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BUSINESS ORGANIZATION II TRANSCRIPT

From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17


ADDU-Law

Dec. 14 2016 Acosta, M. office you qualify to a position when? To qualify for office
means you accept the burden of office, so take an oath,
TITLE III- so you make it your own. Mamili ka man, kung di ka
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS maapoint, mao gihapon di ka kalingkod.

Section 23. The board of directors or trustees. – What is the age qualification of a senator? The
Unless otherwise provided in this Code, the qualifications are in the Constitution; they cannot be
corporate powers of all corporations formed under increased or decreased. It is determined by the
this Code shall be exercised, all business Constitution, we are talking about qualifications. To
conducted and all property of such corporations qualify needs to take oath. When do you have to that age
controlled and held by the board of directors or when you are president? You have to meet the
trustees to be elected from among the holders of requirements when you qualify, when you run you may
stocks, or where there is no stock, from among the not yet be of that age but when you take oath you must
members of the corporation, who shall hold office be that is the case of Benigno Aquino vs COMELEC
for one (1) year until their successors are elected that is when the Supreme Court says the qualifications
and qualified. (28a) must be met when they take oath.

Every director must own at least one (1) share of the


 So if you are elected and you are not yet a
capital stock of the corporation of which he is a
shareholder then after you are elcted you are
director, which share shall stand in his name on the
granyted the privilege of buying one share so that
books of the corporation. Any director who ceases
yo can sit, is that alright?
to be the owner of at least one (1) share of the
capital stock of the corporation of which he is a
director shall thereby cease to be a director.
Trustees of non-stock corporations must be Yes that’s alright. You satisfy section 23
members thereof. A majority of the directors or because when you are elected as director you do not
trustees of all corporations organized under this become director right away you first accept the position,
Code must be residents of the Philippines. you do not take an oath but you attend a meeting now
you are director.
Remember the board of directors is a body
Section 23 is that the powers of a corporation, politic. When you sit as director then you are a director, a
the ownership of property of a corporation are vested in member of a body politic known as the board of directors.
the board of directors. The board of directors is So disabuse yourself of the pedestrian idea na pag
considered the body politic that which is vested the director na tag iya na siya sa corporation- kana ligas lang
exercise of the powers of the corporation and the holding na sa dila-pero mahulog na sa pagka-ignorante, ayaw
of the property of such corporation and this form is mug suod ana.ayaw. abogado ka, technical imong
constituted by the stockholders or members of a panghuna-huna, di gani ni na mapakita sa Bar, hagbong
corporation. ka do. Hagbong ka. You should know what section 23
For stocks and profit corporation, the general says.
rule is that the term of the board of directors, those Nay director musud sa opisina muingon na nga
selected to the board is 1 year but there is an automatic kini kinahanglan ni nya wa may authority wa may
holdover clause in section 23, if a successor is not resolution, kuyaw na kay kanang nisulod ug nisulti niana
elected then they continue with their position as director dili mana siya director, director na siya kung nilingkod na
because section 23 says they shall hold office for one (1) siya in the body politic during a regular or special meeting
year and until their successors are elected and qualified. and there is a quorum that is. And the one who first
Question, you are not yet a stockholder of a certifies to that is the secretary of the corporation, bisag
corporation, the board elects you as a member of the gani pag-abli ug account sa bangko, the bank will require
board, Can you then be granted xx for the secretary of you a resolution of the board. Unya ng resolution di mana
the corporation one share because what is needed is ma xx didto sa bangko- so therefor is a secretary‟s
every director must own at least one share of the capital certification.
stock of the corporation of which he is a director you‟ll be So there is a resolution and it is attested by the
granted one share so that you will qualify. secretary. This resolution shall be considered as directive
to the depositary bank to act in accordance with the
 The issue is when should you be a stockholder
resolution of the corporation. So it‟s the secretary who
holder of the corporation? At the time of election
attests and then it is submitted.
or at the time of qualification?
Now, that‟s not enough, the bank will require the
article of incorporation and the by-laws of the corporation.
From you constitutional law, you know that to Why? To inform the bank that it is a real corporation.
qualify to a position is a technical term. For government Pangayuon pa na nila copy of certificate of incorporation.

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Ug wana dinha patay and bangko tulisukon sa internal Mr John Gokongwei for many years was
auditor, musipyat gani ang internal auditor ana, accumulating stocks of San Miguel Corp. How did he
madakpan gani ka sa BSP, tulion ka sa BSP. Mao ng accumulate? Naa manay mga extra kwarta iyang
ginatawag na essentials of AYC, unsa manang ayc, bag- corporation, papalition na niyag shares sa san Miguel.
o na chicken unsa na kompetensya na sa KFC? What is Papaliton na niys nga papalitioon til finally he had
the rule now is know your client, AYC, ang banko dapat sufficient number to be elected. Why is that possible?
nakaila sa iyang client. Unsa ng kwartaha, din na gikan? Because of cumulative voting. Remember, I told you,
So part of its obligation is to know. So that‟s important. the corporation that is stock and profit cannot deny
cumulative voting.
 How does the corporation act through the board
of directors? Cumulative voting has two tenets:
Always the resolutions. 1. First tenet is you have as many votes as
the number of shares multiplied by the
Now there are certain things that the board can number of directors.
delegate which binds the corporation. For example hiring
and firing. That can be delegated to lower officers, So if there are 9 directors to be elected and you have ten
department heads, and that is presumed as authority. shares what is your total number of votes? 90 di ba. 9
mana x 10 shares so naa kay 90.
Now, the requirement is a majority of the
directors or trustees of corporations organized under this 2. Now, the Second tenet says you can cast
code must be residents of the Philippines. Why those ballots, those votes- divide it equally
residents? So that you will be within the reach of court among the candidates or put more in one
processes. Serving of summons, serving you a copy of candidate than the other or cumulate the
the information. How can you be served if you‟re not in entire amount of the votes and put it in just
the Philippines. You have to be resident of the lone candidate.
Philippines. So majority must be within reach of the
That is cumulative voting, that cannot be denied,
leagal processes.
why? Because if it were not for that the minority would
Now it says here any director who ceases to be have no representation at all.
an owner of at least one share of the capital stock of the
So Gokongwei accumulated and announced
corporation of which he is a director. Di na siya director.
that he was running for director of San Miguel. You know
One share ran a ang gikinahanglan to be a director but,
in some corporation, especially with very wide ownership
if you should use that one share-wa najud kay share ipso
base, they have a cutoff date (PLDT, Meralco). Their
facto you cease to be a director andif you continue to sit
cutoff date is normally 2 to 3 months before the annual
down there, it is as if your presence is not counted as
meeting. So di ka mahimo nga pag sulod nimo sa annual
part of quorum and your vote, with more reason is not
meeting na dira pa ka muabiso nga mudagan ka, too late
valid vote. Because you have ceased to be a director.
na. Because it must be 3 months before you have to
 Now, can the by-laws of the corporation put announce your candidacy with the secretary of the
addition qualifications? corporation and then you have to qualify your votes
because from that date the stock and transfer book is
The answer is yes, you can put additional close. So you buy shares of that corporation beyond that
qualifications for director, especially when you come to date, you can no longer exercise your vote during the
close corporations, its with special qualifications because annual meeting because the transfer of ownership of the
it‟s a close corporation with not more than 20 shares will no longer be recorded in the book. Cut-off
stockholders. That‟s the rule in close corporation, there date that is allowed.
are special qualifications.
Now, when Gokongwei announced he was
 Now, can you put additional disqualification informed by the secretary of the board of San Miguel that
because disqualification by law is found in you are disqualified from running. Why? Because of an
section 27? amendment of the bylaws; it says no stockholder who is
Section 27. Disqualification of directors, trustees engaged in a business similar to, in competition with or in
and officers. No person convicted by final judgment contrary any of the businesses of San Miguel Corporation
of an offense punishable by imprisonment for a is qualified to be director of San Miguel.
period exceeding six years, or a violation of this Now, at that time unsa may business ni
Code committed within 5 years prior to the date of Gokongwei? Gokongwei had Presto Ice cream, unya na
his election or appointment , shall qualify as a pa siyay Robina feeds. And San Miguel had what? What
director, trustee or officer of any corporation. is the similar business of San Miguel? B-meg feeds. And
then Gokongwei had Robina chicken and San Miguel had
Magnolia. So very antagonistic businesses. So he was
Now, can the bylaws add disqualifications? That was informed that he was disqualified. He then raises it with
answered in the decided case of Gokongwei vs. SEC. the SEC, and the SEC upheld the stand of the board of
(G.R. No. L-45911 April 11, 1979)

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

directors so Gokongwei had to go question of law to the So the real controlling interest in corporation never goes
Supreme Court. into discussion in the board Buang-buang ka kung mag
sige ka pag dicuss dira, the board meeting is not for
And the Supreme Court said: There is a discussion. The board meeting is for voting for the
presumption in the Corporation Code that once you corporation to pay action. If you want a discussion then
are a stockholder of a corporation you are qualified you call the corporate directors, mag-inom mu,
to be a director because all that is needed by way of magdiscuss mu. Pero ayaw paghuna-huna nga
qualification is that you are an owner of at least one magmeeting ka nya magkumbinsihay mu, samuk-samuk
share. So you are presumed to be qualified. ra naa.
Now, if the board says that you are not Remember, the record breaking products came
qualified, then the burden of proof falls on the board
into existence not by discussion but by the risk-taking
to prove that you are disqualified. So there must be a individuals. Kana sila ang musugod ana. Mao ng
hearing, an internal investigation. makatawa ko anang mga magkuhag marketing, survey,
What are these business engagements that is unsa pa na. gisurvey ban a ni Bill Gates iyang mga unsa
qualifying? Presto ice cream , unsa mana iyaha, is it ni, Microsoft, wa mana siyay survey2x ana. Way
really your business because you can begin to argue.ang survey2x. kanang mga survey tinonto na.
mga tag-iya, let us say Robinsons Land that holds title to
the shares of stocks xx is a real property. Now, San
Miguel had San Miguel Properties but its not moving (Story of why Gokongwei was not allowed, was
stock xx. So you have to prove that he is disqualified. an enemy of existing corporation)
Now, the Supreme Court ask was there an Ayala was already before an antagonistic
opportunity for Mr. Gokongwei to present his side? Was business, the same as San Miguel. Ang Ayala niadto
he given an opportunity? The board could not respond mao man ang tag-iya sa Purefoods. Xx Ayala had many
that is why the decision of the Supreme Court in businesses that are in competition with San Miguel and
Gokongwei vs. SEC is to remand the case to the SEC yet he was not disqualified, why? Because Ayala first
and to conduct hearing to show that what the board cousin of the Zobels, because they say Gokongwei failed
of San Miguel claim is proven by substantial the Hispanic test. How do you say in Spanish “why oh
evidence. why my love” and then say that with a Chinese accent,
you will know why Gokongwei was disqualified. In
Now Gokongwei did not fight it anymore, at that Spanish it is “porque mi amor? “ Gokongwei was
point they arrived at a compromise that Gokongwei must disqualified because he cannot pronounce it.
first made a director of San Miguel International, so
HongKong corporation. San Miguel has sold so many of
its arms. It sold CocaCola, it used to be that CocaCola is
under San Miguel then it was sold to CocaCola Australia Now I would just like to point out the formula for knowing
then when Cojuangco came back, he bought it back and how many votes how many shares you need to elect that
the 3 or 4 years ago San Miguel sold it to CocaCola is found in almost all commentaries:
Mexico Femsa. Now the owner is Mexico, lain na dili na Formula for knowing how many votes how many
na San Miguel and CocaCola. When Cojuangco took shares you need to elect :
over, he wanted to raise money to convert the coco levy
shares into paper shares, so he sold Magnolia ice cream (ab/c + 1) + 1 = the shares that you need or the
to Nestle but he did not sell the name, he retained the votes that you need to elect the director.
name and they just sign a non-competition clause for 5
years, which is already valid according to the Supreme
Court. So he waited and after 5 years he revived the a = total of standing shares
Magnolia ice cream. They said Cojuangco was wise
b = for the desired number of directors to be
because what he sold was old equipment already.
elected
c = the total number of directors to be voted
 Can a corporation provide for this qualification?

You have to know that, if you have in-house


Yes. Why? Because just like any person secretary, the controlling interest will tell you, do we have
according to the Supreme Court, a corporation has a enough votes, we need this number of votes, and we
right to self-defense; defend yourself against only have this number of shares we have to make up the
competitors especially when they make undue difference by getting proxies. Then you go to the list,
advantage. If you find somebody there, you‟re panawgan na nimo sa cellphone kuhaon na nimo ilang
competitor, sitting right in the board, then your first move proxy. Very important.
is already known by your competitor.

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

If you want to see a hotly contested election, you read The Lopez only has 21%. Lopez already go to
the case Pangilinan, I will sell it to you. Why? It‟s a question of
profit. This guy Cojuangco very lax during Martial law
GSIS by President General Manager Winston Garcia with Marcos I can never sell it to you. So he had the word
vs. Anthony Rosete et al. (GR 183905 April 16, 2009) of Lopez that he is going to sell, but the thing is you not
basaha na kay grabe kaayung away ana. are secure in the control of the corporation just by 21%
Anthony Rosete was the secretary of the corporation the so Pangilinan had to buy in the open market slowly.
board of directors of Meralco and Winston Garcia was Pas2x kag palit, musirit tug saka ang presyo sa shares.
the surrogate of Danding Cojuangco and Ramon Ang In fact it was tiing already because he was buying and
because they want to take over Meralco.They wanted buying. And that is why they did not get wanted in the.
the votes, voting to be postponed because they wanted They wanted a meeting right away before Cojuangco
to examine the proxies of the Lopez. Xx so finally the would position himself because the GSIS and SSS
Lopez could not sustain anymore, Danding Cojuangco shares that he bought were already 18% of outstanding
was favored by Gloria Arroyo who ordered GSIS and hapit na sila mapareho. Fight sila. Fight. Read that case,
SSS to sell the shares of GSIS that they had in Meralco very interesting. Mura lag sine.
to Danding Cojuangco.
Cojuangco got it at 50, niadto Meralco was already at December 15 2016, Tongo K
40, patubuan lang niya gamay aron acceptable to the
public so GSIS sold to him Pag-Ibig sold to him SSS Remember in these four kinds of corporations there is an
LandBank sold to him. Kaingon jud ka makakuha na additional requirement of an independent director.
sila, wa man mubaligya si Lopez, ingon siya over my
dead body. There was already Lopez Corporation which  What are the kinds of corporations that must have
used to be BenPres Corp; Benjamin Lopez and an independent director?
Preciosa Lopez. BenPres was the holding company of
Lopez. That is found in Securities and Commission.Code and
Nganong di naman sila mukuha ug dugang kwarta to which is now embodied in Sec memorandum circular no.
put up for Meralco ? Because the Lopez are now in the 06
business more profitable than distributing electricity,
they are now in power generation, they generate SEC MEMORANDUM CIRCULAR NO.6
something like 15 thousand megawatts 1/3 of that
geothermal, EDC they bought that during Estrada‟s It shall apply to registered corporations and to
time. Then the 10 thousand is liquefied natural gas in branches or subsidiaries of foreign corporations
Batangas from Malampaya then under water pipe (that‟s operating in the Philippines that
the single biggest enterprise investment, that is 10B US (a) sell equity and/or debt securities to the public that
dollar) so the Lopez are there, they put money there. are required to be registered with the Commission, or
Niya labad sa ulo pa ni niya nga sige kag distribute ug (b) have assets in excess of Fifty Million Pesos and
xx, sige lang kag singgit, daghan kaayog kalaban nimo. at least two hundred (200) stockholders who own at
least (100) shares each of equity securities, or
Why did Pangilinan go into that business? Nga gamay (c) whose equity securities are listed on an
ra man ka ha ang margin, if your total sales is 300B Exchange; or
only 30M of that is yours the rest you pay to the power (d)are grantees of secondary licenses from the
producers, the owners of the xx that you secure. So why Commission
did Pangilinan go into that? Because of the new EPIRA
law. The new EPIRA law says if you are a power
distributor you can now produce up to ½ of the power
that you distribute, that is why appointees did not grant 1. Shall apply to listed corporations..
this coal plant. Dinha sila musapi, dinha mudistribute
.That‟s the new EPIRA law. So you are a corporation in the Philippines and
you list your shares of stock in the Philippine stock
exchange. You buy and sell. Your stocks are sold and
bought through the Philippine Stock exchange, then you
must comply with the independent director.

