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Sec 74-75 speaks of the corporate books and records. Under sec 74, all corporations
registered under the provisions of the code are required to keep certain books and records.
First of them would be the records of all business transactions. Minutes of meetings of the
stockholders and directors, the stock and transfer book if it is a stock corporation or the
membership book if it is non stock and the financial statements. These books and records
are subject to inspection of the stockholders and directors during reasonable hours on any
business day and either personally or through the authorized representative of the
stockholder, either with or without his presence as held in W Phil pats(?) v. Philippine marine
manufacturing corporation, this is so because it maybe unavailing in many instances. Even
an ordinary lawyer may not know the entries in the financial statements particularly the foot
notes therein so much so that the particular stockholder consent may need the expertise of
an auditor to go over these financial statements that it why it may be made through another
inspection. Now, non stockholders cannot inspect the books and records of the corporation
even if they maybe the heirs of the deceased stockholders as held in the case of puno v
puno enterprises it was ruled that the stockholders right of inspection is based upon
ownership of shares in the corporation and the necessity of self protection. After all, the
stockholder has the right to be intelligently informed about the corporate affairs. Such right
(right of inspection) rests upon the underlying of corporate assets and property. Such that
only stockholders of record are entitled to receive dividends declared by the corporation, a
right inherent in stock ownership. The same holds true with the right of inspection, in that
particular case of puno v. Puno ent., the owner of the shares of stocks died and upon the
death of the stockholder, the heirs do not automatically become the stockholders of the
corporation and acquire the rights and privileges of the deceased stockholder of the
corporation. The stocks must be distributed first in an estate proceedings and the transfer of
stocks must be recorded in the books of the corporation as required by sec. 63 as we said or
as said, it is a bedrock rule that whoever owns the shares as appearing in the books of the
corporation will exercise the rights of the stockholder. The corporation will not look beyond
its books to determine who the stockholders are. During such interim period or after the
death of the stockholder and during the interim until and unless the shares of stocks are
distributed to the heirs in an estate proceeding, the heirs stand as the equitable owners of
the stock, the executor, administrator duly appointed by the court being vested with legal
title of the stocks will exercise that right. The right to vote, or to receive dividends. Until a
settlement and division of the state is affected the state of the decedent are held by the
executor or administrator who are entitled to exercise the rights of the deceased
stockholders. The heirs have no title in the mean time and they cannot exercise the rights of
the deceased stockholder. One particular matter that may be of importance in this particular

provision is the question of whether or not a stockholder of a holding company may inspect
the books and records of the subsidiary even if he is not a stockholder of the subsidiary
corporation like for instance with Ayala Corporation. Ayala Corporation is a holding company;
among the subsidiaries are ayala Land, globe telecom, bpi and the like. If you are a
stockholder of ayala corporation but not a stockholder of globe. Can you inspect the books
and records of globe? It depends. If the holding company or the parent company wholly
owns the stocks of the subsidiary, then YES. This was the ruling of the SC in Gokongwei v
SEC. Where SMC wholly owns the San Miguel Company International the Brewery in HK,
Gokongwei is the stockholder of SMC but not the stockholder of SMBHK; it is a wholly owned
company of SMC. SC said that considering the subsidiary is wholly owned subsidiary. It would
be more in accord with equity, good faith and fair dealing to construe the stockholders right
of inspection to cover the books and records of the wholly owned subsidiary. Apparent from
the pronouncement of the court in this case is that if the 2 entities that is the parent or the
holding company and the subsidiary are legally being operated as separate and distinct
company, there will be no such right of inspection that may be granted to the stockholder of
the parent or holding company if he is not also a stockholder of the subsidiary. So in our
particular example, Ayala Corporation the parent company or holding company of Ayala
Land, BPI & Globe, if you are a shareholder of Ayala Corp but not the subsidiaries, you
