
What is an agreement before incorporation?
A pre-incorporation agreement. Pwede silang mag-agree
beforehand.
How valid is a pre-incorporation agreement?
That is valid according to this provision.
Question: Is an agreement between stockholders in a close
corporation prior to incorporation valid only as to close
corporations or is it valid in all kinds of corporations? Can
the stockholders in other kinds of corporation agree kung
paano mag vote but it was not anymore incorporated in the
AOI and by-laws? Is it still valid?12
SECTION 100. When a Board Meeting is
Unnecessary or Improperly Held.— Unless the
bylaws provide otherwise, any action taken by the
directors of a close corporation without a meeting
called properly and with due notice shall
nevertheless be deemed valid if:
[a] Before or after such action is taken, a written
consent thereto is signed by all the directors; or
[b] All the stockholders have actual or implied
knowledge of the action and make no prompt
objection in writing; or
[c] The directors are accustomed to take informal
action with the express or implied acquiescence
of all the stockholders; or
[d] All the directors have express or implied
knowledge of the action in question and none of
them makes a prompt objection in writing.
An action within the corporate powers taken at a
meeting held without proper call or notice is deemed
ratified by a director who failed to attend, unless after
having knowledge thereof, the director promptly files
his written objection with the secretary of the
corporation.
12
[SIR DID NOT REALLY ANSWER HUHU]
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Please take note of the following
paragraphs (a) to (d).
[E] PRE-EMPTIVE RIGHT IN CLOSE CORPORATIONS
SECTION 101. Preemptive Right in Close
Corporations.— The preemptive right of
stockholders in close corporations shall extend to all
stock to be issued, including reissuance of treasury
shares, whether for money, property or personal
services, or in payment of corporate debts, unless the
articles of incorporation provide otherwise.
You also have your preemptive right in a close corporation.
What is the opposite of a close corporation?13
SECTION 102. Amendment of Articles of
Incorporation.— Any amendment to the articles of
incorporation which seeks to delete or remove any
provision required by this Title or to reduce a quorum
or voting requirement stated in said articles of
incorporation shall require the affirmative vote of at
least two-thirds (2⁄3) of the outstanding capital stock,
whether with or without voting rights, or of such greater
proportion of 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 called for the purpose.
Take note of the 2/3 voting requirement.
[F] DEADLOCKS
SECTION 103. Deadlocks.— Notwithstanding any
contrary provision in the close corporation’s articles of
incorporation, bylaws, or stockholders’ agreement, if
the directors or stockholders are so divided on
the management of the corporation’s business
and affairs that the votes required for a corporate
action cannot be obtained, with the consequence
that the business and affairs of the corporation
can no longer be conducted to the advantage of
the stockholders generally, the Commission, upon
written petition by any stockholder, shall have the
power to arbitrate the dispute. In the exercise of
such power, the Commission shall have authority to
make appropriate orders, such as: (a) cancelling or
altering any provision contained in the articles of
incorporation, bylaws, or any stockholders’
agreement; (b) cancelling, altering or enjoining a
resolution or act of the corporation or its board of
directors, stockholders, or officers; (c) directing or
prohibiting any act of the corporation or its board of
13
[DILI DAW “OPEN,” but sir did not explicitly answer what]
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requirements in directors, stockholders, officers, or other persons
party to the action; (d) requiring the purchase at their
fair value of shares of any stockholder, either by the
corporation regardless of the availability of
unrestricted retained earnings in its books, or by the
other stockholders; (e) appointing a provisional
director; (f) dissolving the corporation; or (g)
granting such other relief as the circumstances may
warrant.
A provisional director shall be an impartial person
who is neither a stockholder nor a creditor of the
corporation or any of its subsidiaries or affiliates, and
whose further qualifications, if any, may be
determined by the Commission. A provisional director
is not a receiver of the corporation and does not have
the title and powers of a custodian or receiver. A
provisional director shall have all the rights and
powers of a duly elected director, including the right
to be notified of and to vote at meetings of directors
until removed by order of the Commission or by all
the stockholders. The compensation of the
provisional director shall be determined by agreement
between such director and the corporation, subject to
approval of the Commission, which may fix the
compensation absent an agreement or in the event of
disagreement between the provisional director and
the corporation.
Is this a problem in a close corporation?
YES. Usually, nagtatagal talaga ang deadlocks in a close
corporation.
What happens if your stockholders and your board of
directors are the same people? You will really have a
deadlock.
Take note that it will be the COMMISSION [SEC] who shall
have the power to arbitrate the dispute.
“[T]he Commission shall have authority to make
appropriate orders”
Meaning, the commission will not decide, but the
commission will arbitrate, so that there will no
longer be a deadlock.
This will go even up to the point of dissolving
the corporation.
[a] cancelling or altering any provision contained in the
articles of incorporation, bylaws, or any
stockholders’ agreement;
In other words, the stockholders’ agreement will be
treated as just another contract. It becomes subject
to review by the SEC in the event of a deadlock.
[d] requiring the purchase at their fair value of shares
of any stockholder, either by the corporation
regardless of the availability of unrestricted
retained earnings in its books, or by the other
stockholders;
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Take note, it is regardless of the availability of
unrestricted retained earnings. This is an
exemption to the general rule that you can only
raise the appraisal right if you have unrestricted
retained earnings.
So, in cases of deadlocks, you can exercise your appraisal
right whether or not there is unrestricted retained earnings.
PROVISIONAL DIRECTOR
For example, there are 6 directors, the commission can
appoint a provisional director to make it 7 directors and
break the tie in the event of deadlock.
What is a provisional director?
A provisional director shall be an impartial person who is
neither a stockholder nor a creditor of the corporation or any
of its subsidiaries or affiliates.
A provisional director is not a receiver of the corporation and
does not have the title and powers of a custodian or
receiver.
[The obligations of a receiver are found under the FRIA]
What are the rights and powers of a provisional
director?
A provisional director shall have all the rights and powers of
a duly elected director, including the right to be notified of
and to vote at meetings of directors until removed by order
of the Commission or by all the stockholders
[In other words, the Commission can order the
corporation to overturn such stockholder.]
What is the compensation of a provisional director?
The compensation of the provisional director shall be
determined by agreement between such director and the
corporation, subject to approval of the Commission, which
may fix the compensation absent an agreement or in the
event of disagreement between the provisional director and
the corporation.
[Take note that the commission can even go so far as to
dissolve the corporation.]
SECTION 104. Withdrawal of Stockholder or
Dissolution of Corporation.— In addition and
without prejudice to other rights and remedies
available under this Title, any stockholder of a
close corporation may, for any reason, compel
the corporation to purchase shares held at fair
value, which shall not be less than the par or
issued value, when the corporation has sufficient
assets in its books to cover its debts and liabilities
exclusive of capital stock: Provided, That any
stockholder of a close corporation may, by written
petition to the Commission, compel the dissolution of
such corporation whenever any acts of the directors,
officers, or those in control of the corporation are
illegal, fraudulent, dishonest, oppressive or unfairly
prejudicial to the corporation or any stockholder, or
whenever corporate assets are being misapplied or
wasted.
Take note, the stockholder can compel the corporation to
purchase his share.
[21] SPECIAL CORPORATION
[A] EDUCATIONAL CORPORATIONS
SECTION 105. Incorporation.— Educational
corporations shall be governed by special laws and
by the general provisions of this Code.