So read that case, so that you‟ll know what The requirement is, atleast 20% of your
happens when there is a “proxy fight”, sa ato pa, naay directors must be independent or 2 directors whichever is
away sa election. The secretary of Meralco used to be less. 20% or two whichever is the lesser. So normally it is
my classmate xx two. Some corporation increase their number to give
them more credibility.

So you are listed.

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

2. Have assets in excess of Fifty Million Pesos and at  What is the primary franchise?
least two hundred (200) stockholders who own at least
(100) shares each of equity securities, The primary franchise is to exist as a corporation. That is
the primary franchise.
Then you must have an independent director.
That is what happened to ONB. ONB had more than 200  What is the difference between the two? Secondary
stockholders before. It was not listed in the stockmarket and primary?
but it had more than 50 million assets. So there has to be
an independent director. I was one of the Independent The secondary is still subject to commerce. You
Director. can sell it with the permission of the seeing oversight
bodies. But a primary franchise cannot be sold. It is not
So we went through 3 mergers. ONB in its 15 subject to commerce. You just comply with the general
year life went through 3 mergers. So at least I have some enabling act and you have the primary franchise.
idea of how complicated the process is on merging. Precisely it is put that way because the evils of selling the
right to be a corporation can be based on the xx,.
The beauty about merging if you are a rural
bank is that, it has a very good tax benefit. The tax So you cannot execute on your franchise to be a
benefit is you are exempt from Gross Sales Tax (GST) if corporation. But you can execute on franchise of being a
you merge with troubled bank. Because the whole idea of utility such as bachelor bus, yellow bus, you can execute.
legislation in exempting (the corporation from GST when
there is) merging is to reduce the number of troubled  What is the definition of an independent director?
banks. And believe it or not 90% of the rural banks in the
Philippines are in trouble. And you know when the rural
banks was… to open a rural bank at that time during Par (e), Article 1, Sec Memorandum Circular No. 6
Marcos time, all you needed was P100 000 pesos.
Because the government would put up a counterpart of Independent Director- a person who, apart from his
another 100,000 and now you are a bank 200, 000. That fees and other shareholdings, is independent of
was the time Marcos unleashed country side management and free from any business or other
development. relationship which could, or could reasonably be
perceived to, materially interfere with his exercise of
(Father talks about Masagana 99 and its downfall. independent judgment in carrying out his
Reasons: agricultural technicians doing two roles, the responsibilities as a director;
weather affecting crops, masakit imong anak ipa ospital
kay sa mubayad)

So we have seen three corporations who needs/must I would like to point out to you that there are two
comply with independent director. competing theories in corporation law.
1. Listed; 1. If you have more shares of stock out of the outstanding
2 Those who sell securities that must capital stock of the corporation the chances of your
be registered; taking advantage of the corporation is practically nill
3. Those that have 50 million in assets; because you have so much at stake with the corporation.

It is like you will be hurting yourself because you


4, Banks have so much investment in the corporation. The more
you have the less chances are you will seek to harm the
Because of Securities and Commission Code, corporation, you will cheat the corporation. Where do you
the general banking law, required by the general banking find that presupposition, where do you find that
law to have independent director; and then the fifth are underlying theory?. You find that in section 32- Dealings
those of the directors, trustees or officers with the corporation.
5. Grantees of secondary licenses. Section 32. Dealings of directors, trustees or officers
with the corporation. – A contract of the corporation
Sa ato pa, public utilities. You are a public utility with one or more of its directors or trustees or
you are a grantee of secondary franchise. officers is voidable, at the option of such
corporation, unless all the following conditions are
What is the primary franchise? Kalimot namo. present:
Secondary franchise is to franchise where you are
granted to conduct a particular business, transportation,
electricity distribution, power generation. That is a public 1. That the presence of such director or trustee in
utility, secondary franchise. the board meeting in which the contract was
approved was not necessary to constitute a

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

quorum for such meeting; such meeting: Provided, however, That the contract is
fair and reasonable under the circumstances. (n)
2. That the vote of such director or trustee was not
necessary for the approval of the contract; Where any of the first two conditions set forth in
the preceding paragraph is absent, in other words
nakalimot mo na bisag siya ang gi contrata sa
3. That the contract is fair and reasonable under corporation apil siya sa meeting sa pag tungha sa
the circumstances; and quorum, ning vote gihapon siya sa to approve the
resolution, then what is to be done?
4. That in case of an officer, the contract has been
previously authorized by the board of directors. Such contract may be ratified by the vote of by the vote
of the stockholders representing at least two-thirds (2/3)
of the outstanding capital stock or of at least twothirds
Where any of the first two conditions set forth in
(2/3) of the members in a meeting called for the purpose:
the preceding paragraph is absent, in the case of a
Provided, That full disclosure of the adverse interest of
contract with a director or trustee, such contract
the directors or trustees involved is made at such
may be ratified by the vote of the stockholders
meeting: Provided, however, That the contract is fair and
representing at least two-thirds (2/3) of the
reasonable under the circumstances. (n)
outstanding capital stock or of at least two-thirds
(2/3) of the members in a meeting called for the
So if you are the director who is dealing with the
purpose: Provided, That full disclosure of the
corporation and you have 2/3 of the outstanding capital
adverse interest of the directors or trustees
stock, sigurado kang ma-approve. You can ratify it even if
involved is made at such meeting: Provided,
the first two requirements are not present. What is the
however, That the contract is fair and reasonable
underlying assumption here? The underlying assumption
under the circumstances. (n)
here is that you are not going to cheat the corporation
because you have so much riding with the corporation.
You have at least 2/3 vote. You own atleast 2/3 of the
voting stock of the corporation. So dili na nimo yaga yaga
an ang corporation kay murag ga dunggab ka sa imong
If the corporation enters into a contract with a director of kaugalingon kay naa naman kay dako kaayo nga... So
the corporation, there are certain formalities that you that is the rule.Traditional corporation.
have to follow:
 Now in the independent director what is the rule?
1. That the presence of such director or trustee in
the board meeting in which the contract was The less connection you have with the
approved was not necessary to constitute a quorum corporation, the chances are you cannot and you will not
for such meeting; do harm to the corporation.

So you are not counted in the determination of the Independent kuno ka, you will be thinking of the good of
quorum the corporation because you are independent. Tan awa
ra gud na.
2. That the vote of such director or trustee was not
necessary for the approval of the contract; If you are an independent director you cannot own more
than 5 % of the outstanding capital stock of the
so you do not take part in the voting to approve the corporation. You cannot have any employment
contract because you are part of the contract. relationship with the corporation. You cannot have an
employment relationship with the holding company of the
3. That the contract is fair and reasonable under the corporation. . You cannot be related to the directors of
circumstances; and the holding corporation if you want to be an independent
director in the subsidiary corporation.
4. That in case of an officer, the contract has been
previously authorized by the board of directors. If you are a director of a subsidiary and you are a director
of the corporation that is the subsidiary of the same
Where any of the first two conditions set forth in the holding company as that corporation you are
preceding paragraph is absent, in the case of a contract independent director, you are also disqualified. You are
with a director or trustee, such contract may be ratified by not independent.. There are many rules, so baga baga
the vote of the stockholders representing at least two- ini, basaha ni. Gitaga-an gani kag case. You should
thirds (2/3) of the outstanding capital stock or of at least know whether it is qualifying you as independent or
twothirds (2/3) of the members in a meeting called for the disqualifying you as independent director.
purpose: Provided, That full disclosure of the adverse
interest of the directors or trustees involved is made at Now, why did this come up? This came about because of
Sarbanes-oxley law. Sarabanes Oxley law requires an

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

independent director. What happened why is there a You have been under investigation in another stock
Sarbanes Oxley law? There is Sarbanes Oxley law exchange. Let us say in Hongkong, or Singapore or
because of what happened to so many corporations in Penang stock exchange. You cannot be a director of a
the United States. Almost of which is Enron Corporation. listed corporation in Philippine Stock exchange. You are
(Father talks about the anomalies of Enron dili muregister a reputational risk.
ug loss kay ihapak sa partner, inflated ang sales among
others) Now it is understandble if you are already convicted for
violation of stock exchange rules, that is understandable.
So it finally happened, mao dayon to, nisulod na si But if you have only been investigated then you cannot
Mr.Sarbanes and Mr. Oxley, Senador and congressman, be (a director), that is based on reputational risk.
xx this bill in congress to overhaul corporate governance.
Karon daghag nag requirements, sa corporate In other words, the idea of stock exchange is, ngano
governance. One of it is independent director. mangita man kag labad sa ulo, ug problemado naka
didto, munganhi ka, tingali dad-on imong problema dinhi.
2. Reportorial requirement. Mu ingon ka „Is the law that judges before it hears?‟
Wala na!
Daghan kaayo kag ireport. Isulod na ng mga risk
assesments. Daghag ra baya kaayog klaseg risk. Now those are the operative underlying principles which
you must be conscious about because it has its own
Reputational risk. Just because of your reputation you implementation rules. It comes up. And lastly it is a
are risking a loss. Ingon ka binu ang man na. Ibutang product of experience.
nato rural bank ka, 3 ka lungsod imong branches sa rural
bank, unya president ka sa rural bank, niya pirmi ka We talked about the liabilities of a director, trustee or
makit an sa sports club. Unsa man ng sports club sa officer. In section 31, there are three instances where a
lungsod? Matina Gallera Sports Club. Sunday director is held liable.
University. Pirmi ka makit an didto, president ka sa
bangko na rural ban. That is a reputational risk. Ang mga Section 31. Liability of directors, trustees or
tawo makakita nimo, “Uy! Ang akong deposit man kaha officers. - Directors or trustees who willfully and
to iyang gipamusta.” knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross
We will learn later on that the BSP can act immediately negligence or bad faith in directing the affairs of the
because the BSP has the power to prescribe not only corporation or acquire any personal or pecuniary
additional qualification for board of directors for bank but interest in conflict with their duty as such directors
also to pronounce whether or not a specific board of or trustees shall be liable jointly and severally for all
director of bank is fit and proper. That is called the fit and damages resulting therefrom suffered by the
proper rule. corporation, its stockholders or members and other
persons.
So .. ang board of directors, „this guy is not prim and
proper, you continue to make him stay in the board and When a director, trustee or officer attempts to
you are fined.‟ What is the fine? P50,000 daily. Kusog
acquire or acquire, in violation of his duty, any
pas kilat wa n aka dinha. kinsa man na kumpanya interest adverse to the corporation in respect of any
magbayad ug 50k daily. Tangtang ka na. matter which has been reposed in him in confidence,
as to which equity imposes a disability upon him to
Niya mu-ingon tawon ang president „wa man ko nanugal‟
deal in his own behalf, he shall be liable as a trustee
niya ngano naa man ka dinha? “Ang akong asawa
for the corporation and must account for the profits
caterer sa mga manugal. Tabang tabang gud kog alsa
which otherwise would have accrued to the
sa mga niluto dinha, pamaligya.” What will be the
corporation. (n)
reponse of the BSP? “Too bad! You should have worn a
big placard „sulugu-on ko sa caterer‟ aron mahibaw ang
kadaghanan. Wa man! Sige man kag kit-ag hinukbo
hinukbo, usahay magduko ka muingon ka „pildiro na
siya‟. Kana ganig manakay ug jeepney, pild man na.
katong musakay ug taxi w aka kabalo kung pildi bana o 1. If he wilfully and knowingly votes for, assents to
nakadaog man na, tingali kung nakakotse na didto, deed vote patently unlawful acts.
of sale na tingali (haha) daot na sila sa logis. (father,
invites us to enter a cockpit to see the tenor Philippine That is very clear
life. Ug kanang gasinggit singgit, wala nay kwarta!)
2. When he is guilty of gross negligence or bad faith
We talk about reputation risk, that is not present (in in directing the affairs of the corporation.
corporation code?) It is present also in the guidelines of
the Philippine Stock Exchange. If you are a director and
your reputation is shady, what do you mean by shady?

7
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

That is misfeasance. The first is malfeasance. Even if For example, the contract of deposit, not bank deposit
you are not a director,if you wilfully and knowingly agreed ha! but the Civil law nominate contract of deposit. Naay
to a patently unlawful act liable man gihapon ka. amigo nimo muingon „Naa koy conference sa Manila bai!,
I-parking nako ining kotse nako nimo, nara ang yabe o,
Para nako, surplusage ni. Mu-ingon ka „kanang directora ikaw bahala. Balik ko nimo, isa ka semana ra ko.‟
ning vote siya‟ „ngano man?‟ „tanom silag marijuana‟ Gidawat nimo ang responsibilidad. Nagsunog, ordinary
bisag di pa ka director ug mu ingon ka „hala tanom tag common sense ang unang I atras nimo ang imong
marijuana‟ priso man gihapon ka! Comprehensive sakyanan. Pagbalik nimo di naman nimo maatras ang
dangerous drugs act. So that to me is surplusage. sakyanan. Will you be liable to the one who deposited the
car to you? YES! Under civil law. You are liable because
Ining misfeasance, gross negligence or bad faith in you preferred your own interest to that whom you have a
directing the affairs of corporation,.. When do you know fiduciary duty. That is the same when you are the
that it is gross negligence? director.