cannot inspect the books and records of the subsidiaries. Note that Ayala Corp, Ayala Land,
BPI and Globe are publicly listed companies. Therefore, they are not wholly owned by the
corporation. The pronouncement of the higher court is "if the subsidiary is wholly owned by
the parent company, Yes, the stockholder of the parent can inspect the books of the wholly
owned subsidiaries, but if NOT, then no such right is granted to the stockholder of the parent
or holding company." Of course, if a stockholder or member is refused the right of
inspection, the remedy available would be mandamus with a claim for damages and
attorneys fee or for a criminal complaint for the violation of his right Sec 144 (Penal
Sanction for any violation of the code which is subjected to a fine of at least 1000 to 10,000
pesos and/or 30 days to 5 years of imprisonment at the discretion of the court. There may
be defenses that maybe advanced by particular corporate officers denying the right of
inspection of the stockholders or members. First under Sec 74, improper use of information
secured through previous examination or that the stockholder is not acting in good faith or a
legitimate purpose OR as we noted earlier in PNB v GONZALES, there is a special law,
restricting the right of stockholder to inspect the books and records. In the case of
GONZALES V. PNB, Gonzales is a stockholder of PNB; he wanted to inspect the books and
records of the bank. The SC ruled that he cannot, because the PNB is a corporation created
by law, Accdg to Sec 4, and then the provisions of the law creating it will apply,
supplemented only by the provisions of the Corporation Code. In the case of PNB, there is a
provision in the charter that the corporate books particularly the financial books and records
of PNB can only be inspected only by the monetary board of the Central Bank. No
stockholder therefore can inspect the financial books and records of the PNB.
The right of the stockholder to inspect the books and records of the corporation is not as
broad as the right of the directors or trustees, the stockholders can inspect all business
transactions, membership book or the stock and transfer book, the minutes of the meeting
and financial statements. The directors however are entitled to all data or information in
order that they may exercise their right to vote on certain matters that may have something
to do with the operations of the company even proposed mergers, consolidation, trade
secrets, they are entitles thereto. Whereas the stockholders rights will be limited to those
enumerated earlier on. Such as in the case of Gokongwei v SEC again, there was a bylaw
provision which disqualified a stockholder from being elected as member of the board if he
happens to be a stockholder of another corporation directly in competition with SMC, in that
particular case, Gokongwei was able to acquire so much number of shares of SMC that by
casting his own shares of stocks, he may be elected as member of the board. Would he have
sat as member of the board, then he would have been entitled to all these data of SMC and
may have applied them in favor of his own corporation to the damage and prejudice of SMC.

Of course, we noted that the bylaws may provide for additional qualifications and
disqualifications of the board of directors under Sec 47 of the code.
78 to 80, which would cover mergers and consolidations was inserted by the framers of BP
68. We did not have any provision in the old law that empowers a corporation to enter into
mergers and/or consolidation. Although of course the supreme court had earlier ruled in 1
case DLTB Trans Corporation that the power of the corporation to sell, dispose, exchange,
mortgage all or substantially all of its assets may cover a situation involving mergers dahil
tinransfer mo ung assets mo in another corporation and you acquired the shares of the
corporation to whom your assets or properties are transferred that may also cover a
situation involving mergers and/or consolidation. Merger of course, speaks of the union of 2
or more corporations by absorbing 1 or some of them and another will survive. Consolidation
is the amalgamation of 2 or more corporations by transferring their assets to another
corporation which will absorb the constituent corporation. The constituent corporations in a
consolidation will all be dissolved. In a merger there is surviving or an absorbing corporation.
Mergers and/ or consolidation is one of the more taxing matters that the processing officer
or lawyer may undertake. It is a very complicated matter. You consider the client base of the
corporations involved for instance. Like the case of mergers of the Far East Bank and BPI,
they consider their clients for the purpose of determining the valuation of the shares of the
particular corporations involved, they do sometimes. Mergers will become effective only
upon the issuance of the certificate of merger or consolidation by the SEC under Sec 79.