With this provision alone, it is apparent that the Corporation
Code suppletorily governs educational corporations.
What are the special laws governing educational
institutions?
Example would be: CHEd, DepEd laws.
SECTION 106. Board of Trustees.— Trustees of
educational institutions organized as nonstock
corporations shall not be less than five (5) nor more
than fifteen (15): Provided, That the number of
trustees shall be in multiples of five (5).
Unless otherwise provided in the articles of
incorporation or bylaws, the board of trustees of
incorporated schools, colleges, or other institutions of
learning shall, as soon as organized, so classify
themselves that the term of office of one-fifth (1⁄5) of
their number shall expire every year. Trustees
thereafter elected to fill vacancies, occurring before
the expiration of a particular term, shall hold office
only for the unexpired period. Trustees elected
thereafter to fill vacancies caused by expiration of
term shall hold office for five (5) years. A majority of
the trustees shall constitute a quorum for the
transaction of business. The powers and authority of
trustees shall be defined in the bylaws.
For institutions organized as stock corporations, the
number and term of directors shall be governed by
the provisions on stock corporations.
Educational corporations have a BOT. Take note that they
are non-stock corporations.
Can an educational institution be a stock corporation?
YES.
For institutions organized as stock corporations, the number
and term of directors shall be governed by the provisions on
stock corporations.
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In case of NON-STOCK Educational corporations:
• The trustees shall not be less than five (5) nor more
than fifteen (15).
• It shall also be in multiples of five (5), ie: 5, 10, 15.
Why? To avoid deadlock. An educational institution is
an institution imbued with government functions.
• Take note of the expiration of the term. There is really
no expiration of the term of the entire board of
trustees. The rotational scheme is applicable.
[B] RELIGIOUS CORPORATIONS
SECTION 107. Classes of Religious
Corporations.— Religious corporations may be
incorporated by one (1) or more persons. Such
corporations may be classified into corporations sole
and religious societies.
Religious corporations shall be governed by this
Chapter and by the general provisions on nonstock
corporations insofar as applicable.
Before the One Person Corporation, this is the only kind of
corporation where there can be only one (1) stockholder.
That is what we call a corporation sole.
SECTION 108. Corporation Sole.— For the purpose
of administering and managing, as trustee, the
affairs, property and temporalities of any religious
denomination, sect or church, a corporation sole may
be formed by the chief archbishop, bishop, priest,
minister, rabbi, or other presiding elder of such
religious denomination, sect or church.
This is exclusive to religious corporations.
SECTION 109. Articles of Incorporation.— In order
to become a corporation sole, the chief archbishop,
bishop, priest, minister, rabbi, or presiding elder of
any religious denomination, sect or church must file
with the Commission articles of incorporation setting
forth the following:
[a] That the applicant chief archbishop, bishop,
priest, minister, rabbi, or presiding elder
represents the religious denomination, sect or
church which desires to become a corporation
sole;
[b] That the rules, regulations and discipline of the
religious denomination, sect or church are
consistent with becoming a corporation sole
and do not forbid it;
[c] That such chief archbishop, bishop, priest,
minister, rabbi, or presiding elder is charged
with the administration of the temporalities and
the management of the affair’s, estate and
properties of the religious denomination, sect or
church within the territorial jurisdiction, so
described succinctly in the articles of
incorporation;
[d] The manner by which any vacancy occurring in
the office of chief archbishop, bishop, priest,
minister, rabbi, or presiding elder is required to
be filled, according to the rules, regulations or
discipline of the religious denomination, sect or
church; and
[e] The place where the principal office of the
corporation sole is to be established and
located, which place must be within the territory
of the Philippines.
The articles of incorporation may include any other
provision not contrary to law for the regulation of the
affairs of the corporation.
SECTION 110. Submission of the Articles of
Incorporation.— The articles of incorporation must
be verified, by affidavit or affirmation of the chief
archbishop, bishop, priest, minister, rabbi, or
presiding elder, as the case may be, and
accompanied by a copy of the commission, certificate
of election or letter of appointment of such chief
archbishop, bishop, priest, minister, rabbi, or
presiding elder, duly certified to be correct by any
notary public.
From and after filing with the Commission of the said
articles of incorporation, verified by affidavit or
affirmation, and accompanied by the documents
mentioned in the preceding paragraph, such chief
archbishop, bishop, priest, minister, rabbi, presiding
elder shall become a corporation sole and all
temporalities, estate and properties of the religious
denomination, sect or church theretofore
administered or managed as such chief archbishop,
bishop, priest, minister, rabbi, or presiding elder shall
be personally held in trust as a corporation sole, for
the use, purpose, exclusive benefit and on behalf of
the religious denomination, sect or church, including
hospitals, schools, colleges, orphan asylums,
parsonages, and cemeteries thereof.
“The articles of incorporation MUST BE VERIFIED, by
affidavit or affirmation of the chief archbishop, bishop,
priest, minister, rabbi, or presiding elder, as the case
may be xxx”
Take note that it must be verified. This is the additional
requirement provided for by law.
What is a verification? What is its impact? How does it
differ from a jurat?14
14
[SIR DID NOT REALLY ANSWER]
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SECTION 111. Acquisition and Alienation of
Property.— A corporation sole may purchase and
hold real estate and personal property for its church,
charitable, benevolent, or educational purposes, and
may receive bequests or gifts for such purposes.
Such corporation may sell or mortgage real property
held by it by obtaining an order for that purpose from
the Regional Trial Court of the province where the
property is situated upon proof that the notice of the
application for leave to sell or mortgage has been
made through publication or as directed by the Court,
and that it is in the interest of the corporation that
leave to sell or mortgage be granted. The application
for leave 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 sole, and may be opposed by any
member of the religious denomination, sect or church
represented by the corporation sole: Provided, That
in cases where the rules, regulations, and discipline
of the religious denomination, sect or church,
religious society, or order concerned represented by
such corporation sole regulate the method of
acquiring, holding, selling, and mortgaging real estate
and personal property, such rules, regulations and
discipline shall govern, and the intervention of the
courts shall not be necessary.
“Such corporation may sell or mortgage real property
held by it by obtaining an order for that purpose from
the Regional Trial Court of the province where the
property is situated upon proof that the notice of the
application for leave to sell or mortgage has been made
through publication or as directed by the Court, and that
it is in the interest of the corporation that leave to sell or
mortgage be granted.”
Because of the risk of disposing the assets for
personal gains, there has to be an order from the RTC.
Therefore, even if technically there is an owner of the
corporation sole, he cannot really have all the powers
of a normal corporation. To sell or mortgage the
property, he first needs an order from the RTC
allowing him to do such acts.
This provision actually helps protect the properties of a
corporation sole.
“The application for leave 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 sole, and may be opposed by any
member of the religious denomination, sect or church
represented by the corporation sole”
This is similar to guardianship. Diba ‘yung minor may
property, the guardian has to have the approval of the
court before he or she can sell or do any acts of strict
dominion. As legal representative, the guardian only
has powers of administration. You will have to have
the approval of the court before you can sell the
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
property of the minor or of the ward. Please take note
of this requirement.
“That in cases where the rules, regulations, and
discipline of the religious denomination, sect or church,
religious society, or order concerned represented by
such corporation sole regulate the method of acquiring,
holding, selling, and mortgaging real estate and
personal property, such rules, regulations and
discipline shall govern, and the intervention of the
courts shall not be necessary.”
This is an exception.