There is a time where Warren Buffet in the beginning of Pangutana baya na sa bar examination. Unya niingon
Berkshire Hathaway when this American express credit ang bar examiner na 2/3 could not answer that question
card was still in its beginning, it suddenly went on a dive. in other words they were still thinking as a pedestrian out
Pa ubos ang presyo. Ngano man? Because it was found there, not as a lawyer. They did not have the principle of
to have extended credit to a particular vegetable oil plant deposit, nominate contract in the Civil Code. Gamay ra
that was discovered to be a mafia run enterprise. .. man mubasa ana, makalimtan na na, wa na basaha.
adulterated vegetable oil, kay gapahuwam man sila, di,
nagkagidlay ang price, nagka ubos. Everybody was
st
trying to get out of American Express. What did warren December 16, 2016 (1 hour) Abad I
buffet do? The news reached him when he was in a
(FGN started the class by giving the list of cases for our
supermarket. Nagtan aw siya sa cashiers, , sige mag
first exam.)
gamit ang mga tao sa American expresss, di nikuha siya
sa iyang telepono ug niingon siya, palita na tanang
We are still in the Board of Directors, particularly the
baligya. And sure 6 months later it went back to its
Independent Directors.
regular price but he bought it at close to 40, 30%
discount. Is that gross negligence? Ang tanan nag huna INDEPENDENT DIRECTORS (ID) are now
huna nagkagidlay na ning kompanya ato ng ibaligya, demanded by the Securities Regulation Code for Publicly
would it be negligent if he did the opposite? 99 think this Listed Corporations or Corporations that are at least 50
is prudent and you think this is not and you did not million in assets to handle more stockholders with at least
accent? If you win, „ahh wise ka.‟ Pildi gani ka „negligent, 200 stockholders, owning at least 100 shares. ID are also
gross negligent‟ kani mao ni lisod tan awon. demanded for corporations that has sold securities in the
market which are required to be listed with the SEC.
Is Bill Gates grossly negligent when he entered to an
Another are for, Banks, Quasi-banks, Financial
agreement with IBM to provide operating system of the
institutions business. And lastly for, Corporations that
PC when he did not have a system at that time. Wa gud
acquired secondary franchises like Public utilities. If you
siya system and gipalit niya ning system from an
have to acquire a secondary franchise, then you must be
unknown guy somewhere in texas sige siyag pangita
in search of an independent director.
unsa ning mabuhat, nipalit pa man na niya ng OS anang
PC. Two days before the deadline na maproduce na
SEC Memo Circular No.6
niya, dira pa siya nakakita ug OS, is that gross
Series of 2009
negligence? Ah lisod na.
Revised Code of Corporate Governance
Daug gani ka, dili na gross negligence. Pildi gani ka
gross negligence, Pareha ra nag giyera. Pildi ka, war
Pursuant to its mandate under the Securities
criminal ka. Daog ka, national hero ka, (father talks about
Regulation Code and the Corporation Code, the SEC,
Hassad in Syria and the proxy wars which is supposed to
in meeting held on June 18, 2009, approved the
be war between US and Russia pero lain gipa away)
promulgation of this Revised Code of Corporate
Governance, which shall apply to registered
3. Acquiring any personal or pecuniary interest in conflict
corporations and to branches or subsidiaries of
with the duty as director or trustee, shall be liable jointly
foreign corporations operating in the Philippines
and severally.
that:
(a) sell equity and/or debt securities to the public that
This is the same liability if you are a partner or you are a
are required to be registered with the Commission, or
trustee. If you prefer your personal interest and put
(b) have assets in excess of Fifty Million Pesos and
second the interest of the principal over which you have
at least two hundred (200) stockholders who own at
fiduciary interest, patay ka. Because the law are stricter
least one hundred (100) shares each of equity
in the trustee than the owner.
securities, or

8
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

(c) whose equity securities are listed on an Pangilinan group that they are selling to them and to
exchange; or them alone. And Lopez said, I can bring along with me
(d) are grantees of secondary license from the the power corporation of Madrid, Spain, which is a
Commission partner of the Lopezes, between the 2 of them, they held
46% of Meralco. So the rest, they had proxies. Now, it
was these proxies that PGM Winston Garcia wanted to
Article 1: Definition of Terms examine. And he says, I lack material time to go over the
Xxx proxies, so we have to postpone the annual meeting so
(e) Independent Director - a person who, apart from that I can examine the proxies.
his fees and shareholdings, is independent of
management and free from any business or other The corporate secretary of Meralco, did not accede
relationship which could reasonably be perceived to, and said no, we will go ahead with the meeting because
materially interfere with his exercise of independent you are making an intervention which is already beyond
judgement in carrying out his responsibilities as a the cut off. There is a cut-off date. Then in the midst of
director. the interpolation by Winston Garcia, his assistant came
Xxx and brought along a restraining order issued by the SEC.
Later, upon examination by the Secretary Antony Rosete,
he looked at the restraining order and observed that it
 Can the by-laws provide that if a director cannot was only signed by 1 Commissioner. Garcia said, I have
make it, for any reason, health, then he can appoint a paper signed by the other commissioners who did not
a proxy? sign there. That they delegated this 1 commissioner to
sign for and their behalf.
The SC has said that a director is chosen for his personal
qualifications. There can be no substitution. That is But Rosete says, it is not only that your restraining
different from the monetary board, because as far as the order is formally defective, the SEC has no jurisdiction to
government members of the monetary board, it can ask order the examination of the proxies. Garcia says,
for a substitute. But, in a regular corporation, whether according to the SEC Code, the SEC has the duty to
stock or non-stock, you cannot have a proxy for a board examine the adequacy of proxies, whether it is in
meeting. conformity with the by-laws of the corporation and
whether it has been executed properly by the corporate
Now, we know that a corporation cannot deny secretary. That is the issue, who has jurisdiction over the
proxy ------ . That is the essence of the corporation proxies.
according to the SC. So, while you cannot have a proxy
for director‟s meeting, you cannot also provide that stock The ruling in this case, the SC says, it is true, the
holders cannot look for proxy. SEC has jurisdiction over proxies. But, the cases
mentioned by PD 902-A on election contests, have been
Now, there was one non- stock non-profit moved from the SEC to the courts, principally, the Intra-
corporation that its founder is the Ex-officio member of corporate court. So the intra-corporate court has
the board for as long as he was alive, it was a Christian jurisdiction over election controversies. The issues here
high school. And the SC said, that is void. in Meralco are principally election controversies. Since
these are election controversies, with the proxies as sub-
So, I pointed out to you the case of GSIS by issue, it is the Intra-corporate court that has jurisdiction
PGM Winston Garcia vs. Anthony Rosete Et al. This is over the proxies and not the SEC.
a fine exemption.

Winston Garcia vs. Anthony Rosete Et al That is the ruling, a very fine ruling. So what
happened? The election went on. You can google the
This case was a fight for control of Meralco. It was next events.
already the annual meeting of Meralco and the
background here is that the Lopez has decided not to sell Now, in an election for the Board Of Directors
their shares to Cojuanco. And Cojuangco, through his and, say, you have the PLDT, 2 million stock holders,
representative Ramon Ang, who is the Chief Operating how do you run that election and you are the corporate
Officer of San Miguel, wanted to take control of Meralco. secretary, unsaon mana nimo pagpadagan? First of all,
They have succeeded in buying the government shares where do you hold the meeting? We judge it by the
of Meralco. The government shares were in the historical attendance of the stockholders, many of them
possession and ownership of the government owned and will not show up. They will just designate a proxy. If you
controlled corporations such as the GSIS, SSS, Land are tied to the controlling interest of the corporation, you
Bank,and DBP had some shares. So, they were already will of course attend. You will be pre-qualifying your
ordered to sell to Ramon Ang. And these GOCC sold, but proxies and submit it even before cut off. Some have a
they were only something like 19% of Meralco. standing proxy – that will last for utmost 5 years. You
cannot have a proxy for more than 5 years. So, you
In the meantime, the Lopez has already sent to prequalify your proxies. You are controlling, such that in

9
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

election, they have already chosen their candidates, and narelease nani , so we win even if it is not the majority of
they say “we are putting our votes on these candidates,” all the members of the board of directors. But when it
you are allowed to do that. Remember, this is not like an comes to Sec 6 it must be majority of all the members of
election that you know (secret ballot). So you already the board of directors. That‟s why it is important you
make known your choice. memorize those 8 instances in Sec 6 because board
actions there must be approved by the majority of all the
Now if you have 50% plus 1 of the shares, and members of Corporation.
nobody dare to consolidate his vote up to 10% and they
are all scattered, or for that matter, they have not Section 6. Classification of shares. xxx
nominated within the deadline any director that they wish Where the articles of incorporation provide for non-
to elect, then the election is done even before the voting shares in the cases allowed by this Code, the
meeting of the stockholders. So of course, to forestall, holders of such shares shall nevertheless be
any controversy, the representative of the Controlling entitled to vote on the following matters:
interest will stand up in the meeting and will say, “I have
with me the votes and actual proxies of 51% of the 1. Amendment of the articles of incorporation;
shares of the corporation, and they are all cast in favour
of the listed resolutions in the agenda, and they are all 2. Adoption and amendment of by-laws;
cast with these group of candidates nominated before the
deadline, and registered with the committee of 3. Sale, lease, exchange, mortgage, pledge or other
nominations to be voted.” That means, there is no more disposition of all or substantially all of the corporate
to be debated. Unsaon nimo na 50% plus 1 nakaboto property;
naman. Kinadaghanan ra man ni og boto. Everything has
been predetermined before the meeting. That is how you 4. Incurring, creating or increasing bonded
conduct the meeting. indebtedness;

Remember the rule, if you are the secretary of 5. Increase or decrease of capital stock;
the corporation, you do not advise the chairman to call a
meeting if you do not know the results of the meeting. 6. Merger or consolidation of the corporation with
You can ask postponement from the SEC that you another corporation or other corporations;
cannot hold the meeting of the stockholders for a valid
reason. If it is a legitimate reason, the SEC will allow you 7. Investment of corporate funds in another
to postpone. corporation or business in accordance with this
Code; and
 Can you provide in the by-laws a higher
percentage of the presence in person of the 8. Dissolution of the corporation.
meetings of board in order to constitute a quorum?

You can provide a higher percentage but not lower than  Executive Committee
the default quorum required under the corporation code.
The corporation code says if you have 50% plus 1 of the That is the last provision in the board of
members of the board then that is a quorum for the directors. Sec 39. I just like to point out to you that many
ordinary business of the corporation. But if it is anyone of corporations name it as “MANCOM- Management
the instances mentioned in Section 6, the vote must be Committee”. I would just like to point out that there is
unanimous. such thing as MANCOM provided by PD 902-A.

Suppose there are 11 members, the regular quorum is 6. Management Committee, according to PD 902-
Let us say if you are voting for a decrease or an increase A is appointed by the SEC to a distressed Corporation
in the capital stock, how many should vote? All of them that is paralyzed by deadlock. So you risk using
should vote because it requires the majority of the votes terminology that likely misunderstood. Magsulti ning
of all the members, and 6 is the majority. Corporation they used that. Why? Because they picked it
up from clinical textbooks in management. But the correct
nd
term is “EXECOM – EXECUTIVE COMMITTEE”.
December 16 2 Hour Ching, K
 What is Executive Committee?
It requires the majority of all the members of
board of directors and 6 is the majority of the all the Section 35. Executive committee. – The by-laws of a
members of the board of directors. corporation may create an executive committee,
composed of not less than three members of the
Now if it were an ordinary business, let us say board, to be appointed by the board. Said
we will open another bank account in New York. Bank committee may act, by majority vote of all its
account for the Corporation. How many are in favor? members, on such specific matters within the
They say four. So two are not agreeing. That says competence of the board, as may be delegated to it

10
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

in the by-laws or on a majority vote of the board,  So what is the purpose why you put the provision
except with respect to: in the by-laws that it can create an executive
(1) Approval of any action for which shareholders’ committee? What is the purpose?
approval is also required;
(2) The filing of vacancies in the board; The purpose is the Corporation may wish to
(3) The amendment or repeal of by-laws or the adoption particularly demarcate the kind of executive committee
of new by-laws; ( that is acceptable to it, a kind of executive committee that
4) The amendment or repeal of any resolution of the is acceptable to all the precise and legit purpose of the
board which by its express terms is not so amendable or corporation.
repealable; and
(5) A distribution of cash dividends to the shareholders. I tell you a story: PCI BANK story.

The PCI Bank, 1972. At the time of Martial Law,


1.) Approval of any action for which was taken over by the Romualdezes. It is in the control of
shareholders‟ approval is also required. the Romualdezes. And after the EDSA revolution, 1986,
that is one of the corporation that was placed under SEC
sequestration. There was big chunk there of
- So once again what is that? Again the 8 questionable Romualdez‟s share which was actually
instances mentioned in Section 6. Marcos‟ shares. There was a small chunk of bona fide
Romualdez shares. Now when they took over the big part
2.) The filing of vacancies in the board or the controlling part which is Romualdez-Marcos
shares, PCI bank went under sequestration and the
management under PCGG. They put it up for a bid
- The EXECOM, kana ivote daw na. because it was a big commercial bank at that time. The
original founders of PCI bank was the Montelebanos. So
3.) The amendment or repeal of by-laws or the they were under sequestration and they decided to
adoption of new by-laws auction it. And the way you bought it is by using the so-
called Dollar Credits of biggest loans.

- That is one of the 8 instances in Section 6 What do you mean by that?The Philippines was
which requires the action of the board. under the deep shit hole because of the Dollar loans that
it borrowed from the US. So much dollars they borrow.
4.) The amendment or repeal of any resolution So they said, you pay those dollars debts and then you
of the board which by its express terms is get credits. When you get credits, you transposed the
not so amendable or repealable. credits into pesos if you want to buy the shares of stock
that were sequestered in the different corporations.

5.) A distribution of cash dividends to the So, Many were interested parties. Two
shareholders. interested parties were the: LOPEZes and
GOKONGWEI. They do not have enough money to buy
the sequestered shares of the Romualdez-Marcos chunk.
The question is: Suppose there is NO PROVISION So they said, let us pool our resources together. 50-50.
in the by laws that the board can create an Executive You are 50% and I am 50%. Then we will get the
Committee, Sec 35 says “the by-laws of the Corporation sequestered shares which is about 45%. So gamay
may create an Executive Committee”. So there is no nalang atong paliton, open market, controlled na. And
provision in the by-laws saying that the board can create they agreed. Eugenio Lopez Jr. and John Gokongwei.
an Executive Committee. 50-50, they bought it , they now control PCI bank.

 Is it required for the Corporation to amend first the They amended the Articles of Incorporation and
by-laws and provide for the powers to create an by-laws. One of the amendments in the by-laws was the
Executive Committee before you can create an creation of the Executive Committee. And in the
executive committee? Executive Committee, it says that there are certain loans
that could be approved by the bank just from level of the
The recent case last year, the Supreme Court Executive Committee. Of course, the bigger denominated
says, even if you do not have a provision in the by- loans must be approved by the board of directors. In the
laws allowing the creation of the executive haggling for control and position in the bank, they agreed
committee the board of directors can create an because they thought that Gokongwei was being
Executive Committee. Why? Because it is presumed subservient to the Lopezes. Niingon man si Gokongwei
that Board of Directors has Plenary Powers to create na ”ako, nganhi rko sa executive committee. Ikaw,
such committees as is necessary to it to perform its Eugenio Lopez, you‟ll be the president and Chairman,
functions. ako ari lng ko sa Executive Committee”. So they revised
it, Eugenio Lopez Jr. Is the President and Chairman.