And Sec 80 is a very important provision, that would be the effect of mergers and/or
consolidation. Why corporations would merge or consolidate depends on the situation of the
particular corporations involved but for most, it is to put the company back on its financial
capabilities but for some, it may be for any other reason. Just like BPI and FEBTC, they
merge. Like BDO, nagsimula sa Equitable and PCI Bank, why did they merge when they were
the top 10 banks of the countries they were financially capable to carry out the purpose and
objects of their corporation and organization, the reason being is that they wanted to be
more competitive with foreign banks that came to the Philippine shores when it was
liberalized, when the banking industry was liberalized. It was not because of financial
incapacity. As I was saying, Sec 80 is an important provision, the effects of mergers and or
consolidation. The constituent corporation or the parties to a merger or consolidation shall
become a single corporation, which in the case of a merger will be the surviving or
absorbing corporation and of course if its a consolidation, it is the consolidated corporation.
Second item of Sec. 80 states that the separate existence of the constituent corporations
shall cease. Which means that they are dissolved? Except of course the surviving or
absorbing corporation in a merger or the consolidated corporation. The surviving or
consolidated corporation shall possess all the rights, immunities and powers and shall be
subject to all duties and liabilities of a corporation organized under the code. Item 4 is the
MOST IMPORTANT. The surviving corporation shall there upon and thereafter possess all the
rights, privileges, immunities and franchises of each of the constituent corporations, the
parties to the merger or consolidation and all property real or personal and all receivables,
due on whatever account including subscriptions to shares and other choses in action and all
and every other interest of belong to or due to its constituent corporations shall be deemed
transferred and vested to the surviving or consolidated corporation without further act and
deed. AUTOMATIC YAN. All rights, privileges, franchises, immunities of the absorbed
corporation will of course be transferred to the surviving or absorbing corporation
AUTOMATICALLY. Ung pinautang the absorbed corporation ay pag-aari na ng absorbing
corporation AUTOMATICALLY.
The 5th item, the surviving or consolidated corporation shall be responsible and liable for all
the liabilities and obligations of the constituent corporations. In the same manner as if such
surviving or consolidated corporation had it incurred such liabilities or obligations. There is
one case that applied the provisions of Sec 80 of the code and it involved BPI v BPI

employees union. The question is: Whether or not the employees of the absorbed
corporation will also be absorbed by the surviving or absorbing corporation because all
rights, liabilities and obligations of the absorbed corporation are supposed to be transferred
without further act and deed to the absorbing or surviving corporation. Included ba ang mga
SC: NO. It was ruled that in legal parlance, human beings are never embraced in the term
"assets and liabilities" as provided for under the law. Moreover, BPI's absorption of the
former FEBTC employees was neither by operation of law or legal consequence of a contract.
There was no government regulation or law that compelled the merger of the 2 banks or the
absorption of the employees of the dissolved or absorbed corporation by the surviving
corporation. Had there been such a regulation, the absorption of the employees of the
absorbed entities would be mandatory on the part of the absorbing or surviving corporation.
The court noted that the corporation code does not mandate the absorption of the
employees of the non surviving corporation in case of merger.
The articles of merger or the plan of merger dated April 2000 did not contain any specific
stipulation with respect to the employment contracts of the existing personnel of the
absorbed corporation which in this case is the FEBTC. The rule is that, unless expressly
assumed, labor contracts such as employment contracts and CBA, are not enforceable
against a transferee of an enterprise. Labor contracts, being in personam, thus binding only
between the parties. A labor contract merely creates an action in personam and does not
create any real right which should be respected by third parties. This conclusion ruled the
court in the case, draws its force from the right of an employer to select its employees and
to decide when to engage them as protected under our Constitution and the same can only
be restricted by law through the exercise of police power. It is likewise ruled that it is
contrary to public policy to declare the employees of the absorbed corporation as forming
part of the "assets and liabilities" of the absorbed corporation that were transferred and
absorbed by the BPI in the Articles of Merger.
"Assets and Liabilities" in this instance shall be deemed to refer only to property rights and
obligations and not to include employment contracts which we said are contracts in
personam. A corporation cannot unilaterally transfer its employees to another employer like
a chattel. Hindi chattel ang human beings. Certainly, BPI as an employer, has right to choose
who to retain and be under its employ. Even if the FEBTC does not have control in the
merger of the employer, they have choice w/n they would allow themselves to be absorbed
by the BPI. This involves more of labor law, but this is a merger. FEBTC may also retire or
resign instead of going along absorption by the surviving corporation. SC said that
employment is a personal consensual contract and absorption of BPI of the former FEBTC
employees without the consent of the employee will be in violation of the individuals
freedom to contract. So much so, that it is also the prerogative of the employees w/n they
should be absorbed. Then if not so, it would tantamount to "involuntary servitude".