SECTION 112. Filling of Vacancies.— The
successors in office of any chief archbishop, bishop,
priest, minister, rabbi, or presiding elder in a
corporation sole shall become the corporation sole on
their accession to office and shall be permitted to
transact business as such upon filing a copy of their
commission, certificate of election, or letters of
appointment, duly certified by any notary public with
the Commission.
During any vacancy in the office of chief archbishop,
bishop, priest, minister, rabbi, or presiding elder of
any religious denomination, sect or church
incorporated as a corporation sole, the person or
persons authorized by the rules, regulations or
discipline of the religious denomination, sect or
church represented by the corporation sole to
administer the temporalities and manage the affairs,
estate, and properties of the corporation sole shall
exercise all the powers and authority of the
corporation sole during such vacancy.
Why does the Corporation Code give such importance
with the internal rules and regulations of a religious
organization?
As you have noticed, even the court cannot intervene in the
internal rules and regulations.
Here, wala masyadong authority ang SEC. This is because
of the FREEDOM OF RELIGION under the Constitution
which shall not be abridged.
Any form of curtailment of that freedom will be a violation of
the constitutional freedom of religion.
Thus, the SEC’s power is essentially limited to monitoring.
SECTION 113. Dissolution.— A corporation sole
may be dissolved and its affairs settled voluntarily by
submitting to the Commission a verified declaration of
dissolution, setting forth:
[a] The name of the corporation;
[b] The reason for dissolution and winding up;
[c] The authorization for the dissolution of the
corporation by the particular religious
denomination, sect or church; and
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[d] The names and addresses of the persons who
are to supervise the winding up of the affairs of
the corporation.
Upon approval of such declaration of dissolution by
the Commission, the corporation shall cease to carry
on its operations except for the purpose of winding up
its affairs.
SECTION 114. Religious Societies.— Unless
forbidden by competent authority, the Constitution,
pertinent, rules, regulations, or discipline of the
religious denomination, sect or church of which it is a
part, any religious society, religious order, diocese, or
synod, or district organization of any religious
denomination, sect or church, may, upon written
consent and/or by an affirmative vote at a
meeting called for the purpose of at least two-
thirds (2⁄3) of its membership, incorporate for the
administration of its temporalities or for the
management of its affairs, properties, and estate by
filing with the Commission, articles of incorporation
verified by the affidavit of the presiding elder,
secretary, or clerk or other member of such religious
society or religious order, or diocese, synod, or
district organization of the religious denomination,
sect or church, setting forth the following:
[a] That the religious society or religious order, or
diocese, synod, or district organization is a
religious organization of a religious
denomination, sect or church;
[b] That at least two-thirds (2⁄3) of its
membership has given written consent or has
voted to incorporate, at a duly convened meeting
of the body;
[c] That the incorporation of the religious society or
religious order, or diocese, synod, or district
organization is not forbidden by competent
authority or by the Constitution, rules, regulations
or discipline of the religious denomination, sect
or church of which it forms part;
[d] That the religious society or religious order, or
diocese, synod, or district organization desires to
incorporate for the administration of its affairs,
properties and estate;
[e] The place within the Philippines where the
principal office of the corporation is to be
established and located; and
[f] The names, nationalities, and residence
addresses of the trustees, not less than five (5)
nor more than fifteen (15), elected by the
religious society or religious order, or the
diocese, synod, or district organization to serve
for the first year or such other period as may be
prescribed by the laws of the religious society or
religious order, or of the diocese, synod, or
district organization.
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
Aside from a religious corporation sole, the religious
organization can also be a religious society.
MARCH 06, 2019: 2/2 [Borbe]
[21] ONE PERSON CORPORATION
In 2016, the Malaysian Corporation Code revised their
corporation to One Person Corporation. Basically, the
rationale for giving or granting a corporation a one-person
corporation option is to ease the doing of business. That’s
why they would want to create One-Person Corporation.
“Sir, how about sole proprietorship nalang? Kung gusto
talaga ma-ease ang doing of business, edi mag-sole prop
nalang? Bakit kailangan pa talaga mag One-Person
Corporation?”
Again, what is the main feature of a corporation which
makes a corporation advantageous and appealing? It’s the
concept of limited liability. In other words, it would be
better to have a corporation because of the concept of
limited liability.
Let’s examine and analyze the concept of One-Person
Corporation in the American Setting.
EXAMINATION AND ANALYSIS
AUTHORITY OF SOLE STOCKHOLDER TO BIND HIS
COMPANY
Since in most instances the sole stockholder assumes the
management of the business, the question arises whether
he has the legal authority to bind the corporation when he
purports to act in its behalf for admittedly proper corporate
purposes. In some early cases it was held that he did not.
In Union National Bank v. State National Bank, the sole
stockholder executed a mortgage in the name of the
corporation. In a suit between the mortgagee and another
creditor, the court found the mortgage invalid. But this
exceptionally technical approach has gradually disappeared
since the turn of the century and today in most states the
sole stockholder may bind the corporation by his own acts.
The corporation has been held bound, even though it would
cause corporate property to be devoted to personal use of
the sole stockholder. For instance, a corporation was
required to pay a note signed in its name in payment of a
personal debt of the sole stockholder, and on a note signed
by the sole stockholder executed in payment for purchase of
the outstanding capital stock of the corporation.
• (In other words, even if it appears that there is a
concept of limited liability, it still has to be decided
on a case-to-case basis.)
The courts which deny the right of a sole stockholder to bind
his corporation are courts which are generally reluctant to
pierce the corporate veil in other cases. They are courts
which extinguish the separate identity only when necessary
to prevent fraud and injustice. This is interpreted to mean
the attempt by the sole stockholder to use the corporation
for an improper purpose. Evidently these courts do not view
this class of cases as within that interpretation.
The trend of the cases is in the direction of giving the sole
stockholder the same authority as is ordinarily possessed by
the board of directors.
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USE OF CORPORATE PROPERTY FOR PERSONAL
BENEFIT OF SOLE STOCKHOLDER
• Remember, in normal corporations, the properties
have to be used for the primary or secondary
purpose. That is to know which acts are ultra vires
and which acts and within the parameters of the
powers of the corporation.
• In One-Person Corporations, can the sole
stockholder just use the property for his personal
benefit? So that is one of the emerging issues.
If the corporation is insolvent, and the claims of other
creditors exist, the right of the trustee to recover from the
recipient disbursements for non-corporate purposes made
prior to insolvency will depend upon the financial status of
the corporation at the time the payment was made.
• So therefore, the question now is that – is the
incorporation of a One-Person Corporation done
for the purpose of evading liability? How do you
know that it is done for the purpose of evading
liability? You have to consider whether or not, nung
si-net-up ba siya, is the sole stockholder insolvent
already? If yes, then in that case, there is a
presumption that such entity is being used for
fraudulent purposes.
If the corporation had a surplus at the time of the payment,
recovery is denied. If the corporation was insolvent at the
time payment was made, recovery is clearly indicated.
If the corporation was solvent, but the capital impaired the
result cannot be accurately forecast. Some courts require a
restoration.
This result stems from an application of the trust fund
doctrine, which conceives of capital stock as a reserve pool
for the benefit of creditors. On the other hand, some courts
disregard that doctrine, and validate any payment even for a
non-corporate purpose, made while the corporation was
solvent.