11
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

John Gokongwei is just in Executive Committee. He is must be somebody who has control. If you do not have,
the chair of the Executive Committee. its chaos. It is chaos. Somebody must be in control.
There is a running story now about control of a
After 3 or 4 years, they found out that all the corporation.
loans were going to the Corporations of John Gokongwei.
Because he was approving all the loans in the Executive (Father talks about tata corporation)
Committee. The ExeCom would screen the applications
of the loans and it would never get anymore if John INTERLOCKING DIRECTOR/DIRECTORS
Gokongwei did not approve it. It did not only approve his
loans, it screened the bigger loans. Unsaon man pag One more, so called interlocking directors.
abot sa board of directors if naapprovan sa. Hantod mag When a corporation with a common directorship with
away na ang duha. another corporation when they enter into a transaction,
that is called self-dealing.
Naa gani ka Corporation equal mo tanan, that is
the recipe for disaster. Hantod sa nag away na silang Section 32 is when a director has been used
duha. Sige naman silag away. Hantod sa nag-away na with a corporation. That is rare. Personal mana, makig
sila, gusto na mubaligya si Eugenio Lopez. Gokongwei deal ka sa corporation. That is what is envisioned in
said ”Nganong mubaligya man ka na ako may nagadala Section 32. If you are one individual, Gusto ka mubaligya
aning bangkoha?” He was only the executive committee sa corporation ug some good or commodity, you must
but he was running the bank, he was meeting people follow the formalities of Sec 32.
everyday. Si Lopez, igo lng naglingkod, and his control
was nominal. Unsa man si Lopez na ibaligya niya na dili SEC 32 Dealings of directors, trustees or officers
man musgot si Gokongwei? Unsaon man ni Lopez? with the corporation. – A contract of the corporation
with one or more of its directors or trustees or
Finally, Lopez focus the unthinkable quarter of officers is voidable, at the option of such
the Romualdezes. Romualdez-Marcos na. Mao na ang corporation, unless all the following conditions are
nagpapreso ni Eugenio Lopez Jr. Naa man xay 15% sa present:
banko, legitimate. “I want a coup de etat, I want
Gokongwei out. Who are willing to side with me? The 1. That the presence of such director or trustee in the
Romualdezes are so void up, Lopez himself is now board meeting in which the contract was approved
reconciling with me. I will now be back to the winning was not necessary to constitute a quorum for such
team. Tangtangon na si Gokongwei. Sugot si meeting;
Romualdez. We will go with you. 15% ka, 25 % mo, pila
man? Gamay nalang atong pangitaon na proxies. 2. That the vote of such director or trustee was not
Makakuha nana. They shook hands, they look each other necessary for the approval of the contract;
in the eye and this is what will happen in the next annual
meeting of the stockholders. 3. That the contract is fair and reasonable under the
circumstances; and
So Lopez speaks at the phone and told John
Gokongwei “I would suggest that you would no longer 4. That in case of an officer, the contract has been
attend the stockholders meeting, Mapahiya ka lng. previously authorized by the board of directors.
Romualdez and I have agreed that we are voting
against”. What did John Gokongwei says “ I not beyond Where any of the first two conditions set forth in the
agreement, I know, I lost. Ok let sell. You want it sell, lets preceding paragraph is absent, in the case of a
sell it together.” contract with a director or trustee, such contract may
Because if they sold together, there is a premium be ratified by the vote of the stockholders
because they be in control of the bank. If you sold a representing at least two-thirds (2/3) of the
portion, and the buyer is not in control, you cannot ask for outstanding capital stock or of at least two-thirds
the premium of the price. So Gokongwei says Yes to (2/3) of the members in a meeting called for the
Lopez. purpose: Provided, That full disclosure of the
adverse interest of the directors or trustees involved
Before the annual meeting and the loans to the is made at such meeting: Provided, however, That
Romualdez, the stabbing of the back happened. Lopez the contract is fair and reasonable under the
calls the owner of equitable bank who wanted to buy PCI circumstances. (n)
bank, in fact they already bought the GSIS, SSS shares
of PCI bank because Joseph Estrada … Romualdez has
15% of the manage not worth anything. Then the bank But, if you are two corporations, and you have a
become PCI Equitable bank. That is how Lopez finally common director, not all the directors are the same
got his revenge. .. The 5% is the Executive Committee. directors, there is one or two sets are common, you
follow section 33.
The member of the Corporation is all about
control. Patawag gani kag meeting kasabot naka. There SEC 33 Contracts between corporations with

12
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

interlocking directors. – Except in cases of fraud, and accordance with the provisions of this Code;
provided the contract is fair and reasonable under
the circumstances, a contract between two or more 5. To adopt by-laws, not contrary to law, morals, or
corporations having interlocking directors shall not public policy, and to amend or repeal the same in
be invalidated on that ground alone: Provided, That if accordance with this Code;
the interest of the interlocking director in one
corporation is substantial and his interest in the 6. In case of stock corporations, to issue or sell
other corporation or corporations is merely nominal, stocks to subscribers and to sell stocks to
he shall be subject to the provisions of the preceding subscribers and to sell treasury stocks in
section insofar as the latter corporation or accordance with the provisions of this Code; and to
corporations are concerned. admit members to the corporation if it be a non-stock
corporation;
Stockholdings exceeding twenty (20%) percent of the
outstanding capital stock shall be considered 7. To purchase, receive, take or grant, hold, convey,
substantial for purposes of interlocking directors. (n) sell, lease, pledge, mortgage and otherwise deal with
such real and personal property, including securities
and bonds of other corporations, as the transaction
So nominal na ta, less than 20% of outstanding of the lawful business of the corporation may
capital stock of ownership in a corporation B. And it reasonably and necessarily require, subject to the
enters into a transaction with Corporation A where you limitations prescribed by law and the Constitution;
have 50% of the outstanding capital stock. Substantial ka
sa A, nominal ka sa B, kay nominal ka man sa B, gamay 8. To enter into merger or consolidation with other
ra man imong interest ana sa corporation, the corporations as provided in this Code;
presumption is, you are likely to screw this corporation.
Because you will be using other people‟s money. That is 9. To make reasonable donations, including those for
why you MUST comply with Sec 32 when B decides the public welfare or for hospital, charitable, cultural,
about the transaction, your presence must not be scientific, civic, or similar purposes: Provided, That
counted. You vote must not be counted for purposes of no corporation, domestic or foreign, shall give
approval. You leave the others free to decide. Once donations in aid of any political party or candidate or
again, it is the axiom that: “the more you own a for purposes of partisan political activity;
corporation‟s shares of stock, the less likely you are to do
harm to that corporation.” Because what is required of 10. To establish pension, retirement, and other plans
you in the formalities is when you have nominal shares in for the benefit of its directors, trustees, officers and
the corporation. You are not required of that in a employees; and
corporation where you have substantial shares. That‟s
old thinking. 11. To exercise such other powers as may be
essential or necessary to carry out its purpose or
The new thinking now is, you become a purposes as stated in the articles of incorporation.
responsible director if you have no connection at all in the (13a)
corporation, independent director ka. If you are an
independent director, you are most likely to keep the
good of the corporation. If you are not independent, then, Section 36, there‟s a listing here of the Powers
you are suspect especially if the corporation is involved in of the Corporation and you go through the list and you try
some public welfare like public utilities. to identify:

a.) Is this express powers?


b.) Is this implied powers?
TITLE IV- POWERS OF A CORPORATION c.) Is this Incidental?
Another name for incidental is inherent powers.
SEC 36 Corporate powers and capacity. – Every
corporation incorporated under this Code has the
power and capacity: Kanang gilista diha tanan, eh di Express!
Express nana tanan kay gilista naman. Naa naman
1. To sue and be sued in its corporate name; dinha.

2. Of succession by its corporate name for the period 1. The Power to Sue and be sued in its Corporate
of time stated in the articles of incorporation and the name.
certificate of incorporation;
What used to be inherent powers, to sue and be
3. To adopt and use a corporate seal; sued is now express because it is written there. Just
because it is express it does not ceased to be inherent.
4. To amend its articles of incorporation in Because if the Corporation Code should be amended,

13
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

and this is repealed by implication because it is not Ikaw, wala ka kahibalo sa purpose unsay diperensya sa
repeated in the amended version of the Articles of powers, wala ka kahibalo na naa ra diay na xa sa
Incorporation, Does it mean that the Corporation can no Corporation code. Bisan wala na nabutang sa purpose,
longer sue and be sued? It does not mean that because mabuhat na nimo. Because they are power clauses,
that what defines a Corporation. It is inherent in the they are not purpose clauses. Mao nang buhaton sa
Corporation to sue and be sued. Why? Because a abogado aron para daku-daku iyang attorney‟s fees.
Corporation is a person. And the person according to
the Civil Code is one who is a subject of rights and I would like to touch on this number 9 of the
obligations. If you have rights, you can sue to assert powers of the Corporation.
your rights. If you have obligations, you can be held
liable if you do not exercise due diligence in exercising 9. To make reasonable donations, including those for the
your rights and you injure others and you can be sued. public welfare or for hospital, charitable, cultural,
You can be sued because you are a person. It defines scientific, civic, or similar purposes; Provided, That no
you. You are not a person first then you have rights and corporation, domestic or foreign, shall give donations in
obligations. No. You cannot be a person unless you aid of any political party or candidate of for purposes of
have rights and obligations. That is the meaning of partisan political activity.
inherent or incidental right. It is inherent for water to wet.
If it does not wet, it is not water. *Story about Isda ug So a corporation has the power to donate but it
ice* cannot donate for political purpose. In most jurisdictions,
they can. US, you can. Japan, you can. The only
Identify the inherent powers. condition is that you must disclose. If you do not disclose
and you make a donation then it is presumed to be xxx
2. To adopt and use a corporate seal is an express and that is a criminal. But if you disclose, ibroadcast na
power. tanan. Diri sa ato, wala, dili ka makadonate. How can you
donate to a candidate during an election? There are
Niadto, hari ra ang dunay naay seal. In middle some business interests that are so large that they
ages, distances made communication difficult. How cannot afford not to donate. Very big conglomerates have
would you know na ang sulat na imong nadawat ,King of no choice but to donate. If dili sila mudonate ug kadto
Spain ka, kanang gisuwat nganha na nadawat nimo ang makadaug, eh di makalulooy sila. You must do
gipadala diay na sa king of England? Unsaon man nimo something.How do you it when the law does not allow it?
pagkahibawo? Kahibawo ka kay naay dunay seal sa hari Do you want to know how they will do it? Because the
kung asa gikan. Gitakluban na ug wax. Kanang sa commentaries will not tell you that.
kandila gani, gibutangan xa ug seal. Usually sa iyang
singsing, naa dihay carve aron dili makawat niya. You open an account for your beneficiary, let us
Isingsing na niya. Ibutang na niya dinha. So, isuwat na say in Singapore. And the Singapore bank they have
niya dinha… sealed with my seal… authenticated by my agency. Is this agent, your agent? And then he signs
indubitable sign that is this real and I am sending you is there, He has his signature specimen. Now, he has that
real. Wala na ni. Nawagtang na ni ron. account open by someone. Once he has that account in
Singapore, he borrows from the bank here. What is his
Verification these days is very simple. *Chika security of that borrowing? The same amount that has
about seal magkuha ra daw si Fr. sa UM. LoL. And other deposited in his name.
chika pa ni Fr.*
So the security of that loan, that he transacts
It has its uses. Seal, that is still used in the with the bank here is now secured by that account that
Certificate of Stock. You still use certificate of stock xxx. is opened in Singapore. Of course, they will not pay the
Now, Evidences of ownership is electronic. Because if it loan anymore. The bank will foreclose on that loan on
is not electronic, you are the most expensive stock that deposit. So the donation is perfected and executed.
exchange. Meaning to say you transfer evidence, ilisdan
napud ug lain, nadugay na ang clearing. If you do not What is the record? Nanghulam xa sa banko
have electronic clearing, wa naka. (Not clear: dinhi. Unya naforeclose, wala xa kabayad. Wala man xa
Clearing/Trading) is very expensive. Singapore, kabayad, naforeclose iyang acoount didto. Then you
Malaysia, Hongkong, electronic na. donate to the candidate and you are the corporation
here. You caused the opening of the account. You did
You look at any Articles and By-laws. And it is not donate because you did not do within the territorial
there that the corporation can hire employees. Wa gyud. jurisdiction of this law. This law is municipal law. This is
Naa rana kung ang imong lawyer, wala kahibalo sa not international law. Di ba? Criminal statutes in the
purpose. Unya gusto siya na tan-awon nimo na murag Philippines are enforeceable within the territory of the
naghagu gyud xa sa pagbuhat sa Articles and By-laws. Philippines.
Unsa man iyang buhaton? Butangan niyag main
purpose. “ To open a general merchandising store selling Was there a violation? There was a violation
dry goods etc “ and ibutang niya “other purposes…”. indirectly but the corporation did it outside the territorial
Pangopya na ni niya ang mga powers sa Corporation. effectivity of this law because this law is municipal law. It

14
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

is not international. In Singapore, Can you compel them proceedings, subject to the provisions of this Code on
to produce the records? Legal processes like liquidation.
Subpoena? Dili man sila magtuo nimo. Mawad an sila Sec 120, Dissolution by shortening corporate
xxx dili sila mutuo. term. You amend the articles taas-taas pa ang imong
th
kinabuhi unta 50 year unya naa paka sa 25 year, unya
 Power to Extend or Shorten Corporate Term muapply ka na ishorten nimo ang term, mahuman na, 6
months from now. Unsa man pasabot ana?
SEC 37. Power to extend or shorten corporate term. –
A private corporation may extend or shorten its term Nagdissolve ka sa corporation. You are
as stated in the articles of incorporation when dissolving the corporation. So when you apply, to shorten
approved by a majority vote of the board of directors the term, lain ang tinan-awan sa imo sa SEC. Muingon
or trustees and ratified at a meeting by the sila na give the lists of your creditors, give me proof that
stockholders representing at least two-thirds (2/3) of you have served notice to all your creditors, you must
the outstanding capital stock or by at least two-thirds publish in the newspaper that you are shortening the
(2/3) of the members in case of non-stock term because it is equivalently dissolving the corporation.
corporations. Written notice of the proposed action When you dissolve, you are actually paying your shares,
and of the time and place of the meeting shall be actual working shares, so there is no appraisal.
addressed to each stockholder or member at his
place of residence as shown on the books of the Remember once a corporation is term has
corporation and deposited to the addressee in the expired even if there is still 3 years to wind up the affairs
post office with postage prepaid, or served of the corporation, those 3 years, you can already apply
personally: Provided, That in case of extension of for an extension. Those 3 years of winding up the
corporate term, any dissenting stockholder may corporation is no longer functioning as a corporation.
exercise his appraisal right under the conditions There is no board. Who is incharge there? It is the
provided in this code. (n) receiver in dissolution. There is one person who is
incharge.

I would just like to point to you that to extend or Receiver. What is his job? To liquidate the properties
shorten the corporate term, the last sentence of section and to pay the creditors. To distribute what remains to
37 deems opposes it the appraisal right. An appraisal be the stockholders in proportion to the portion of the
right is a right when you go the corporation and buy me outstanding capital stock. To do that, you need:
out because I opposed to this corporate action. Now, you
have appraisal right only when the term is extended, 1.) Majority of vote of ALL the members of
not when it is shortened. But in the provision here, it the board. So absolute majority.
seems that it is both to extend or to shorten. But it is
specific in the last sentence that “In case of extension of 2.) You must inform the stockholders. Not
corporate term, any dissenting stockholder may exercise just written assent you need to inform
his appraisal right under the conditions provided in this them, attend the meeting because what is
code. “ going to be discussed is extension of term
or shortening the term.
 Why is there no appraisal right when it to shorten
the term? Why is there no appraisal when the 3.) You must give notice to all
corporate act is to shorten the term? stockholders, voting and non-voting.