Sec 81 is appraisal right. Appraisal right is a right granted to dissenting or objecting
stockholders on certain corporate business decisions and demand payment of the fair value
of his share. This right of appraisal is not at all times available in any matter where a
stockholder may object to certain corporate decisions. It may be exercised only in instances
provided for by law. Under Sec 81, it enumerates 3 instances where an objecting stockholder
may exercise this right.
1. In case of any amendment of the AOI which may have the effect of changing or restricting
shortening the term of the corporate existence
- In that first instance, it is NOT always available in any amendment of the AOI. The
amendment must change or restrict the rights of any stockholder. To some, an amendment
may change or restrict his right, to others, it may not. For instance, changing the principal

office of the corporation for QC to Pasay, will that change or restrict the right of the
stockholder? I dont think so. Why not? Reasoning Malayo. We noted that in cases of
meetings, Metro Manila is considered as one City or Municipality so the reasoning will not
hold water dahil the stockholders may meet anywhere in the Philippines also eh kung ang
change of principal office from Manila to Tawi Tawi, will it change the right of any
stockholder? Maybe. To some it may not, to others it may. So much so that if you look at Sec.
86, the instances when a stockholder may cease to be paid the value of his shares in the
exercise of his appraisal right is if the court or the SEC, finds that he is not entitled thereto.
Sabi niya, the amendment changing the principal office from QC to tawi tawi dahil nga may
phobia siya sumakay sa eroplano. Nagkaroon ng case na finile sa SEC or Court, sabi ng
corporation, it will not affect your right as a stockholder eh Muslim naman ang asawa mo eh,
sabi mo takot sa Muslim. SO the SEC may say NO, it does not restrict your right as a
stockholder. You cannot exercise your appraisal right. It will be based on the facts and
circumstances attendant to a particular case.
The other instances when this right maybe exercise is in the case of sale. Btw, speaking of
the amendment of the AOI, nagamend of AOI changing the principal office, nagobject ung
stockholder, he got out voted, he exercised his appraisal right. Sabi ng court, from QC to
Pasay City lang naman, you have no right of appraisal, it will not change or restrict your right
as a stockholder. Eh papaano kung ung stockholder ay stockholder ng close corporation, will
that also hold true. HINDI. Dahil the right of a stockholder in a close corporation to demand
the payment of the fair value of his shares is for any reason. Ayaw na niya pagmumukha ng
asawa niya, ayoko na, nagger asawa ko, bayaran niyo shares ko para di ko na makita. Wala
ka magagawa.
2. The other instance is the case of sale, lease, exchange, transfer, mortgage, pledge or
other disposition of all or substantially all of the corporate assets or property.
3. In case of mergers or consolidation.
Of course, we take not also the provisions of Sec. 42. It provides that in case of investment
of corporate funds in another corporation or business other than the primary purpose, an
objecting stockholder can also exercise his appraisal right.
Sec 83 speaks of the effects of the right of this appraisal right (dahil kapag nag exercise ka
ng appraisal right mo, you have to write the corporation that you be paid the value of shares
within 30 days from the date of the meeting) from the time of the demand of payment of the
fair value of stockholders share until the abandonment of the corporate action involved or
the purchase of said shares by the corporation all rights accruing to the shares of the
stockholder exercising that appraisal right, including voting and dividend rights will be
suspended. Provided that if the stockholder is not paid the value of his shares within 30 days
from the award, his voting and dividend rights will immediately be restored. Distinguishing
this from the right of a delinquent stockholder, a stockholder exercising his appraisal right,
the delinquent stockholder is entitled to receive his dividends in accordance with Sec. 43.
Whereas a stockholder exercising his appraisal right is not entitled to any of it. Both
however, have no voting rights. And again the issue is may a stockholder, exercising his
appraisal right if he is also a director, lose his right to be and act as director? NO. Until his
shares are fully paid for by the corporation. In fact under the law, if he is not paid within 30
days from the date of the award, he regains his status as a stockholder.