The problem here is analogous to the right of the creditors to
recover dividends paid improperly out of capital, inasmuch
as the use of corporate property for personal purposes is, in
effect, the declaration of a dividend. It is submitted that the
holdings of those cases will govern the cases involving
improper corporate disbursements, in any particular state.
FACTORS LEADING TO PERSONAL LIABILITY
• Given that the stockholder is also the manager of
the business, what are the issues involved?
[1] MANNER OF OPERATION OF BUSINESS
Mere failure to comply with statutory formalities, such as
holding directors meetings, will not subject a sole
shareholder to liability. Nevertheless in many situations
the manner in which he conducts his business will be
important in determining personal liability. When the sole
stockholder has represented himself to the creditors “as
the business”, or told the creditors that “the corporation is
a mere name, but I really operate the store” or other
similar phrases, the sole stockholder is personally held
liable for the debts of the corporation.
When the disregard of corporate formalities extends
beyond the mere failure to hold meetings, elect directors,
etc., and instead leads to financial commingling of the
assets of the corporation with those of the sole
stockholder, the corporate separateness has been
destroyed by the stockholder himself.
• In other words, it becomes a case-to-case basis.
[2] INADEQUATE CAPITALIZATION
Personal liability may be imposed upon a sole stockholder
when he has established a corporation with inadequate
capital. The courts have refused to permit a person to
obtain the benefits of limited liability unless that person
has honestly risked an adequate amount of money. A sole
stockholder must be willing to endure the hazards of
business and should not be permitted to shift the burden
to his creditors. At the same time, it is granted that he may
be permitted to risk only a part of his own personal
fortune, for otherwise, the aspect of limited liability will be
meaningless. In other words, there is an attainable happy
medium.
• So kailangan may middle ground where I can serve
the purpose of the corporation for a limited liability
and at the same time, that would not be abused to
be a shield to perpetrate fraudulent transactions.
Most of the problems in this field have arisen from parent
subsidiary relationships, but those cases there are quite
helpful in solving the same problems in the one man
corporation situation.
[3] EXPRESS ASSUMPTION OF LIABILITY OR
GUARANTEE BY THE SOLE STOCKHOLDER
If the sole stockholder personally agreed in writing to pay
a corporate obligation, then no problem exists. There is no
reason why a sole stockholder cannot contract for his
company with the company in the position of a co-obligor.
• If the sole stockholder expressly assumed the
obligation, there would be no problem. Because the
obligation there becomes contractual. So it’s not
the Corporation Laws which will govern, but the
Contractual Laws, kasi you assumed liability. So
walang problema.
CLAIMS OF A SOLE STOCKHOLDER AGAINST HIS
OWN CORPORATION
Cases:
A sole stockholder who has sold his stock to other interests
now claims that the corporation is indebted to him, or the
corporation becomes insolvent and the sole stockholder
seeks to share in the distribution of the remaining assets.
When the corporation has been sold to other interests, and
a claim is made, the former sole stockholder will recover
where the claim was properly present on the books at the
time of the sale. If the parties had agreed that the sole
stockholder was not to recover any debts from the
corporation, then recovery will be denied. If the books failed
to indicate any corporate obligations to the sole stockholder,
recovery will also be denied.
The problems created by insolvency are more complex. The
cases can be divided into two classifications. Where the sole
stockholder adequately capitalized the corporation and kept
financial records, he will be allowed to share in the
proceeds. If the financial identities of the two parties were
merged so that it is impossible to determine accurately if the
sole stockholder is really a creditor, then his claim will be
denied. It is obvious that there is a real danger of simulated
claims. If the corporation was inadequately capitalized,
recovery will probably be denied.
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SUMMARY
The cases have shown that the one man corporation is
valid, provided that in its inception and operation proper
safeguards are maintained and fair dealing with third parties
exists.
• So if you try to look at the One-Person Corporation
foreign jurisdictions, okay naman siya. It’s good,
but there should be proper safeguards.
APPLICABILITY OF PROVISIONS TO ONE PERSON
CORPORATION
SEC. 115. Applicability of Provisions to One
Person Corporations. – The provisions of this Title
shall primarily apply to One Person Corporations.
Other provisions of this Code apply suppletorily, except
as otherwise provided in this Title.
DEFINED
SEC. 116. One Person Corporation. – A One Person
Corporation is a corporation with a single stockholder:
Provided, That only a natural person, trust, or an
estate may form a One Person Corporation.
Banks and quasi-banks, preneed, trust, insurance,
public and publicly-listed companies, and non-
chartered government owned and -controlled
corporations may not incorporate as One Person
Corporations: Provided, further, That a natural person
who is licensed to exercise a profession may not
organize as a One Person Corporation for the purpose
of exercising such profession except as otherwise
provided under special laws.
MINIMUM CAPITAL STOCK NOT REQUIRED
SEC. 117. Minimum Capital Stock Not Required for
One Person Corporation. – A One Person
Corporation shall not be required to have a minimum
authorized capital stock except as otherwise provided
by special law.
ARTICLES OF INCORPORATION
SEC. 118. Articles of Incorporation. – A One Person
Corporation shall file articles of incorporation in
accordance with the requirements under Section 14 of
this Code. It shall likewise substantially contain the
following:
[a] If the single stockholder is a trust or an estate, the
name, nationality, and residence of the trustee,
administrator, executor, guardian, conservator,
custodian, or other person exercising fiduciary
duties together with the proof of such authority to
act on behalf of the trust or estate; and
[b] Name, nationality, residence of the nominee and
alternate nominee, and the extent, coverage and
limitation of the authority.
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
We now have the concept of “nominee” and “alternate
nominee.” This is one of the safeguards given by our One-
Person Corporation.
BYLAWS
SEC. 119. Bylaws. – The One Person Corporation is
not required to submit and file corporate bylaws.
Because the By-Laws pertain to an internal rules and
regulations governing the conduct and affairs of the Board of
Directors. Mag by-laws siya sa kanyang sarili?
DISPLAY OF CORPORATE NAME
SEC. 120. Display of Corporate Name. – A One
Person Corporation shall indicate the letters “OPC”
either below or at the end of its corporate name.
So pwedeng, “Ateneo, OPC.”
SINGLE STOCKHOLDER AS DIRECTOR, PRESIDENT
SEC. 121. Single Stockholder as Director,
President. – The single stockholder shall be the sole
director and president of the One Person Corporation.
TREASURER, CORPORATE SECRETARY, AND OTHER
OFFICERS
SEC. 122. Treasurer, Corporate Secretary, and
Other Officers. – Within fifteen (15) days from the
issuance of its certificate of incorporation, the One
Person Corporation shall appoint a treasurer,
corporate secretary, and other officers as it may deem
necessary, and notify the Commission thereof within
five (5) days from appointment.
The single stockholder may not be appointed as the
corporate secretary.
A single stockholder who is likewise the self-appointed
treasurer of the corporation shall give a bond to the
Commission in such a sum as may be required:
Provided, That, the said stockholder/treasurer shall
undertake in writing to faithfully administer the One
Person Corporation’s funds to be received as
treasurer, and to disburse and invest the same
according to the articles of incorporation as approved
by the Commission. The bond shall be renewed
every two (2) years or as often as may be required.
So the treasurer, corporate secretary, and other officers
are now appointed by the sole stockholder.
“The single stockholder may not be appointed as the
corporate secretary.” Why is this? There has to be proper
recording, because kung One-Person Corporation ka, there
is that tendency na ang recording mo, maneobra.