Because to shorten the term is to dissolve the Because this is one of the instances where the
corporation. And when you dissolve the Corporation xxx non-voting shares cannot be prevented from voting.
you will be paid of the value of your share if there is still Please do not say, may vote. Non-voting shares will vote,
remaining of the assets of the corporation. It is just legal No! They cannot be prevented from voting. They have
debts. You are actually paid once the term will be the right to vote Because it is one of the instances in
shortened. Shortening of the corporate term is another connection with Section 6.
form of dissolving the corporation.
Written assent? Not allowed. There must be
Section 120. Dissolution by shortening corporate social congress. Meeting na, naa sila diha. And then,
term. – A voluntary dissolution may be effected by they cast their ballot.
amending the articles of incorporation to shorten the
corporate term pursuant to the provisions of this Code. A  Must it be a secret ballot?
copy of the amended articles of incorporation shall be
submitted to the Securities and Exchange Commission in The rule is in any meeting of stockholders, viva
accordance with this Code. Upon approval of the voce is the rule. But when one stockholder requests
amended articles of incorporation of the expiration of the that the voting be by secret ballot, then the discipline
shortened term, as the case may be, the corporation of the chair, has no more choice but to order secret
shall be deemed dissolved without any further ballot. That is the rule.

15
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

corporation. Just like you cannot imagine a State that has


January 4 2017, Duco L no police power.

So alright, we are already in powers of the The police power of the State defines a State.
corporation. Section 36 lists a total of 11 paragraphs, The Constitution merely recognizes that power. At the
powers and capacity of corporations. same time that it is recognized in the Constitution, it is
also limited. And what are the limitations? The limitations
Sec. 36. Corporate powers and capacity. - Every are the Bill of Rights. At the same time that the
corporation incorporated under this Code has the Constitution limits it, it in fact defines it. But it does not
power and capacity: grant it to the State because the State has that power as
1. To sue and be sued in its corporate name; an inherent power.
2. Of succession by its corporate name for the period of
time stated in the articles of incorporation and the Now, this hearkens back to section 6 of the
certificate of incorporation; Corporation Code.
3. To adopt and use a corporate seal;
4. To amend its articles of incorporation in accordance Sec. 6. Classification of shares. - The shares of stock of
with the provisions of this Code; stock corporations may be divided into classes or
5. To adopt by-laws, not contrary to law, morals, or series of shares, or both, any of which classes or series
public policy, and to amend or repeal the same in of shares may have such rights, privileges or
accordance with this Code; restrictions as may be stated in the articles of
6. In case of stock corporations, to issue or sell stocks incorporation: Provided, That no share may be deprived
to subscribers and to sell stocks to subscribers and to of voting rights except those classified and issued as
sell treasury stocks in accordance with the provisions "preferred" or "redeemable" shares, unless otherwise
of this Code; and to admit members to the corporation provided in this Code: Provided, further, That there
if it be a non-stock corporation; shall always be a class or series of shares which have
7. To purchase, receive, take or grant, hold, convey, complete voting rights. Any or all of the shares or
sell, lease, pledge, mortgage and otherwise deal with series of shares may have a par value or have no par
such real and personal property, including securities value as may be provided for in the articles of
and bonds of other corporations, as the transaction of incorporation: Provided, however, That banks, trust
the lawful business of the corporation may reasonably companies, insurance companies, public utilities, and
and necessarily require, subject to the limitations building and loan associations shall not be permitted to
prescribed by law and the Constitution; issue no-par value shares of stock.
8. To enter into merger or consolidation with other
corporations as provided in this Code; Preferred shares of stock issued by any corporation
9. To make reasonable donations, including those for may be given preference in the distribution of the
the public welfare or for hospital, charitable, cultural, assets of the corporation in case of liquidation and in
scientific, civic, or similar purposes: Provided, That no the distribution of dividends, or such other preferences
corporation, domestic or foreign, shall give donations as may be stated in the articles of incorporation which
in aid of any political party or candidate or for purposes are not violative of the provisions of this Code:
of partisan political activity; Provided, That preferred shares of stock may be issued
10. To establish pension, retirement, and other plans for only with a stated par value. The board of directors,
the benefit of its directors, trustees, officers and where authorized in the articles of incorporation, may
employees; and fix the terms and conditions of preferred shares of
11. To exercise such other powers as may be essential stock or any series thereof: Provided, That such terms
or necessary to carry out its purpose or purposes as and conditions shall be effective upon the filing of a
stated in the articles of incorporation. certificate thereof with the Securities and Exchange
Commission.
So you go down the list and you identify which is Shares of capital stock issued without par value shall
a property power and which is a capacity of the be deemed fully paid and non-assessable and the
corporation. Then you have to identify which is inherent holder of such shares shall not be liable to the
power and which is an express power. In a sense, all the corporation or to its creditors in respect thereto:
powers are express because they are listed down. But, Provided; That shares without par value may not be
be that as it may, there is still an inherent power, namely, issued for a consideration less than the value of five
a power that defines the corporation, and without which, (P5.00) pesos per share: Provided, further, That the
there would be no corporation. entire consideration received by the corporation for its
no-par value shares shall be treated as capital and shall
What is the significance of that power? The not be available for distribution as dividends.
significance of that power is even if it is legislated out of A corporation may, furthermore, classify its shares for
existence, it still exists as a power. In other words, the the purpose of insuring compliance with constitutional
corporation cannot be deprived of that power, because to or legal requirements.
do so, would render the disappearance of the Except as otherwise provided in the articles of
incorporation and stated in the certificate of stock, each

16
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

share shall be equal in all respects to every other share. written assent of the stockholders representing at least
Where the articles of incorporation provide for non- 2/3 of the outstanding capital stock‟. So the way the
voting shares in the cases allowed by this Code, the stockholders participate in this exercise of extraordinary
holders of such shares shall nevertheless be entitled to powers is either by vote which requires a meeting, or a
vote on the following matters: written assent which need not have any meeting, in
which case, the stockholders are sent a notice and a
1. Amendment of the articles of incorporation; form to fill up whether they are in favor of this
2. Adoption and amendment of by-laws; amendment, whether they assent to the amendment or
3. Sale, lease, exchange, mortgage, pledge or other they dissent from the amendment.
disposition of all or substantially all of the corporate
property; So, when do you know that the amendment of
4. Incurring, creating or increasing bonded the articles of incorporation requires voting or just a
indebtedness; written assent? That is why you must have familiarity with
5. Increase or decrease of capital stock; Title 4 beginning with sec 37 all the way up to sec 45,
6. Merger or consolidation of the corporation with ultra vires acts of the corporation.
another corporation or other corporations;
7. Investment of corporate funds in another corporation For instance, the corporation wants to change
or business in accordance with this Code; and its name. Is a stockholders‟ meeting required to obtain
8. Dissolution of the corporation. the 2/3 vote of the stockholders voting and non-voting?
Except as provided in the immediately preceding Its an amendment of the articles of incorporation because
paragraph, the vote necessary to approve a particular that is where the name is. In fact, that is the first
corporate act as provided in this Code shall be deemed provision. „The name of the corporation shall be‟, then
to refer only to stocks with voting rights. you put the name. You change it. You amend it.
Question: Does it require a meeting? If you take a look at
And there is a list there of 8 instances when sec 6, and you find out it is not one of the instances
the Corporation exercises extraordinary powers. mentioned in sec 6. So, you can amend the name just by
What are those? written assent of 2/3. You do not need a meeting.

1. Amendment of the articles of incorporation; Now, on the other hand, if you increase the
capital stock of the corporation, that means you raise the
It can amend its articles of incorporation. The authorized capital stock. When you raise, that means you
articles of incorporation define the corporation. For amend the articles. Now, if you amend the articles, then it
instance, it defines its name. is part of par 1 sec 6. You amend the articles of
incorporation. So you ask the question: does it require a
2. Adoption and amendment of by-laws; vote, or just a mere written assent? Then you go title 4
and you take a look at sec 38.
So the corporation is the one who creates its by-
laws. It can also change its by-laws. That is a power Sec. 38. Power to increase or decrease capital stock;
which the corporation exercises. incur, create or increase bonded indebtedness. - No
corporation shall increase or decrease its capital
Now, whenever a corporation exercises any of stock or incur, create or increase any bonded
its powers under section 6, then section 6 says even non- indebtedness unless approved by a majority vote of
voting shares are entitled to vote. So there is really no the board of directors and, at a stockholder's
such thing as shares of stock of the corporation that is meeting duly called for the purpose, two-thirds (2/3)
totally deprived of voting rights. of the outstanding capital stock shall favor the
increase or diminution of the capital stock, or the
In the 8 instances, when the corporation incurring, creating or increasing of any bonded
exercises these powers, non-voting shares are entitled to indebtedness. Written notice of the proposed
vote. Do not say that they may vote, because if they are increase or diminution of the capital stock or of the
entitled, they cannot be prevented from voting. incurring, creating, or increasing of any bonded
indebtedness and of the time and place of the
Now, should you, let‟s say, as an officer of a stockholder's meeting at which the proposed
corporation, prevent these non-voting shares from voting, increase or diminution of the capital stock or the
then it is an abuse of power. incurring or increasing of any bonded indebtedness
is to be considered, must be addressed to each
Now, let me just bring to your attention the first stockholder at his place of residence as shown on
exercise of power: amendment of the articles of the books of the corporation and deposited to the
incorporation. When you say amendment of the articles addressee in the post office with postage prepaid, or
of incorporation, you run into complications when you served personally.
relate par 1 section 6 amendment of the articles of
incorporation with sec 16 amendment of the articles of A certificate in duplicate must be signed by a
incorporation. Why? Because sec 16 says „the vote or majority of the directors of the corporation and

17
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

countersigned by the chairman and the secretary of with the Securities and Exchange Commission,
the stockholders' meeting, setting forth: which shall have the authority to determine the
(1) That the requirements of this section have been sufficiency of the terms thereof. (17a)
complied with;
(2) The amount of the increase or diminution of the Then you know that a meeting is required
capital stock; because a vote is required by sec 38. So, that is why this
(3) If an increase of the capital stock, the amount of requires serious familiarity with the corporation code.
capital stock or number of shares of no-par stock Kahibaw ka naay daghang resolution dinha ipapass.
thereof actually subscribed, the names, nationalities Now, when you have several resolutions in a corporation
and residences of the persons subscribing, the meeting, and there are resolutions which require the
amount of capital stock or number of no-par stock participation of non-voting stockholders, and there are
subscribed by each, and the amount paid by each on resolutions that do not require the participation of non-
his subscription in cash or property, or the amount voting shares, you cannot just lump them together and
of capital stock or number of shares of no-par stock say „Okay for purposes of this meeting, we will declare a
allotted to each stock-holder if such increase is for quorum‟. You have to establish the quorum fit for the
the purpose of making effective stock dividend resolution. Example: one of the resolutions is for the
therefor authorized; election of directors. Now, do the non-voting shares
(4) Any bonded indebtedness to be incurred, created participate in the election? They do not. So for the
or increased; determination of the quorum for that particular resolution,
(5) The actual indebtedness of the corporation on the you should exclude the non-voting shares because with
day of the meeting; the presence of voting and non-voting, there will be a
(6) The amount of stock represented at the meeting; quorum for the meeting. But for purposes of election,
and there may be not enough present for the quorum,
(7) The vote authorizing the increase or diminution of because the quorum is to be determined from the voting
the capital stock, or the incurring, creating or shares.
increasing of any bonded indebtedness.
Any increase or decrease in the capital stock or the So, the secretary of the corporation must attest
incurring, creating or increasing of any bonded to the adequacy of the quorum for each possible
indebtedness shall require prior approval of the resolution or for each kind of resolution that just requires
Securities and Exchange Commission. a specific participation of the body politic of the
One of the duplicate certificates shall be kept on file corporation. Di nimo mahimong iransada lang nimo.
in the office of the corporation and the other shall be
filed with the Securities and Exchange Commission Just like in the Constitution, when there is need
and attached to the original articles of incorporation. for ratification by Congress, certain provisions that
From and after approval by the Securities and require ratification by Congress with the act of the
Exchange Commission and the issuance by the President, you cannot just make them vote as one body.
Commission of its certificate of filing, the capital It has to be a separate body. Senate voting separately
stock shall stand increased or decreased and the and the Congress voting separately.
incurring, creating or increasing of any bonded
indebtedness authorized, as the certificate of filing So alright, we have seen that the power to
may declare: Provided, That the Securities and extend or shorten the corporate term requires the
Exchange Commission shall not accept for filing any participation of non-voting shareholders. And then, there
certificate of increase of capital stock unless must be a qualified notice sent to all in accordance with
accompanied by the sworn statement of the treasurer the bylaws of the corporation.
of the corporation lawfully holding office at the time
of the filing of the certificate, showing that at least  What is a qualified notice?
twenty-five (25%) percent of such increased capital
stock has been subscribed and that at least twenty- Qualified notice is not just a notice to the
five (25%) percent of the amount subscribed has stockholders of the date, time, and place of the meeting,
been paid either in actual cash to the corporation or but also the specific item in the agenda of the meeting
that there has been transferred to the corporation which has to do with the extension or shortening of the
property the valuation of which is equal to twenty- corporate term, because that is what is required by sec
five (25%) percent of the subscription: Provided, 37.
further, That no decrease of the capital stock shall be
approved by the Commission if its effect shall Sec. 37. Power to extend or shorten corporate term. -
prejudice the rights of corporate creditors. A private corporation may extend or shorten its term
Non-stock corporations may incur or create bonded as stated in the articles of incorporation when
indebtedness, or increase the same, with the approved by a majority vote of the board of directors
approval by a majority vote of the board of trustees or trustees and ratified at a meeting by the
and of at least two-thirds (2/3) of the members in a stockholders representing at least two-thirds (2/3) of
meeting duly called for the purpose. the outstanding capital stock or by at least two-thirds
Bonds issued by a corporation shall be registered

18
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

(2/3) of the members in case of non-stock  What is required when you ratify an unauthorized
corporations. Written notice of the proposed action act?
and of the time and place of the meeting shall be
addressed to each stockholder or member at his The same requirement as a waiver: must be
place of residence as shown on the books of the intelligent, you understand its ramifications, second, it‟s
corporation and deposited to the addressee in the voluntary, and then you have capacity to ratify. Whether
post office with postage prepaid, or served you are a stockholder or you are a proxy or you are an
personally: Provided, That in case of extension of administrator or administratrix of an estate, you have the
corporate term, any dissenting stockholder may capacity to ratify. So that is what you do top close the
exercise his appraisal right under the conditions door to any controversy.
provided in this code. (n)
Alright, you take a look at sec 38: Power to
So the requirement, if there is no more stringent increase or decrease capital stock; incur, create or
requirement in the bylaws, it is this. You have to serve by increase bonded indebtedness. And then it requires
postal mail with return receipt. Dili na ordinary mail ba. qualified notice.