One questions asked in the bar, at what point and time should the fair value of the shares of
the stockholders exercising his appraisal right be determined?
The correct answer is on the day prior to the meeting where the corporate action was taken
up. Irrespective of subsequent appreciation or depreciation of the value of the shares. Let us
say the value of the shares at the time that the amendment of the AOI was taken up,

pinalitan primary purpose. You invested your money for a particular corporate purpose and if
it changed, your right will be restricted or changed. The value of the shares the day before is
100 pesos per share that will be the value. Eh yung Corporation ginamit na lahat ng pera
pambili. A year after, kumita ng pera, ung ibabayad parin is the value of the shares the day
before. Once you exercise your appraisal right, it remains. If walang pera ung corporation,
you will not be paid because it must have URE thats one of the limitations imposed by the
law on the right to reacquire its own shares. Pag nagappraisal right ka, it is effect of
imposing the corporation that they should reacquire the share of the particular stockholder.
Eh wala na ngang pera ung corporation. Nung nakita niya, sabi niya, I will withdraw my
exercise of my appraisal right, Can he do that? YES. It says, with the consent of the
corporation. Kung away ng corporation, Ayaw niya kasi bakit pa natin bibigyan yan, oh di
babayaran nila 1,000 per share ung shares niya at the time or date prior to the date of his
appraisal right. Of course nung lumaki value ng share, but that will not be the basis.
Irrespective of appreciate or depreciation of the value of the shares.
Non- stock corporations covered and governed by title 11 of the Code. One where no part of
its income is distributable as dividends to the members, trustees or officers under Sec 87.
This definition is actually more of a reiteration of Sec. 3. Defining stock corporation.
If it is not authorized to distribute allotment of its surplus profits by way of dividends, it is a
non-stock corporation and as we said earlier, there are some corporations with capital stocks
divided into shares but they are not authorized to distribute dividends to the stockholders. If
that is the case, then it is a non stock corporation. Like the sports club, golf clubs, they have
capital stocks divided into shares but are not entitled to distribute dividends. As we noted
earlier, the importance of determining the type or kind of corporation involved will also serve
important in determining what provision of the law or the code is applicable to the
corporation involved. Under Sec 87, non stock corporations, the provisions governing non
stock corporation it says when pertinent is also applicable to non stock corporation except
as maybe covered by specific provision of title 11. So lahat ng provisions ng stock
corporations kung walang specific provision ng title 11, will also apply to non-stock
corporations. Of course there are significant difference between stock and non stock
corporation. Parang ung tax angle na lang eh. Tax Code for instance imposes certain taxes in
stock corporations but not in non stock corporations. Example in the case of Club Filipino de
Cebu, stock corporations engaging in the restaurant business is taxed on a certain
percentage. Non stock are not so taxed. In the case of the rights of stockholders or
members, the voting rights under Sec 89, each members in a non stock corporation shall be
entitled to only 1 vote. Thus, cumulative voting is generally not allowed in a non stock
corporation. But cumulative voting is a matter of right in a stock corporation. I said however,
it is not generally allowed in a non-stock corporation since the by laws, may limit, broaden or
deny voting rights of the members. If the bylaws would allow, then so be it.
Proxy voting is also a matter of right in a stock corporation and cannot be denied by the AOI
or by laws. As we said, the doctrine of limited capacity. The corporation can only do such
acts or things as the law allows them to do. 24 grants as a matter of right the right to vote
by proxy. Is it a matter of right also in a non-stock corporation? NO. As said in 89, voting
rights of SH in non stock corporation may be limited, broadened or denied. It can be denied.