The question is – is it easier to have a One Person
Corporation? Is it really a means to ease doing business?
You have to ask that.
SPECIAL FUNCTIONS OF THE CORPORATE
SECRETARY
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SEC. 123. Special Functions of the Corporate
Secretary. – In addition to the functions designated
by the One Person Corporation, the corporate
secretary shall:
[a] Be responsible for maintaining the minutes book
and/or records of the corporation;
[b] Notify the nominee or alternate nominee of the
death or incapacity of the single stockholder,
which notice shall be given no later than five (5)
days from such occurrence;
[c] Notify the Commission of the death of the single
stockholder within five (5) days from such
occurrence and stating in such notice the names,
residence addresses, and contact details of all
known legal heirs; and
[d] Call the nominee or alternate nominee and the
known legal heirs to a meeting and advise the
legal heirs with regard to, among others, the
election of a new director, amendment of the
articles of incorporation, and other ancillary
and/or consequential matters.
In other words, in One-Person Corporation, a single
stockholder is stripped of some of the rights of the BOD
because of the potential impact to third persons.
NOMINEE AND ALTERNATE NOMINEE
SEC. 124. Nominee and Alternate Nominee. - The
single stockholder shall designate a nominee and an
alternate nominee who shall, in the event of the single
stockholder’s death or incapacity, take the place of
the single stockholder as director and shall manage
the corporation’s affairs.
The articles of incorporation shall state the names,
residence addresses and contact details of the
nominee and alternate nominee, as well as the extent
and limitations of their authority in managing the
affairs of the One Person Corporation.
The written consent of the nominee and alternate
nominee shall be attached to the application for
incorporation. Such consent may be withdrawn in
writing any time before the death or incapacity of the
single stockholder.
Does the nominee/alternate nominee become the owner of
the One-Person Corporation in the event of death or
incapacity of a single stockholder? No. He only becomes the
director and manager. Saan napupunta ang ownership? The
ownership goes to the heirs.
TERM OF NOMINEE AND ALTERNATE NOMINEE
SEC. 125. Term of Nominee and Alternate
Nominee. – When the incapacity of the single
stockholder is temporary, the nominee shall sit as
director and manage the affairs of the One Person
Corporation until the stockholder, by self-
determination, regains the capacity to assume such
duties.
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
In case of death or permanent incapacity of the single
stockholder, the nominee shall sit as director and
manage the affairs of the One Person Corporation
until the legal heirs of the single stockholder have
been lawfully determined, and the heirs have
designated one of them or have agreed that the
estate shall be the single stockholder of the One
Person Corporation.
The alternate nominee shall sit as director and
manage the One Person Corporation in case of the
nominee’s inability, incapacity, death, or refusal to
discharge the functions as director and manager of
the corporation, and only for the same term and under
the same conditions applicable to the nominee.
Take note, “self-determination.” So, “Kaya ko na, move over,
ako na.” “I got this.”
“Until the legal heirs of the single stockholder have been
lawfully determined, and the heirs have designated one of
them or have agreed.” How do they do this? Depende. Kung
walang magco-contest, pwedeng extrajudicial settlement.
What if dalawa ang namatay? Pwede ba yun? What if they
have a legal relationship, nagbakasyon silang dalawa,
sabay sila sa plane, nag-crash yung plane. So that is why
there is an alternate nominee.
CHANGE OF NOMINEE OR ALTERNATE NOMINEE
SEC. 126. Change of Nominee or Alternate
Nominee. – The single stockholder may, at any time,
change its nominee and alternate nominee by
submitting to the Commission the names of the new
nominees and their corresponding written consent.
For this purpose, the articles of incorporation need not
be amended.
So, example, another flavor of the month.
MINUTES BOOK
SEC. 127. Minutes Book. – A One Person
Corporation shall maintain a minutes book which shall
contain all actions, decisions, and resolutions taken by
the One Person Corporation.
RECORDS IN LIEU OF MEETINGS
SEC. 128. Records in Lieu of Meetings. – When
action is needed on any matter, it shall be sufficient to
prepare a written resolution, signed and dated by the
single stockholder, and recorded in the minutes book
of the One Person Corporation. The date of recording
in the minutes book shall be deemed to be the date of
the meeting for all purposes under this Code.
Because of the seemingly negative effect of OPC to the
public, the Commission has provided the following
reportorial requirements:
REPORTORIAL REQUIREMENTS
SEC. 129. Reportorial Requirements. – The One
Person Corporation shall submit the following within
such period as the Commission may prescribe:
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[a] Annual financial statements audited by an
independent certified public accountant:
Provided, That if the total assets or total liabilities
of the corporation are less than Six Hundred
Thousand Pesos (P600,000.00), the financial
statements shall be certified under oath by the
corporation’s treasurer and president;
[b] A report containing explanations or comments by
the president on every qualification, reservation,
or adverse remark or disclaimer made by the
auditor in the latter’s report;
[c] A disclosure of all self-dealings and related party
transactions entered into between the One
Person Corporation and the single stockholder;
and
[d] Other reports as the Commission may require.
For purposes of this provision, the fiscal year of a One
Person Corporation shall be that set forth in its
articles of incorporation or, in the absence thereof, the
calendar year.
The Commission may place the corporation under
delinquent status should the corporation fail to submit
the reportorial requirements three (3) times,
consecutively or intermittently, within a period of five
(5) years.
Please take note of the reportorial requirements.
LIABILITY OF SINGLE SHAREHOLDER
SEC. 130. Liability of Single Shareholder. – A sole
shareholder claiming limited liability has the burden of
affirmatively showing that the corporation was
adequately financed.
Where the single stockholder cannot prove that the
property of the One Person Corporation is
independent of the stockholder’s personal property,
the stockholder shall be jointly and severally liable for
the debts and other liabilities of the One Person
Corporation.
The principles of piercing the corporate veil applies
with equal force to One Person Corporations as with
other corporations.
[TAKE NOTE! This is a very very important provision.
When you take the bar, this might be asked. And I think,
this will be the main issue for future cases.]
BURDEN OF PROVING
Kung ikaw si OPC, ikaw ang may burden. There is no
presumption of limited liability. It is now shifted. But this
is just my observation ha, kasi wala pang annotation
available. There is also no jurisprudence to clarify the
matter.
“The principles of piercing the corporate veil applies
with equal force to One Person Corporations as with
other corporations.”
This is the first time that the Doctrine of Piercing the Veil
of Corporation Fiction has been expressly provided in the
provision. Because it is originally a jurisprudence
doctrine.
ALTISO│BALGOA│BORBE│MASANGUID│PUBLICO│UGDANG│VALLENTE
If you would want to seek the defense of limited liability,
you have to prove that:
[1] It is adequately financed;
[2] There is no commingling.
This concept – this is taken from the cases in the US.
So, ang galing ng Congress natin. So original. Galing
noh? LOL.
CONVERSION FROM AN ORDINARY CORPORATION TO
OPC
SEC. 131. Conversion from an Ordinary
Corporation to a One Person Corporation. – When
a single stockholder acquires all the stocks of an
ordinary stock corporation, the latter may apply for
conversion into a One Person Corporation, subject to
the submission of such documents as the
Commission may require. If the application for
conversion is approved, the Commission shall issue a
certificate of filing of amended articles of incorporation
reflecting the conversion. The One Person
Corporation converted from an ordinary stock
corporation shall succeed the latter and be legally
responsible for all the latter’s outstanding liabilities as
of the date of conversion.