Now, how did bylaws provide for email? I have Sec. 38


not seen a SEC circular or order approving service XXX
compliant with the qualified notice requirement by the Written notice of the proposed increase or
corporation code and equalizing it with email. Wa pa ko diminution of the capital stock or of the incurring,
kakita ana. It might come out! I don‟t know. Because the creating, or increasing of any bonded indebtedness
SC has already ratified or gave its imprimatur to the and of the time and place of the stockholder's
circular of the SEC with respect to meetings of the BOD meeting at which the proposed increase or
by conference call or video conference call, and it is not diminution of the capital stock or the incurring or
provided in the Corporation Code. Will they allow notice increasing of any bonded indebtedness is to be
by email? So, if there is the case, there is limbo, and you considered, must be addressed to each stockholder
are the secretary of the corporation, how do you close at his place of residence as shown on the books of
the door to possible controversies arising from this *, as the corporation XXX
to the adequacy of the notice? How do you close the
door? This is what you do in order to close the door of What book of the corporation? If it is a stock and profit
the controversy: If it is directors‟ meeting, you make sure corporation, it is the „stock and transfer book‟. If it is a
that you get the signature of the directors inside or non-stock non-profit corporation, it is in the „book of
outside of the meeting as to the particular resolution that membership‟ of the corporation. That is the equivalent of
is asked because one he signs, no more. He has waived the „stock and transfer book‟. And the addresses of the
his right as to objections of the resolution. stockholders are recorded therein by the secretary of the
corporation. That is what determines the exact
Now, as to the stockholders, that is a problem compliance of this particular *. So again, qualified notice
because you cannot go to the stockholders one by one. is required.
Alangan pangitaon nimo ilang signature. Kadaghan kayo
nang resolution. Unya PLDT 2 million kabuok ang The corporation has no corporeal referent. Did the
stockholders. Bisan magpatubo pa kag bungot ana di ka corporation increase or decrease its capital stock? How
ka human ana. do you determine that? By looking at the formalities.

So what do you do? In the annual meeting, you Nangutang ba ang corporation with the bond?
make sure that the entire assembly which there is a How do you determine that? You go to the process
quorum, ratifies the passing of this resolution because applied in sec 36 of incurring bonded indebtedness.
the Corporation Code does not say that qualified notice is Because if it is not bonded indebtedness, it‟s only the
required to ratify defects of resolutions approved when BOD who need determine the vote for increasing
the qualified notice was lacking. indebtedness, not necessarily bonded indebtedness.

Corporation Code requires that when you Now, you take a look at it in the natural person.
increase capital stock, there has to be qualified notice. Nagutang ka ba ni Polano? Wala. What are the
Suppose you failed to comply with this qualified notice, formalities? Sign kag promissory note. Wa may
and there could be possible obligation already, and then promissory note na gihatag ang creditor. Unsa man na
in the annual stockholders‟ meeting, you put it back, and iyang gihatag? Naa ra siyay suwat nimo na pasayluha
you asked the stockholders: can you ratify this? That lang ko day kay nauwahi ko sa pagbayad sa second
does not require qualified notice to ratify a defect. So installment. Unsa man na? Or you admit in open court in
make them ratify it. The only requirement for ratification another proceeding that you were in fact indebted to the
is? Unauthorized act, you can ratify it later on post creditor. That is the reality. That is not a formality. There
factum. is no such thing in the corporation. You only have the

19
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

formality, because the corporation has no corporeal exception? When it is water rights, it can be more than 50
referent. So once again, pay attention to the formalities. years. Dinha na na mag bangga.

Now, I explained to you why there is need for Does the SC really assume that the corporation
stockholders‟ participation in the exercise of the will die? And yet the commentaries are „a corporation,
corporation to increase, the power to exercise for one of its powers is perpetual existence‟? Because the
purposes of increasing bonded indebtedness, and there renewal of its articles is unlimited number of 50-year
is no need for stockholders‟ participation if you increase terms.
ordinary indebtedness. Why is that? Because bonded
indebtedness actually is indebtedness to the public. A Floating bonds
bond is not only issued once and for all. After its primary
issue, it can be traded in the bond market bought and I explained to you already about the 3 parties in
sold before maturity. And the quality of your a bond. When you have a bond, you always have 3
indebtedness is affected by whether or not it has the parties. The issuer. And then you have the .. Now, why is
backing of the entire corporation as mandated by sec 38. this rubric required? It is required because the holders
are numerous. Kung nanghuwam pa ang corporation
Is the corporation willing to shoulder the from a bank, the creditor is only one, the bank. Who
obligations of making it right with the lending public? holds the collateral? The bank. But if you borrow bonds
Kanang bonds gud, bought and sold man na in the open from the public, you float the bonds. This terminology
market. Kanang original na nipahuwam sa corporation na why is it called float? A corporation floats a bond. Palitun
nag kupot sa bond, maka turn around sad na sya „sige, gani sa public, that means your bond floats. Dili gani
gikapoy nakog kupot ani niya, gusto na nako irealize ang palitun sa public, way salig ang public sa issuer. The
cash niini, ibaligya ni nako‟. Nganung ang isa paliton bond sinks.
man? Kay makaginansya man syag palit niya. Presyuhan
man nimog ginansya. Mukimbra ka sa imong kuhaunon Now, provided in the bond is a trustee. The
ana, siya, kaginansya siya. So it is bought and sold in purpose of the trustee is no. 1: he holds the collateral that
what they call the „secondary market‟ for bonds. So the secures the bond. No 2: he acts for and in behalf of the
public is involved. That is why it is more stringent for the beneficiary in case at the time of maturity, the issuer
corporation to borrow by means of a bond. does not come across. Di na man makabayad ang
issuer. Kinsa may mukiha niya? Pila man ang filing fee?
And bonds now are becoming very Dako kaayo ka yang bond 2 billion man. Unya akoy
sophisticated. For instance, the SC has not yet come out mubayad ana? Paita. Wa nay mufile og kaso. Kay nganu
with a decision as to whether or not a corporation which man? Mayukmok man tanan. Kinsa may mufile? Ang
only has a maximum term in the articles of 50 years, can trustee maoy mangubra. Now, kung din a gyud
it issue 100-year bond? In the US they can. In Europe makakubra, unsa may buhatun sa trustee? The trustee
they issue 100-year bond. And it is still the rule there that forecloses and executes on the security. Unya siyay
corporate existence by term in the articles is still 50 mamayad sa beneficiary. So it‟s complicated. A bond is
years. Muingun ka siguro pareho ra na sa US. Don‟t not kiha ra ka sa imong migo kay na short ka, dili. It is
assume because there is a decision in the Philippine SC complicated.
and it says that a corporation cannot enter into a usufruct
agreement that is over 50 years. If that is the basis, you Now, it is further complicated because bonds
think the SC will agree that the corporation will issue a sometimes are bought by institutions. There are
100-year bond, if it cannot issue a usufruct agreement corporations that have very good credit rating that when
more than 50 years? they issue bonds, institutions buy them. What institution?
Let‟s say a retirement fund buys a bond. Now, muingun
Can you remember that decision that you took ka, unsa may nakacomplicate ana? Supposed a bank
up in property? Phil Banking v. Lui She G.R. No. L- has a mutual fund? Mga tawo muinvest ining mutual fund
17587 September 12, 1967. Insik to si Lui She. Siyay kay mas dako kunog return kay kani sila mao maning
nag abang atong karaan na kaayong balay atong * living mutuon unsaun pag deploy sa kwarta. Suppose this
with 20 cats and 10 dogs. Tiguwang na kayo unya nag mutual fund is 30% equity pero 70% sovereign or class A
agreement sila. Pila to ka years ang ilang agreement? 99 bonds. Sovereign bonds kanang IOU sa gobyerno. Class
years. Ingun ang SC 99 years that is equivalent to an act A bonds, kanang mga bonds sa San Miguel, PLDT.
of disposition. Tan-awa ra gud na. The mathematics of Muingun ka ok way problema. But this mutual fund is
the SC is elementary. Mao na na the SC nullified that also listed in the stock market. Mao nay gitawag nila og
lease agreement. ETF (Exchange-Traded Funds). Then they will be judged
„Unsa man mo? Kanang inyong gibutangan dinha class A
So what do lawyers now do? Whenever you bonds ba gyud na?‟ Di tan-awun na sad nila ni.
enter a lease agreement, the lawyers will say 45 years Examinon na sad ni nila. So your scrutiny as to the
renewable for another 45 years. Mao na na ron ang mga formality is twice, from the SEC, from the point of view of
agreement. Then what happens when the Constitution issuing, and then to the point of view of being listed
says that there is an exception as to the 50-year limit for secondarily.
the development of the natural resources? What is that

20
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Somebody said today everything is equitized. Sec. 38. Power to increase or decrease capital stock;
Everything is already in the stock market, directly or incur, create or increase bonded indebtedness. - No
indirectly. Bonds ka lang unta unya nganung naa naman corporation shall increase or decrease its capital
ka sa equity? Kay exchange-traded fund naman na nimo, stock or incur, create or increase any bonded
traded in the stock market. So that is why, this formality is indebtedness unless approved by a majority vote of
required. Ayaw mo tuo anang giingun anang mga the board of directors and, at a stockholder's
commentator „because you borrow the bonds in a much meeting duly called for the purpose, two-thirds (2/3)
bigger amount, therefore, it requires higher formality‟. Wa of the outstanding capital stock shall favor the
na siya ka basa. Wa na siya kahibaw unsa ng bonds. increase or diminution of the capital stock, or the
incurring, creating or increasing of any bonded
You can borrow a lot of money from the bank, indebtedness. Written notice of the proposed
even higher from what you can borrow from the bank. But increase or diminution of the capital stock or of the
the advantage of the fund is if you have very good credit incurring, creating, or increasing of any bonded
rating, you can borrow more cheaply from the bank. indebtedness and of the time and place of the
Barato ang bonds. Labi na og foreign-denominated stockholder's meeting at which the proposed
bonds. Mao na pag increase sa exchange rate, mubo increase or diminution of the capital stock or the
tan-awun. Barato pa when you borrow in dollars because incurring or increasing of any bonded indebtedness
the bond is in dollar, but when the exchange rate is to be considered, must be addressed to each
changes, that is the risk, downside risk. stockholder at his place of residence as shown on
the books of the corporation and deposited to the
addressee in the post office with postage prepaid, or
January 05, 2017, Montefolca Z served personally.

A certificate in duplicate must be signed by a


So we are still in the powers of a corporation. majority of the directors of the corporation and
The powers grid will be distributed to you. List of all the countersigned by the chairman and the secretary of
powers in the first column. The succeeding column will the stockholders' meeting, setting forth:
be all the requirements xxx so that is the codal summary
of title 4 of the corporation code. We discussed about the (1) That the requirements of this section have been
power to increase incurr create increase bonded complied with;
indebtedness. It requires the 2/3 vote of the stockholders
of the corporation issuing the bond you might understand (2) The amount of the increase or diminution of the
that incurring bonded indebtedness requires 2/3 capital stock;
confirmatory vote of the stockholders voting and
nonvoting. But increasing bonded indebtedness. Pun-a (3) If an increase of the capital stock, the amount of
na nimo do you still have to get a 2/3 vote? Mind how capital stock or number of shares of no-par stock
cumbersome that is? You are a corporation like PLDT thereof actually subscribed, the names, nationalities
with over 2M stockholders you will hold a meeting with and residences of the persons subscribing, the
the stockholders it becomes too cumbersome. amount of capital stock or number of no-par stock
subscribed by each, and the amount paid by each on
What do corporations do? I explained this already to you his subscription in cash or property, or the amount
what they do. They create a subsidiary corporation. of capital stock or number of shares of no-par stock
100% fully owned by PLDT let us say this corporation is allotted to each stock-holder if such increase is for
called PLDT capital corporation. What is the purpose? the purpose of making effective stock dividend
The purpose of this corporation is to facilitate bond therefor authorized;
issuances for the benefit of PLDT the mother corporation
so it is clear from its purpose. Then it issues bond for (4) Any bonded indebtedness to be incurred, created
PLDT. Why would the public buy the bonds of PLDT or increased;
capital bond corporation? Because it is 100% guaranteed
by PLDT. And in fact it is for the purpose of meeting the (5) The actual indebtedness of the corporation on the
capital financial needs of PLDT. Now, that corporation day of the meeting;
has only about 10 stockholders. It is just a subsidiary.
Very easy to get 2/3 vote. They can comply because it‟s (6) The amount of stock represented at the meeting;
the issuer but it is completely guaranteed by PLDT. So and
the next time you get a press release about the bond
issuance you go carefully xxx and you will find out that it (7) The vote authorizing the increase or diminution of
is not the corporation that issues because it is too the capital stock, or the incurring, creating or
cumbersome. It is not meralco that issues the bond for increasing of any bonded indebtedness.
meralco it is a subsidiary of meralco because of the
requirement of 2/3 confirmatory vote. Any increase or decrease in the capital stock or the
incurring, creating or increasing of any bonded

21
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

indebtedness shall require prior approval of the According to authorities what is required in each of the 8
Securities and Exchange Commission. instances mentioned in section 6 it must be the abosute
majority of the directors. Not just the quorum majority.
One of the duplicate certificates shall be kept on file
in the office of the corporation and the other shall be We are in the second paragraph of section 38
filed with the Securities and Exchange Commission
and attached to the original articles of incorporation. increase and decrease of capital stock incurr increase
From and after approval by the Securities and bonded indebtedness. Board action by majority vote that
Exchange Commission and the issuance by the is a requirement. 2/3 vote of outstanding capital stock of
Commission of its certificate of filing, the capital the membership, that is a requirement. Nonvoting shares
stock shall stand increased or decreased and the participation that is a requirement qualified notice, that is
incurring, creating or increasing of any bonded a requirement. Appraisal right applicable? Yes. When it is
indebtedness authorized, as the certificate of filing to extend shorten corporate term, but when it is bonded
may declare: Provided, That the Securities and indebtedness there is no provision in section 38 granting
Exchange Commission shall not accept for filing any the right of appraisal if you oppose.
certificate of increase of capital stock unless
accompanied by the sworn statement of the treasurer So that is all you have to remember with respect
of the corporation lawfully holding office at the time to bonded indebtedness but when it is an incease of
of the filing of the certificate, showing that at least capital stock, then you apply for the increase of capital
twenty-five (25%) percent of such increased capital stock, you must already have subscribed at least 25% of
stock has been subscribed and that at least twenty- the increase. It must already be subscribed and then at
five (25%) percent of the amount subscribed has least 25% of the subscribed must already be paid in
been paid either in actual cash to the corporation or because that is required by section 38.
that there has been transferred to the corporation
property the valuation of which is equal to twenty-
five (25%) percent of the subscription: Provided,
further, That no decrease of the capital stock shall be Sec 38.xxx
approved by the Commission if its effect shall
prejudice the rights of corporate creditors. Provided, That the Securities and Exchange
Commission shall not accept for filing any certificate
Non-stock corporations may incur or create bonded of increase of capital stock unless accompanied by
indebtedness, or increase the same, with the the sworn statement of the treasurer of the
approval by a majority vote of the board of trustees corporation lawfully holding office at the time of the
and of at least two-thirds (2/3) of the members in a filing of the certificate, showing that at least twenty-
meeting duly called for the purpose. five (25%) percent of such increased capital stock
has been subscribed and that at least twenty-five
Bonds issued by a corporation shall be registered (25%) percent of the amount subscribed has been
with the Securities and Exchange Commission, paid either in actual cash to the corporation or that
which shall have the authority to determine the there has been transferred to the corporation
sufficiency of the terms thereof. (17a) property the valuation of which is equal to twenty-
five (25%) percent of the subscription:

Remember when you incorporate, when you


Section 38 says a certificate in duplicate must be signed register a corporation, if you are using in the articles par
by a majority of the directors of a corporation. So this is a value shares, then at least 25% of the authorized must
particular resolution that requries signature of a majority be subscribed isnt it? And 25% of the subscribed must be
of the directors of the corporation. paid up so also when it comes to increase of capital
stock. Remember the referrent is the increase not the
 (Votes for certificate in duplicate) Is it a majority of entire increased capital. When you say 25% must be
the quorum of the board of directors(BOD)? or is it subscribed, 25% of what? It must be 25% of the increase
the majority of all the directors? must be subscribed. Why is that? That is important to
point out because when we say the original capital
Absolute quorum in other words if there are 11 in the authorized capital is 1M then when you file for
board, to make it a valid board meeting the quorum is 11 incorporation all you need is 250k for subscribed and
now do you get the majority of the quorum if 11 are then 25% of the 250k must be paid up.
present, is that sufficient to comply withthe requirement
here? Or must all 11 can constitute the quorum vote so Let us say you have already fully issued all the 1M
that you have the majority of the directors of a authorized capital, it is already fully subscribed and paid
corporation? up. You want to double the capital so you apply for
increase of 2M so it becomes 1M authorized and you
want to increase it to 2Mbut the paid up is already 50% of
the new authorized capital subscribed and paid up

22
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

 Do you still get new subscription? confirmatory vote is of the memebrs because there are
no stockholders.
Yes. because the basis for the 25% subscribed and 25%
paid up is the increae, the 1M that you added to the Sec. 39. Power to deny pre-emptive right. - All
whole authorized capital stock. stockholders of a stock corporation shall enjoy pre-
emptive right to subscribe to all issues or disposition
And then it is not important that individual stockholder or of shares of any class, in proportion to their
subscriber pays 25% of his subscription. Some respective shareholdings, unless such right is
subscriber will pay only 10% depending on the denied by the articles of incorporation or an
corporation officers or authority granted by the BOD. The amendment thereto: Provided, That such pre-emptive
important thing is that the aggregate paid up must be right shall not extend to shares to be issued in
25% of the subscribed. compliance with laws requiring stock offerings or
minimum stock ownership by the public; or to shares
So if the increase is 1M you must subscribe at least 250k to be issued in good faith with the approval of the
of the 1M increase. Rememebr the original authorized stockholders representing two-thirds (2/3) of the
capital is 1M you increased it to 2M, the basis for outstanding capital stock, in exchange for property
determining the 25-25 is the increase. So you must needed for corporate purposes or in payment of a
subscribe at least 250k of the 1M increase. The paid up previously contracted debt.
must also be at least 25% 250k but it is not necessary
rd
that each subscriber pays at least 25% of his subscribed Power to deny pre-emptive right. That is the 3 in the grid
capital. It is does important that the entire paid up capital here. Section 39.
is at least 25% of the subcribed.
 What is pre-emptive right?
“Bonds issued by the corporation shall be registered with
the SEC which shall have the authority to determine the It is the right to subscribe, to newly issued
sufficiency of the terms thereof” so this is an entirely new shares in such number as to maintain your original
process not covered by the coporation code but covered proporaiton of ownership of issued shares.
by SEC regulation code the process of registering a bond
because a bond is a security. You cannot issue a bond to Let us say upon incorporation you are a
the public, sell a bond to the public without first subscriber and you also made a downpayment now you
registering it with the SEC. are a subscriber and you are now a whole stockholder
having paid the full value of your subscription. The full
 How about if you issue a bond and the exclusive value of your subscription in relation to the issued shares
buyers of the bond are also stockholders of the of the corporation let us say 10%, the corporation has
corporation? Nothing is sold outside of the issued 1M shares at 1 peso par value which is the
corporaiton. Do you still register? preferred par value of the philippine stock exchange
unless you are a banking or quasi banking corporation
That is considered an exempt transaction but where the par value is P10.
you still have to apply for exemption from registration and
if you look at the xxx of the SEC regulation code, there is Normally P1 so you subscribed to 10% and then
a fee for being exempted from registration gamay lang pre-incorporation subscription the issued price is par
nuon. Its not like applying to register a regular bond that value wa pa man nag operate P1 sad. Let us say you put
is not exempt. You still pay an exemptionfee and is it 100k shares in relation to the issued shares let us say
computed according to the face value of the bond. But they issued 1/2 of that 500k. you are a 20% owner of the
we will have time to take that up once we go to the SEC outstanding capital stock. 10%. let us say the corporation
regulation code. now decides to issue the remaining 500k. how many
shares are you entitled to purchase? You are entitled to
Sec. 38. purchase another 100k shares to maintain your
proportionate share of the oustanding shares
Xxx
 Where do you find out whether you have pre-
Non-stock corporations may incur or create bonded emptive right?
indebtedness, or increase the same, with the
approval by a majority vote of the board of trustees Section 39 says pre-emptive right is presumed if
and of at least two-thirds (2/3) of the members in a the articles and by laws are silent as to WON you have
meeting duly called for the purpose. pre-emptive right, you have pre-emptive right. In other
words, the articles and/or by laws musy deny you pre-
emptive right in order that you do not have pre-emptive
right.
There is no prohibition for a non-stock non-profit
corporation from issuing a bond. But then the  But if there is no provision in the articles and or by
laws denying you pre-emptive right or if there is in

23
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

fact an explicit provision that you have pre-emptive So now if the law forces you to issue shares,
right can you still be denied of pre-emptive right? you are a public utility you are required to sell at least
10% of your outstanding capital stock to the public in
The article says you can. Why? Because it says general. The moment the corporation issues those
“provided, that such pre-emptive right shall not extend to shares the stockholders cannot complain “I have pre-
shares to be issued in compliance with laws requiring emptive right” no you cannot exercise pre-emptive right
stock offerings or minimum stock ownership by the over those shares because those shares are required to
public". be issued for the public.

Suppose the corporation is covered by a law Again, for those shares issued in goodfaith with
that requires it to sell shares to the public normally this is the approval of the stockholders representing 2/3 of the
requried of public utilities like PLDT meralco. Public outsanding capital stock in exchange for property needed
utilities or those engaged in the business that is for corporate purposes.
intimately related to the general life of the public. The
most recent one that issued this to the public is shell  Must the need be essential or merely convenient
petroleum corporation. Shell praticed overdue it is in order to cancel out pre-emptive right?
already more than 10 years. What is the original name of
shell oil corporation? There are 2 corporations of shell. General jurisprudence says mere convenient
Shell oil and shell petroleum. The original name of shell need is enough to cancel pre-emptive right. It does not
oil the one with gas stations. You have not heard of this have to be essential. Life or death need of the
corporation. ARABAY corporation that used to own all corporation. If it is for the purpose of convenience you
shell stations. that stands for Araneta Aboitiz Ayala. have denied pre-emptive right.
Why? Because shell is Anglo-Dutch it has no right to
engage in retail only the Americans, caltex, mobil they Example: Philex mining silangan project in surigao. Who
can engage in retail because of parity. Rememebr the is the neighbor of philex in silangan? It is mambinum
parity provision in the constitution? Wa mo kaabot kay mining owned by felcris. Mr. Yap. Crispin yap and felino
pagkatao ninyo wa nay parity. But originally, the 1935 yap made felcris. One of them is already dead so it
constitution granted americans 50 years same right as should be cris. Or fel. But its corporate name is felcris.
Filipinos. They can own land, they can engage in retail. Actually it is the father that owns. Philex already made
That‟s why mobil caltex … is already a later development actual determination of ore. There is possible ore there is
they can open gas stations but shell, anglo-dutch, they probable ore and there is actual ore. If your exploratory
cannot open gas stations. That‟s retail so they put up this drilling poles are just 10 meters apart that is considered
corporation ARABAY. They chose these top families 60% in mining at least in gold mining already as actual ore.
then shell is 40%. Half kilometer gani, naay ore diri, naay order didto,
probable ore ang naa dinha. Naa gani kay satellite data,
… shell oil and and shell petroleum because they mu ingon ka naa nay ore dira kay nag siga siga xxx
merged. How did they merge? One of the shell topographical. There must be ore that‟s possible ore. You
corporation acquired the refineries and xxx for this do actual ore drillings. Only between your xxx and next to
acquisition. Capital gains tax. Tan-awa na. Kastigo siya you topographically almost identical similar to your claim
sa supreme court. This came out last year. The Sc says is this other claimant, you do not drill the ore that is not
whenever there is acquisition and you continue the yours. Unya gold mani dinhi ug copper chances are, dinhi
business there is no capital gains. There is no gain that is sad gold ug copper. Diba logic? (ambot lang jud pads)
realized. unya mu ingon ka mudoble tingali akong actual ore if I
acquire this. How do I acquire this? Ibaligya ba niya iyang
Manghud rana gamay sa collection of taxes sa NPA claim? Nakakita nakag gold dinha nganu ibaligya mani
why? Because bisag pildi ang BIR, the BIR cannot be dinhi? Ingnan nimo kuyug ta ikaw, you do not have to put
commanded to repay. It will say just a tax credit. It will up a plant etc. Because I will put up and I will issue you
charged to your future taxes di kanamo I cash-out ang shares. Can the stockholders say we have pre-emptive
nakulekta namo. So it cannot stand to lose. Why? right. Do not issue him shares he‟s not a stockholder of
Because it is a sovereign. Bati ng balaora. Sa states philex. The corporation will say we need that. Yes it is a
bayad ka ug damages. If you make a wrongful colleciton need but it is not life or death. It is just convenient need.
you pay damages in the US. When you go in excess of
your powers you pay. In the Philippines you don‟t. Mao Can you deny pre-emptive right on the basis of
na way tax refund. Sa america one week after you file convenient need not essential sine qua non need?
your income tax you have tax refund ig you have Need as determined by the board.
overpaid. Sa pinas wa. If you overpay mucomplain ka,
daog ka, ingnan ka, next year di ka kinahanglan Jurisprudence says convenient need is sufficient
mubayad iipon na namo. That‟s tax credit. Mao na mga to deny pre-emptive right. That‟s what happened to
abusado. Thats not the way to collect taxes. If you mayna mining. Mr yap says give me cash for 1/2 and
believe colleciton of taxes is maximized by forcing give me shares of stock for the other half. That is how
people, wa! Maguang ra na gamay sa NPA. they built felcris centrale. It is presumptively pretending to
be french. And next to a depressed neighborhood. That‟s

24
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

why the walls are very high. you just lower the wall and it owned by taken over by NBC. NBC later on opened for
will be the french revolution. LOL That‟s 2B thats how bidding the sale of its shares. JG summit won but then
much yap got. mitsubishi says we have a right of first refusal we are
exercising it. JG summit says foul because if you do then
And then it says for in payment of a previously this corporation will be fully owned 100% foreign.
contracted debt. What is this? In civil code this is called Therefore there is no pre-emptive right. Read that case
dacion en pago. Dacion en pago you give as a form of so you will know the romualdeses how they got their
payment. So from creditor you trasnform your credit into biggest loan. Xxx owners of bataan shipyard kay wa na
ownership. The corporation owes the bank this much the sila kabayad kay gi imbargo. There is a lot of history
corporaiton can no longer pay the creditor. The creditor there.
takes a look at the corporation and is sees a promising
business. The corporaiton proposes to the creditor why January 6 2017 Sadsad, A.
don‟t we erase the debt and we will give you shares of So we are in this part of the Corporation Code
stock in exchange for our debt, that is dacion en pago. with so many formalities because the exercise of these
The creditor can no longer demand payment because he
powers are fundamental powers with serious effects on
is now a stockholder. He is paid shares of stock
the life and operation of the corporation. Whether or not
according to the value of his credit. you increase or decrease capital stock - that is a major
change in the corporation. So there has to be a good
 Now those shares of stock issued by the deal of formalities to verify whether that is really the mind
corporation can the stockholders stop the of the corporation. That is why you will need the
corporation and say we have pre-emptive right participation of the stockholders. We saw in the past title
you should sell that to us first. that the powers, properties, and the term of the
corporation are vested in the Board of Directors. That is
No, because it is to save the corporation from
the seat of activity of the corporation. But when it comes
the payment of debt. But it requires 2/3 vote of the to fundamental powers as listed in Section 6, then the
stockholders. If the remaining 1/3 opposed, they cannot Board of Directors or Board of Trustees requires
successfully stop the transaction. 2/3 is what is required ratification from the stockholders or members of the
to accomplish dacion en pago and exchange of property corporation.
needed for coporate purpose.
 POWER TO DENY PRE-EMPTIVE RIGHT
You should not confuse pre-emptive right with right of
first refusal. We finished with power to deny pre-emptive right. We
said before that pre-emptive right must be distinguished
 What is the right of first refusal? from the right of first refusal.
It could be a tolerable restriction on the Pre-emptive right applies to unissued shares mainly but
disposition of shares. The articles of incorporation might commentators now say that it also applies to reissuance
contain this restriction. Before any stockholder can of treasury shares. Why? Because the way Section 39 is
dispose of his shares, he must first offer the same to the now worded:
corporation or go to any of the stockholders. And he can
rd
only sell it to 3 parties after the corporation or the Section 39. Power to deny pre-emptive right. – All
stockholders have waived their right. That is right of first stockholders of a stock corporation shall enjoy pre-
refusal. emptive right to subscribe to all issues or
dispositions of shares of any class. xxx
Or two stockholders xxx to an agreement none of us will
sell our shares unless we offer is first to the other. And
this agreement is registered in the stock and transfer
book and its also annotated on the certificate of stock. So
rd So it just does not apply to all issuances but also to
a 3 party who is offered the shares is given notice that
there is this pre-emptive right he cannot later on say I am disposition of shares. So treasury shares, if there is an
an innocent purchaser for valu because it is anotated in issuance, it is subject to pre-emptive right.
the certificate of stock and you need a certificate of stock
to conclude the transfer of shares. The secretary too is  Does pre-emptive right apply to issues waived by
notified so he cannot make it transfer he cannot cancel stockholders
his own shares without determining as to won the
annotation has been cleared. That is the right of first For instance the corporation issues new shares
refusal. and there are 100 stockholders. 50 of the stockholders
declined to exercise their pre-emptive rights. Now, as to
That‟s why I pointed out to you the case of JG SUMMIT, the issues which they declined, do the remaining 50 (who
the famous right of first refusal with mitsubishi on the exercised their pre-emptive right) have pre-emptive right
bataan shipyard. 40% foreign owned. 60% owned by over those shares that have been declined by the other
filipinos. They have a right of first refusal. 40% filipino stockholders? That is the issue.