The nature of membership in a non-stock corporation is personal and non-transferrable
unless the bylaws provide otherwise. Like the alumni association, can you be a member of
the Arellano Law alumni Association if you are not a graduate of the law school? Of course
not. The code is clear, it is non-transferrable unless the bylaws provide otherwise. Normally,
these are transferrable by express provisions of the law. Now being transferrable, is there a
distinction between a transferee of shares of stocks in a stock corporation and a transferee
of membership shares in a non stock corporation to compel the corporation that they be
registered in the book of corporation. We noted that it ministerial on the part of the
corporation to register transfer shares of stocks and if it refused without good cause,
mandamus may be issued. Will this hold true in non stock corps, in the event that the shares
or the membership certificates are made transferrable? NO. Because membership or the

right of the transferee to be a member in a non stock corporation is subject to the rules and
regulations of the non stock corporation. They can promulgate rules and regulations to
determine who their members are. Under Sec 36, item 6, the power and authority to admit
members, the corporation may validly provide in the bylaws or rule regulations the manner
by which membership maybe acquired. They may set up their own ideal or standard for the
purpose of admitting members. You maybe a shareholder but not a member because
membership are subject to the rules and regulations of the particular non stock corporation.
They set their own ideals and standards. Even the financial capability of the shareholder is
considered by these clubs. When I was still with SEC, there were 3 instances when a
transferee of share of stock of wack wack filed a complaint in the SEC by mandamus to
admit him as a member because he is in possession of a certificate of stock endorsed and
delivered to him by a transferor. The ruling of the SEC: NO, it is subject to the rules and
regulations of the corporation. What if the member of Wackwack golf has been playing there
for the last 40 years, matanda na, eh walang pamilya, sabi niya sa driver niya, sa iyo na lang
ito. This was actually confirmed by the high court. In the case of CEBU COUNTRY CLUB V.
ELIZA GAKE(?), it ruled that a nonprofit and non stock club has the right to approve or
disapprove application for proprietary membership. They can set their own criteria or
standards n the admission of members. You are a transferee, but are you a member? NO.
Until and unless you are admitted as such. Di naman talaga sila marunong mangabayo,
hindi marunong maggolf. For investment lang talaga. They can sell these shares without
being members because the club can set their own criteria and standards for admission. The
court ruled that the right should NOT be exercised arbitrarily, Eliza acquired shares of the
club, when he was able to acquire, and he applied for membership. The application was pre1977, it was only later on that he was advised in August of 1977 that his application was
disapproved. So he wrote a letter for reconsideration but the club did not answer. Again
Cebu Country club kept silent. She wrote letters many times but was not answered again
and again. He instituted the case. It appears however, that the manner in which the
members of the club is to be admitted has been amended. Under the old by laws of the
corporation, a member maybe admitted if there is a majority decision of the members of the
board. It was amended: Any ONE objecting member will have the effect of denial. The form
given to him was the old law and not the amended one.
Reason of the respondent: not enough funds for the printing of the new application form, SC
said reason was flimsy.
Sec 19 of the CC, every person must in the exercise of right, act with justice, give everyone
his due. Act with honesty and good faith.
Place of meetings of members in a non stock corporation may be different in stock
corporation. Sec 51 - in the city/municipality where the principal office is located. Unless,
otherwise, there is a specific provision of title 11, then it will apply to non stock corporation.
Unless there is a specific provision in title 11.
Sec 93 however provides: membership meetings in a non stock corporation may be held
anywhere in the Philippines.
The bylaws of a non stock corporation may validly provide that meetings of the members
maybe held anywhere in the Philippines. That is not the case in a stock corporation. It is only
in the place of the principal office. If there is no by law provision authorizing membership
meeting to be held anywhere, rule on stock corporation will apply.
Again, this was an insertion to the new BP 68. Philippine Public Teachers association,
principal office is in QC, they have a general membership meeting in Baguio city.
There are national associations which may require them to meet elsewhere to know the
needs of their constituents. This provision, authorizes non stock corporation to hold
meetings anywhere in the Phils. as long as provided in the by laws
Trustees (or any other name designated).. Board of trustees usually governing board in a
non stock corporation. Stock corporation not less than 5 not more than 15. Like IBP, National
Chapter, the members of the Governing board of directors is 21. Is that valid? Association of

lawyers, YES. it may exceed 15 in a non stock corporation. Unless otherwise provided in the
AOI or by laws the number of governing board may exceed 15.