So anong gagawin ng single stockholder? Buy-out. He will
buy-out existing shares until such time na siya nalang ang
may-ari. That is the time that he can convert it into OPC.
CONVERSION FROM OPC TO ORDINARY STOCK
CORPORATION
SEC. 132. Conversion from a One Person
Corporation to an Ordinary Stock Corporation. – A
One Person Corporation may be converted into an
ordinary stock corporation after due notice to the
Commission of such fact and of the circumstances
leading to the conversion, and after compliance with
all other requirements for stock corporations under
this Code and applicable rules. Such notice shall be
filed with the Commission within sixty (60) days from
the occurrence of the circumstances leading to the
conversion into an ordinary stock corporation. If all
requirements have been complied with, the
Commission shall issue a certificate of filing of
amended articles of incorporation reflecting the
conversion.
In case of death of the single stockholder, the
nominee or alternate nominee shall transfer the
shares to the duly designated legal heir or estate
within seven (7) days from receipt of either an affidavit
of heirship or self-adjudication executed by a sole
heir, or any other legal document declaring the legal
heirs of the single stockholder and notify the
Commission of the transfer. Within sixty (60) days
from the transfer of the shares, the legal heirs shall
notify the Commission of their decision to either wind
up and dissolve the One Person Corporation or
convert it into an ordinary stock corporation.
The ordinary stock corporation converted from a One
Person Corporation shall succeed the latter and be
legally responsible for all the latter’s outstanding
liabilities as of the date of conversion.
NOTICE REQUIREMENT
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Please take note: Kapag magcovert ka from Ordinary
Corporation to One-Person Corporation, you apply for
conversion. Pag mag-convert ka from One-Person to
Ordinary Corporation, anong gawin mo? Just due
notice.
“In case of death of the single stockholder, the nominee
or alternate nominee shall transfer the shares to the
duly designated legal heir or estate within seven (7)
days from receipt of either an affidavit of heirship or
self-adjudication executed by a sole heir, or any other
legal document declaring the legal heirs of the single
stockholder and notify the Commission of the transfer.
Within sixty (60) days from the transfer of the shares,
the legal heirs shall notify the Commission of their
decision to either wind up and dissolve the One Person
Corporation or convert it into an ordinary stock
corporation.“
Even the heirs just need to notify the Commission if they
went to convert into Ordinary Stock Corporation.
“The ordinary stock corporation converted from a One
Person Corporation shall succeed the latter and be
legally responsible for all the latter’s outstanding
liabilities as of the date of conversion.”
Please take note of that.
I HAVE A QUESTION.
Why did they choose to grant a single stockholder the
right to have a One-Person Corporation? Diba, because
of the limited liability and separate juridical personality,
diba? Yun lang naman talaga eh. Why not grant the
limited liability to the sole proprietorship? Kung yun lang
talaga ang habol nila for ease of doing business, bakit
hindi nalang baliktad? Yung sole prop nalang kaya ang
grant-an ng limited liability? Hindi niyo ba naisip yun?
Kung ang habol ng tao na gusto mag-create ng One-
Person Corporation is because may separate juridical
personality, may limited liability, kung yun talaga yung
habol, why not give that concept of limited liability to sole
proprietorship instead of amending the Corporation
Code? DIBA? Magandang tanong yan.
Bakit ganun? Take time to ponder. Mag-isip kayo. (not
answered by sir)
Now, let’s proceed to Investigations, Offenses and
Penalties. Apparently, they have revised these
provisions to give more teeth to the violations of the
regulations. In other words, mas may impact na ngayon
ang Revised Corporation Code.
The only problem is that, when we discuss intracorporate
disputes, [you will learn that] the jurisdiction of some of
the offenses is given to the Regional Trial Court (RTC).
So it will actually further clog the dockets of the RTC. So
it becomes problematic when it comes to disposition of
cases.
INVESTIGATIONS, OFFENSES, AND PENALTIES
SEC. 154. Investigation and Prosecution of
Offenses. – The Commission may investigate an
alleged violation of this Code, or of a rule, regulation,
or order of the Commission.
The Commission may publish its findings, orders,
opinions, advisories, or information concerning any
such violation, as may be relevant to the general
public or to the parties concerned, subject to the
provisions of Republic Act No. 10173, otherwise
known as the “Data Privacy Act of 2012”, and other
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pertinent laws.
The Commission shall give reasonable notice to and
coordinate with the appropriate regulatory agency
prior to any such publication involving companies
under their regulatory jurisdiction.
So they can issue watch lists for alleged scammers. They do
have the right to do that, subject only to the Data Privacy
Act.
SEC. 155. Administration of Oaths, Subpoena of
Witnesses and Documents. – The Commission,
through its designated officer, may administer oaths
and affirmations, issue subpoena and subpoena
duces tecum, take testimony in any inquiry or
investigation, and may perform other acts necessary
to the proceedings or to the investigation.
SEC. 156. Cease and Desist Orders. – Whenever
the Commission has reasonable basis to believe that
a person has violated, or is about to violate this
Code, a rule, regulation, or order of the Commission,
it may direct such person to desist from committing
the act constituting the violation.
The Commission may issue a cease and desist
order ex parte to enjoin an act or practice which is
fraudulent or can be reasonably expected to cause
significant, imminent, and irreparable danger or
injury to public safety or welfare. The ex parte order
shall be valid for a maximum period of twenty (20)
days, without prejudice to the order being made
permanent after due notice and hearing.
Thereafter, the Commission may proceed
administratively against such person in accordance
with Section 158 of this Code, and/or transmit
evidence to the Department of Justice for preliminary
investigation or criminal prosecution and/or initiate
criminal prosecution for any violation of this Code,
rule, or regulation.
“The ex parte order shall be valid for a maximum period
of twenty (20) days, without prejudice to the order being
made permanent after due notice and hearing.”
So it can only be made permanent if there is due notice
and hearing.
If you are familiar with KAPA, I mean, the proliferation of
the KAPA Investment Scam, this is the only thing that the
SEC can do – to issue a Cease and Desist Order. They
cannot do further… Actually, they can revoke pero there
has to be a complainant kasi. Ang nangyari dun initially,
wala naman nagco-complain kasi nakakatanggap pa
naman sila.
So this [Cease and Desist Order] is the only thing they
can do, they can issue this ex parte. In fact, there was a
Cease and Desist Order na nga against that alleged
scam entity.
You know what I think? It’s either a scam or a tool for
money laundering. How do they get your investments?
By cash. How do they pay you your profits? By cash.
They don’t issue checks. But of course, pag may
natatanggap naman, hindi naman nagco-complain ang
mga tao.
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SEC. 157. Contempt. – Any person who, without
justifiable cause, fails or refuses to comply with any
lawful order, decision, or subpoena issued by the
Commission shall, after due notice and hearing, be
held in contempt and fined in an amount not
exceeding Thirty thousand pesos (P30,000.00).
When the refusal amounts to clear and open defiance
of the Commission’s order, decision, or subpoena, the
Commission may impose a daily fine of One thousand
pesos (P1,000.00) until the order, decision, or
subpoena is complied with.
SEC. 158. Administrative Sanctions. If, after due
notice and hearing, the Commission finds that any
provision of this Code, rules or regulations, or any of
the Commission’s orders has been violated, the
Commission may impose any or all of the following
sanctions, taking into consideration the extent of
participation, nature, effects, frequency and
seriousness of the violation:
[a] Imposition of a fine ranging from Five thousand
pesos (P5,000.00) to Two million pesos
(P2,000,000.00), and not more than One
thousand pesos (P1,000.00) for each day of
continuing violation but in no case to exceed Two
million pesos (P2,000,000.00);
[b] Issuance of a permanent cease and desist order;
[c] Suspension or revocation of the certificate of
incorporation; and
[d] Dissolution of the corporation and forfeiture of its
assets under the conditions in Title XIV of this
Code.
“Suspension or revocation of the certificate of incorporation”
– Ito ang pinaka-malaking magagawa ng SEC.
OTHER PUNISHABLE VIOLATIONS
SEC. 159. Unauthorized Use of Corporate Name;
Unauthorized Use of Corporate Name; Penalties. –
The unauthorized use of a corporate name shall be
punished with a fine ranging from Ten thousand
pesos (P10,000.00) to Two hundred thousand pesos
(P200,000.00).
SEC. 160. Violation of Disqualification Provision;
Penalties. – When, despite the knowledge of the
existence of a ground for disqualification as provided
in Section 26 of this Code, a director, trustee or officer
willfully holds office, or willfully conceals such
disqualification, such director, trustee or officer shall
be punished with a fine ranging from Ten thousand
pesos (P10,000.00) to Two hundred thousand pesos
(P200,000.00) at the discretion of the court, and shall
be permanently disqualified from being a director,
trustee or officer of any corporation. When the
violation of this provision is injurious or detrimental to
the public, the penalty shall be a fine ranging from
Twenty thousand pesos (P20,000.00) to Four
hundred thousand pesos (P400,000.00).
SEC. 161. Violation of Duty to Maintain Records,
to Allow their Inspection or Reproduction;
Penalties. – The unjustified failure or refusal by the
corporation, or by those responsible for keeping and
maintaining corporate records, to comply with
Sections 45, 73, 92, 128, 177 and other pertinent
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rules and provisions of this Code on inspection and
reproduction of records shall be punished with a fine
ranging from Ten thousand pesos (P10,000.00) to
Two hundred thousand pesos (P200,000.00), at the
discretion of the court, taking into consideration the
seriousness of the violation and its implications.
When the violation of this provision is injurious or
detrimental to the public, the penalty is a fine ranging
from Twenty thousand pesos (P20,000.00) to Four
hundred thousand pesos (P400,000.00).
The penalties imposed under this section shall be
without prejudice to the Commission’s exercise of its
contempt powers under Section 157 hereof.
SEC. 162. Willful Certification of Incomplete,
Inaccurate, False or Misleading Statements or
Reports; Penalties. – Any person who willfully
certifies a report required under this Code, knowing
that the same contains incomplete, inaccurate, false,
or misleading information or statements, shall be
punished with a fine ranging from Twenty thousand
pesos (P20,000.00) to Two hundred thousand pesos
(P200,000.00). When the wrongful certification is
injurious or detrimental to the public, the auditor or the
responsible person may also be punished with a fine
ranging from Forty thousand pesos (P40,000.00) to
Four hundred thousand pesos (P400,000.00).
SEC. 163. Independent Auditor Collusion;
Penalties. – An independent auditor who, in collusion
with the corporation’s directors or representatives,
certifies the corporation’s financial statements despite
its incompleteness or inaccuracy, its failure to give a
fair and accurate presentation of the corporation’s
condition, or despite containing false or misleading
statements, shall be punished with a fine ranging from
Eighty thousand pesos (P80,000.00) to Five hundred
thousand pesos (P500,000.00). When the statement
or report certified is fraudulent, or has the effect of
causing injury to the general public, the auditor or
responsible officer may be punished with a fine
ranging from One hundred thousand pesos
(P100,000.00) to Six hundred thousand pesos
(P600,000.00).
SEC. 164. Obtaining Corporate Registration
Through Fraud; Penalties. – Those responsible for
the formation of a corporation through fraud, or who
assisted directly or indirectly therein, shall be
punished with a fine ranging from Two hundred
thousand pesos (P200,000.00) to Two million pesos
(P2,000,000.00). When the violation of this provision
is injurious or detrimental to the public, the penalty is
a fine ranging from Four hundred thousand pesos
(P400,000.00) to Five million pesos (P5,000,000.00).
SEC. 165. Fraudulent Conduct of Business;
Penalties. – A corporation that conducts its business
through fraud shall be punished with a fine ranging
from Two hundred thousand pesos (P200,000.00) to
Two million pesos (P2,000,000.00). When the
violation of this provision is injurious or detrimental to
the public, the penalty is a fine ranging from Four
hundred thousand pesos (P400,000.00) to Five
million pesos (P5,000,000.00).
SEC. 166. Acting as Intermediaries for Graft and
Corrupt Practices; Penalties. – A corporation used
for fraud, or for committing or concealing graft and
corrupt practices as defined under pertinent statutes,
shall be liable for a fine ranging from One hundred
thousand pesos (P100,000.00) to Five million pesos
(P5,000,000.00).
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When there is a finding that any of its directors,
officers, employees, agents, or representatives are
engaged in graft and corrupt practices, the
corporation’s failure to install:
[a] safeguards for the transparent and lawful delivery
of services; and
[b] policies, code of ethics, and procedures against
graft and corruption shall be prima facie evidence
of corporate liability under this section.
SEC. 167. Engaging Intermediaries for Graft and
Corrupt Practices; Penalties. – A corporation that
appoints an intermediary who engages in graft and
corrupt practices for the corporation’s benefit or
interest shall be punished with a fine ranging from
One hundred thousand pesos (P100,000.00) to One
million pesos (P1,000,000.00).
SEC. 168. Tolerating Graft and Corrupt Practices;
Penalties. –A director, trustee, or officer who
knowingly fails to sanction, report, or file the
appropriate action with proper agencies, allows or
tolerates the graft and corrupt practices or fraudulent
acts committed by a corporation’s directors, trustees,
officers, or employees shall be punished with a fine
ranging from Five hundred thousand pesos
(P500,000.00) to One million pesos (P1,000,000.00).
SEC. 169. Retaliation Against Whistleblowers. – A
whistleblower refers to any person who provides
truthful information relating to the commission or
possible commission of any offense or violation under
this Code. Any person who, knowingly and with intent
to retaliate, commits acts detrimental to a
whistleblower such as interfering with the lawful
employment or livelihood of the whistleblower, shall,
at the discretion of the court, be punished with a fine
ranging from One hundred thousand pesos
(P100,000.00) to One million pesos (P1,000,000.00).
REPORTORIAL REQUIREMENTS OF CORPORATIONS
SEC. 177. Reportorial Requirements of
Corporations. – Except as otherwise provided in this
Code or in the rules issued by the Commission, every
corporation, domestic or foreign, doing business in
the Philippines shall submit to the Commission:
[a] Annual financial statements audited by an
independent certified public accountant:
Provided, That if the total assets or total liabilities
of the corporation are less than Six hundred
thousand pesos (P600,000.00), the financial
statements shall be certified under oath by the
corporation’s treasurer or chief financial officer;
and
[b] A general information sheet.
Corporations vested with public interest must also
submit the following:
[1] A director or trustee compensation report;
[2] A director or trustee appraisal or performance
report and the standards or criteria used to
assess each director or trustee.
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The reportorial requirements shall be submitted
annually and within such period as may be prescribed
by the Commission.