Term of office of governing board. Stock corporation - term: 1 year until their successors
have been duly elected and qualified in accordance with law. (term and tenure are different
Non stock - maybe 3 years, if such be the case, however, they shall organize themselves so
that 1/3 of their membership shall expire every year. Then we have the other corporate
Speaking of meetings, may the members in a non stock vote by mail or any other similar
case? YES. subject to the term and conditions approved by the SEC. This is not available in
ordinary stock corporation. They may vote by giving their written assent but generally, they
should cast their vote for the meeting called for that purpose.
President, Sec, Treasurer - in a stock corporation, these other corporate officers are elected
by the members of the boards of directors. In the case of a non stock corporation, unless
otherwise provided for in the AOI or by laws, the other officers, maybe directly elected by
the members. Unless otherwise provided in the AOI.
But is that absolute in case of stock corporation that the BOD should elect other officers?
Sec 97, close corporation, Aoi may provide that other corporate officers even employees
maybe elected directly by the stockholders. This close corporation is actually the next title of
the corporation code. Title 12.
Close Corporation.
Again, an insertion of BP68. We had no provisions in the old law regarding close corporation.
It is a combination of both a partnership and corporate form of business. Close corporation
implies exclusive ownership of shares of stocks - like family. They would prefer to keep
business between and among themselves, will not welcome strangers. Limiting their liability
to the extent of the subscription to the capital stock which they could not do so if they
formed a partnership. Because we noted that there would always be a general partner. A
close corporation is availed of para hindi liable as a partner. There was no provision in the
old law that limits members in a close corporation. Sec. 96, all of the shares of stocks of a
close corporation shall be held of record by not more than 20 specified persons. Of course,
all of its shares of any class shall be subjected to 1 or more specified restrictions allowed by
the code. There was nothing in the old law that would provide for restrictions in transfer of
shares of stock in a family corporation. Now, it is clear, all of its shares of any class, will be
subjected to one or more specific restrictions allowed by the code. Under the old law, there
was nothing that would bar the corporation from selling their shares to the general public or
listing for the trade of stocks. Now, it shall not make any public offering or list in any stock
exchanges. The definition of a close corporation is clear and specific, the 3 qualifying
conditions should be indicated in the articles of incorporation.
A close corporation is one whose AOI provide:
1. That all of its shares of any class exclusive of treasury shares shall be held of record by
not more than 20 specified persons. All of its shares of any class shall be subject to 1 or
more specified restrictions allowed by the code and shall not list in any of the stock
exchanges nor make any public offering of any of its shares of any class. ALL these
provisions must be indicated in the AOI. Take anyone of them, they will not be a close
corporation. Tulad yung all of its shares of any class. A, B, C, classes. Yung C, walang
restrictions. Automatic, hindi na close corporation. It will not be governed by title 12, but
general provisions for stock corporations. IN San Juan Structural Steel v. CA, A corporation,
does not become a close corporation because husband and wife holds 99.98% of the capital
stock. Therefore it will governed by the ordinary provisions. Because the qualifying
conditions must be complied with. All the 3 conditions must be included in the AOI. Note
however that close corporation may not be formed for ANY PURPOSE. Cannot be for Mining

and Oil companies, By express provision of 96, stock exchanges, banks, insurance
companies, public utilities, educational institutions and other corporations invested with
public interest. The provisions of title 12 are very exciting provisions and applicable only to
close corporations. The special provisions alone, there are already comparisons between a
close corporation and ordinary stock corporation. The number of stock holders alone, must
not exceed 20. In ordinary corporations, it may reach thousands to the extent that AOI may
provide that management of the corporation may be vested in the stockholders which
ordinarily in the stock corporation - BOD.
General rule, stock holders may have all the profits but shall turn over the management of
the corporate affairs with the governing board.
Close corporation, they may do away with a governing board, wala silang board of directors.
Vesting management directly to the stockholders themselves. So much so, that if there are
20 stockholders, then there will be 20 managers of the corporation. All of the shares of
stocks are subject to 1 or more specified restrictions and transfer of shares. In an ordinary
corporation, there will be no such restrictions. These restrictions will serve as protection
from outsiders from the management of corporate affairs.