The Commission may place the corporation under
delinquent status in case of failure to submit the
reportorial requirements three (3) times, consecutively
or intermittently, within a period of five (5) years. The
Commission shall give reasonable notice to and
coordinate with the appropriate regulatory agency
prior to placing on delinquent status companies under
their special regulatory jurisdiction.
Any person required to file a report with the
Commission may redact confidential information from
such required report: Provided, That such confidential
information shall be filed in a supplemental report
prominently labelled “confidential”, together with a
request for confidential treatment of the report and the
specific grounds for the grant thereof.
VISITORIAL POWER AND CONFIDENTIAL NATURE OF
EXAMINATION RESULTS
SEC. 178. Visitorial Power and Confidential
Nature of Examination Results. – The Commission
shall exercise visitorial powers over all corporations,
which powers shall include the examination and
inspection of records, regulation and supervision of
activities, enforcement of compliance, and imposition
of sanctions in accordance with this Code.
Should the corporation, without justifiable cause,
refuse or obstruct the Commission’s exercise of its
visitorial powers, the Commission may revoke its
certificate of incorporation, without prejudice to the
imposition of other penalties and sanctions under
this Code.
All interrogatories propounded by the Commission
and the answers thereto, as well as the results of
any examination made by the Commission or by any
other official authorized by law to make an
examination of the operations, books, and records of
any corporation, shall be kept strictly confidential,
except when the law requires the same to be made
public, when necessary for the Commission to take
action to protect the public or to issue orders in the
exercise of its powers under this Code, or where
such interrogatories, answers or results are
necessary to be presented as evidence before any
court.
SEC. 179. Powers, Functions, and Jurisdiction of
the Commission. – The Commission shall have the
power and authority to:
[a] Exercise supervision and jurisdiction over all
corporations and persons acting on their behalf,
except as otherwise provided under this Code;
[b] Pursuant to Presidential Decree No. 902-A,
retain jurisdiction over pending cases involving
intracorporate disputes submitted for final
resolution. The Commission shall retain
jurisdiction over pending suspension of
payment/ rehabilitation cases filed as of 30 June
2000 until finally disposed;
[c] Impose sanctions for the violation of this Code,
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its implementing rules and orders of the
Commission;
[d] Promote corporate governance and the
protection of minority investors, through, among
others, the issuance of rules and regulations
consistent with international best practices;
[e] Issue opinions to clarify the application of laws,
rules and regulations;
[f] Issue cease and desist orders ex parte to
prevent imminent fraud or injury to the public;
[g] Hold corporations in direct and indirect
contempt;
[h] Issue subpoena duces tecum and summon
witnesses to appear in proceedings before the
Commission;
[i] In appropriate cases, order the examination,
search and seizure of documents, papers, files
and records, and books of accounts of any
entity or person under investigation as may be
necessary for the proper disposition of the
cases, subject to the provisions of existing laws;
[j] Suspend or revoke the certificate of
incorporation after proper notice and hearing;
[k] Dissolve or impose sanctions on corporations,
upon final court order, for committing, aiding in
the commission of, or in any manner furthering
securities violations, smuggling, tax evasion,
money laundering, graft and corrupt practices,
or other fraudulent or illegal acts;
[l] Issue writs of execution and attachment to
enforce payment of fees, administrative fines,
and other dues collectible under this Code;
[m] Prescribe the number of independent directors
and the minimum criteria in determining the
independence of a director;
[n] Impose or recommend new modes by which a
stockholder, member, director, or trustee may
attend meetings or cast their votes, as
technology may allow, taking into account the
company’s scale, number of shareholders or
members, structure, and other factors consistent
with the basic right of corporate suffrage;
[o] Formulate and enforce standards, guidelines,
policies, rules, and regulations to carry out the
provisions of this Code; and
[p] Exercise such other powers provided by law or
those which may be necessary or incidental to
carrying out the powers expressly granted to the
Commission.
In imposing penalties and additional monitoring and
supervision requirements, the Commission shall take
into consideration the size, nature of the business,
and capacity of the corporation.
No court below the Court of Appeals shall have
jurisdiction to issue a restraining order, preliminary
injunction, or preliminary mandatory injunction in any
case, dispute, or controversy that directly or
indirectly interferes with the exercise of the powers,
duties and responsibilities of the Commission that
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falls exclusively within its jurisdiction.
ARBITRATION FOR CORPORATIONS
SEC. 181. Arbitration for Corporations. – An
arbitration agreement may be provided in the articles
of incorporation or bylaws of a corporation. When
such an agreement is in place, disputes between the
corporation, its stockholders or members, which
arise from the implementation of the articles of
incorporation or bylaws, or from intracorporate
relations, shall be referred to arbitration. A dispute
shall be non-arbitrable when it involves criminal
offenses and interests of third parties.
The arbitration agreement shall be binding on the
corporation, its directors, trustees, officers, and
executives or managers.
To be enforceable, the arbitration agreement should
indicate the number of arbitrators and the procedure
for their appointment. The power to appoint the
arbitrators forming the arbitral tribunal shall be
granted to a designated independent third party.
Should the third party fail to appoint the arbitrators in
the manner and within the period specified in the
arbitration agreement, the parties may request the
Commission to appoint the arbitrators. In any case,
arbitrators must be accredited or must belong to
organizations accredited for the purpose of
arbitration.
The arbitral tribunal shall have the power to rule on
its own jurisdiction and on questions relating to the
validity of the arbitration agreement. When an
intracorporate dispute is filed with a Regional Trial
Court, the court shall dismiss the case before the
termination of the pretrial conference, if it determines
that an arbitration agreement is written in the
corporation’s articles of incorporation, bylaws, or in a
separate agreement.
The arbitral tribunal shall have the power to grant
interim measures necessary to ensure enforcement
of the award, prevent a miscarriage of justice, or
otherwise protect the rights of the parties.
A final arbitral award under this section shall be
executory after the lapse of fifteen (15) days from
receipt thereof by the parties and shall be stayed
only by the filing of a bond or the issuance by the
appellate court of an injunctive writ.
The Commission shall formulate the rules and
regulations, which shall govern arbitration under this
section, subject to existing laws on arbitration.
The corporation is granted a right to put an arbitration clause
in their articles of incorporation. In case of dispute, it shall be
referred to arbitration. This is for the purpose of declogging
the dockets of the courts.
JURISDICTION OVER PARTY-LIST ORGANIZATIONS
SEC. 182. Jurisdiction over Party - List
Organizations. – The powers, authorities, and
responsibilities of the Commission involving party-list
organizations are transferred to the Commission on
Elections (COMELEC).
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Within six (6) months after the effectivity of this Act,

the monitoring, supervision, and regulation of such
corporations shall be deemed automatically
transferred to the COMELEC.

For this purpose, the COMELEC, in coordination

with the Commission, shall promulgate the
corresponding implementing rules for the transfer of
jurisdiction over the abovementioned corporations.

“The powers, authorities, and responsibilities of the

Commission involving party-list organizations are
transferred to the Commission on Elections
(COMELEC).”

Kasi before, there was an anomaly that, as a

corporation or as an organization, they were subject to
the requirements of the SEC. Pero in its conduct, they
were subject to COMELEC. So ngayon, binigay na
talaga ng SEC sa COMELEC ang jurisdiction. And that
ends our coverage of the third exam. Charszt.

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