25
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

The SC has said there is no more pre- an establishment which sells its products or
emptive right over those shares. Why? Because if services directly to the end-user. If you sell to
there was, it just serves to increase your proportionate someone who in turn sells it to the end-user,
share of the outstanding capital stock (OCS). It is not with you are not a retail establishment. You are a
the effect of maintaining your proportionate share. Your wholesale establishment. A refinery that
proportionate share will in fact increase if you exercise processes crude oil into gasoline, diesel or
your pre-emptive right and you still buy more shares from diesoline, does not sell to end-users. They sell it
those that are declined by other stockholders. to the gas stations and the gas stations sell it to
the end-user that‟s why Shell Refineries and
 So who has the right to purchase those declined Shell Oil were separated.
by existing stockholders?
 POWER TO SELL OR DISPOSE ASSETS
That is for the board to determine. So the
Board will either offer it to other stockholders or to third If you have your grid, right away you can see the
parties. That is not a violation of the pre-emptive right of requirement.
existing stockholders.
Section 40. Sale or other disposition of
So we have seen the exceptions under Section 39: assets. – Subject to the provisions of
existing laws on illegal combinations and
1. When the articles and by-laws deny pre- monopolies, a corporation may, by a
emptive right majority vote of its board of directors or
trustees, sell, lease, exchange, mortgage,
pledge or otherwise dispose of all or
That is allowed. In fact that is what the PSE substantially all of its property and assets,
would like for all its corporations that are listed including its goodwill, upon such terms and
in the stock market. If you have that proviso in conditions and for such consideration,
your articles and by laws you are actually open which may be money, stocks, bonds or other
to the public. That makes all your shares listed instruments for the payment of money or
shares. other property or consideration, as its board
of directors or trustees may deem expedient,
2. When the law requires that you sell shares when authorized by the vote of the
other than to exisiting stockholders in order stockholders representing at least two-thirds
to broaden the ownership base of the (2/3) of the outstanding capital stock, or in
corporation case of non-stock corporation, by the vote of
at least to two-thirds (2/3) of the members, in
a stockholder’s or member’s meeting duly
Why is the ownership base ordered to be called for the purpose. Written notice of the
broadened? That is the usual reasoning when a proposed action and of the time and place of
corporation is engaged in services that affect the meeting shall be addressed to each
the general public like public utilities. They will stockholder or member at his place of
want a broader ownership base so that the residence as shown on the books of the
public in fact that stands to benefit will have a corporation and deposited to the addressee
say as to the policies of that corporation in the post office with postage prepaid, or
because they will become part owners. served personally: Provided, That any
dissenting stockholder may exercise his
The rule is if you are engaged in a public utility, appraisal right under the conditions
th
before you reach the 10 year of your provided in this Code.
operation, you must sell at least 10% of OSC to
the general public.
So right then and there, you know a meeting for the
purpose is needed. Qualified notice is necessary. And
then 2/3 vote must be counted from the combined base
That just happened to Shell last year. Shell of voting and non-voting shares.
finally began to sell their shares of stock to the
public to the extent of 10% because they finally  When is a corporation deemed to have sold all or
merged with different Shell Corporations. They substantially all of its assets.
merged it. They used to divide the Shell
Corporations. The owners of the gas stations The law says:
(who are engaged in retail) were separate from
refineries. Refineries do not need to be Filipino- If thereby the corporation would be rendered incapable of
owned. If you have a gas station, that is a retail continuing the business or accomplishing the purpose for
establishment is it not? A retail establishment is which it was incorporated.

26
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

If you can no longer comply with your main exchange, mortgage, pledge or otherwise dispose of all
purpose clause after you have sold your assets, you are or substantially all of your assets. That is wrong because
considered to have sold “all or substantially all” of your the Bulk Sales Law applies only to merchants. It is a
assets. Which means to say that if you have sold all or medieval law. Kinsa may covered ana? Kanang mga
substantially all of your assets and you can still continue ukay-ukay, dry goods, peddlers and they are the ones
to do your business for which you are founded, you are covered because most of their goods are held on
not covered by this. You do not need stockholders 2/3 consignment and it is very easy for them to escape their
approval. responsibility as a debtor by just selling the whole thing
involved at a huge discount and disappear. That is what
Is that possible? Baligya nimo tanang asset sa is sought to be prevented by the Bulk Sales Law.
corporation and then you can still do the business of the
corporation? That is the example of Barti Also, sale of all or substantially all assets in the
Telecommunications of India. What did Barti do? The ordinary course of business is not covered. Suppose you
Board approved the sale of all its cell sites, all its wiring, are a real property developer. Palit kag raw land. Then
all its physical assets back to the suppliers Nokia and you subdivide it into several hundred units. Then you
Siemens. But they did not ask the vote of the have a financing agreement with SSS, GSIS or Pag-IBIG
stockholders. Are they violating the Corporation Code? for the home mortgage. Let us say you have one creative
No. Because before they did that they made Nokia and salesman there who approaches one government office.
Siemens sign that they are leasing these equipment for Na-convince niya ang employees mamalit tanan. Nahurot
25 years renewable for another 25 years and that they ang imong assets as a real property developer in one
were obliged to enhance and increase these telecom swoop. Now, to do that, do you need the stockholders‟
assets as their subscribers grew. They did not hold a vote? No! Because it is in the ordinary course of
stockholders meeting. They just sold everything and they business. So be careful about these things. When a
made these people sign. problem is given to you, it might be ordinary course of
business, bulk sales. So that is not covered.
What was the purpose? So they will have extra
money to market their service to general public, to Remember that the appraisal right is available to
provide incentives for people to subscribe to their service. a dissenting stockholder. We will later on see how you
You know very well that in the cellular service many exercise appraisal right. You are a stockholder. 2/3
times you have to buy the subscribers. You subsidize voted. You voted against it. Supak ka ato because it
their cellphones. You make it available to them at very means that the corporation will drastically change its
attractive prices and that will entice them. Mu-subscribe nature. Unsaon man na nimo? You register your
ka unya muingon ka nila tagaan ka nilag iphone, apil na appraisal right. You are actually telling the corporation,
sa imong subscription pero kuptan ka nila for 3 years “Buy me out! Appraise how much is my stockholdings
diba? So gibaligya nila ilang equipment unya karon nag- worth and pay me.” That is appraisal right.
abang nalang sila. Lowers their cost! So now they are the
biggest cellular telecom service in India.  POWER TO INVEST CORPORATE FUNDS IN
ANOTHER CORPORATION OR BUSINESS
There is another corporation who did the similar
thing. Kimberly Clark was originally the second biggest Now, 2/3 vote of the stockholders is also required if the
forestry owner in the US. Its basic business was lumber corporation engages in business other than the
and logging. They owned forest concessions and they secondary or primary purpose of the corporation. That is
had many lumber sawmills. Then there comes their Section 42.
president who decided, “Let‟s give up this business, the
profit margin is very thin.” So they decided to sell all and Section 42. Power to invest corporate funds in
then they went further down the stream of business. another corporation or business or for any other
Nagbuhat na silag tissue ug diaper. purpose. – Subject to the provisions of this Code, a
private corporation may invest its funds in any other
The trouble is they did not hold a stockholders meeting corporation or business or for any purpose other
so they were sued by some disgruntled stockholders. than the primary purpose for which it was organized
What happened? By the time the case had advanced it when approved by a majority of the board of
was very clear that the President made a good move directors or trustees and ratified by the stockholders
because he was giving dividends because Kimberly Clark representing at least two-thirds (2/3) of the
became very profitable. So those who were complaining outstanding capital stock, or by at least two thirds
had to withdraw the case. (2/3) of the members in the case of non-stock
corporations, at a stockholder’s or member’s
I would just like to point out that there are meeting duly called for the purpose. Written notice of
misguided commentators who said that when you sell, the proposed investment and the time and place of
lease, exchange, mortgage all or substantially all of your the meeting shall be addressed to each stockholder
property then you are subjected to the Bulk Sales Law. In or member at his place of residence as shown on the
other words you have to get a clearance from SEC and books of the corporation and deposited to the
the Department of Trade before you can sell, lease, addressee in the post office with postage prepaid, or

27
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

served personally: Provided, That any dissenting not agree that you are investing in another corporation,
stockholder shall have appraisal right as provided in you can dissent and ask the corporation to buy you out.
this Code: Provided, however, That where the
investment by the corporation is reasonably Power to invest in another business or in
necessary to accomplish its primary purpose as another corporation – this is the difference between a
stated in the articles of incorporation, the approval of corporation and a partnership.
the stockholders or members shall not be necessary.
(17 1/2a) Sa partnership di man kinahanglan nga mag-voting.
Kutob sa mahuna-hunaan sa partner, with the consent
alone, diretso. There is no declaration of which purpose
Section 42 is the reason why the SEC wants is primary or secondary.
you to distinguish in your articles of incorporation which is
the primary purpose and which is the secondary purpose. But in a corporation there is a distinction between
You must clearly state there. Because once you go to the stockholders and Board of Directors. Stockholders
secondary purpose, you cannot go there unless you get determine the purpose. The Board of Directors determine
the 2/3 vote of the stockholders, voting and non-voting. Is the policy, how to pursue the purpose. The workers
there an exception? execute the policy. Then the Board re-evaluates the
execution. Who will say whether the policy is correct or
The exception is: Where the investment by the not? If it is a very elaborate policy the Board cannot
corporation is reasonably necessary to accomplish decide because they will be judging themselves. That is
its primary purpose as stated in the articles of when they hire consultants nga musulti nila nga sayop ni
incorporation, the approval of the stockholders is inyong policy.
shall not be necessary.
 POWER TO ACQUIRE OWN SHARES
If you invest in another corporation precisely to
further your primary purpose, you do not need the Section 41. Power to acquire own shares. – A stock
stockholders‟ 2/3 vote. corporation shall have the power to purchase or
acquire its own shares for a legitimate corporate
For example your business is to produce muscovado purpose or purposes, including but not limited to the
sugar or all other kinds of sugar and to refine sugar and following cases: Provided, That the corporation has
produce white sugar. Mao na imong business. Now the unrestricted retained earnings in its books to cover the
corporation votes to invest in a jute sack manufacturing shares to be purchased or acquired:
company. Karon plastic na na ang sako na sudlan sa
asukal. Niadto mga 1950s it was jute sacks. So they
invested because many times they had to stop 1. To eliminate fractional shares arising out of stock
production because they were short of sacks. So they dividends;
say, “In order to be sure that we have enough supply of
sack to contain the sugar that we produce, we made an
investment.” But then they did not obtain the 2. To collect or compromise an indebtedness to the
stockholders‟ vote. corporation, arising out of unpaid subscription, in a
delinquency sale, and to purchase delinquent shares
Now it was well and good if nothing untoward sold during said sale; and
happened, but as history would have it the jute sack
factory went bankrupt and closed. So na-water ang ilang 3. To pay dissenting or withdrawing stockholders
investment. That is when the stockholders sued the entitled to payment for their shares under the
members of the Board. The defense of the Board is that it provisions of this Code. (a)
falls within the implied powers. What is the express
power from which the implied power is derived? The
express power is to produce sugar. Now, when you
When you acquire your own shares you do not need the
produce sugar you have to place it somewhere. So
vote of the stockholders.
according to the Board they have the implied power to
procure sacks where the manufactured sugar will be 1. To eliminate fractional shares arising out
placed. Is the Board correct? SC says yes! It‟s an implied of stock dividends;
power. Not all investments in another corporation is
subjected to confirmatory vote of stockholders. If it is an This is when you realize that when a corporation
exercise of an implied power, if it is needed to issues a stock dividend, normally, they will also be
accomplish a primary purpose then it is not this kind of issuing some form of cash dividend to buy back fractional
action or exercise of ordinary power that requires shares unless they do rounding up.
stockholders‟ vote.
Let us say the corporation declares 10% stock dividends.
Now again a dissenting stockholder should have You have 10 shares. So pila man imong dibidendo? You
appraisal right as provided in this Code. Those who do

28
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

have 1 share. Way problema na. But let us say your Example: Kintahay and subscription kay 1000 shares at
shares are 11. Naay declaration, pila man ka shares 1.00 peso par value ang gibayran lang nimu 300 pesos.
imong dawatunon? 1.1 di ba? Ah naa kay fractional Ang balance nimu 700 pesos, 1000 shares at 1 peso par
shares. Unsaon man na? Di man na mahimo nga tagaan value, delinquent naka, after 30 days wala pa man
kag stock certificate nga 0.1. The corporation must gihapun ka nagbayad, declare ang corporation nga
purchase the fractional shares aron didto na mag-tagbo delinquent, question:
sa Treasury mabuo na na tanan. Many corporations just
don‟t bother to issue fractional shares. Ilaha nalang nang  Are you automatically delinquent if after 30 days
gina-round off. 11 kabuok imong shares, pila man? Ah from the date of call you have not paid?
usa nalang ka share. So remember what is the origin of
the fractional shares? Stock dividends. Normally a stock The answer is no, it requires the declaration of
dividend is declared as a percentage of your stock. the board, Why? Why is there a need for a declaration?

(5 min break) Because for a delinquency sale to occur, the corporation


must be ready to buy those shares if there are no
January 6, 2016 Casan, J bidders.

Alright, let us resume. Suppose the corporation does not have unrestricted
retained earnings, unsaon man na siya? Paunsa siya
2. To collect or compromise an indebtedness makapalit na it is prohibited by law to use capital stock to
to the corporation, arising out of unpaid buy shares of stocks, its own shares? So it is still within
subscription, in a delinquency sale, and to the power of the board to declare delinquency.
purchase delinquent shares sold during said
sale; So, delinquency na gani, delinquency sale not earlier
than 30 days not later than 60 days public auction na.
What are we talking about here? Par value shares or no The bidding price is the same to all the bidders.
par value shares?
 What does the bidding price consists of?
We are talking about par value shares. It cannot be no
par value shares because it cannot be bought in The balance of the subscription so you begin
installment. The moment it is issued, it must be fully paid with 700 pesos (father is referring to the earlier
and non-assesble. So, par value gyud ni. Now, you make example),the interest that has to be paid on that 700 if
a down payment, when is the balance to be paid? there is interests, penalties, if there are penalties. There
are penalties if there is also interest. Fourth, we also
There are two instances: have the expenses of the action sale because the
corporation has to rent a room and it has to hire an
1.) The date stated in the subscription; auctioneer. So they will pro rate all those expenses and
charge to the delinquent subscriber,
2.) If there is no subscription, the date of hold
made by the board of directors. So the balance of the subscription, plus interests,
plus penalties plus cost of the sale is the bid price
So the board of directors in the meeting where there is a for the subscription.
quorum set the date for the balances of the subscription
must be paid on or before January 30. So, come January Now, let us say the bid price for that
30, this particular subcriptor does not pay what happens? subscription, 1000 shares 1 peso par value, 300 pesos
ang downpayment, 700 ang balance, I add ang interest,
Civil law pa na muiingun dayun ka Default! If you cannot penalties, and the cost of sales, let us say it is 760 pesos,
pay on the date of payment the obligation is due. What that is what will be bidded by every single bidder.
happens to you? You are in default. Unya dili man ni Civil
law, so dili pa ka default. There difference is bidder A will say 760 for 500 shares
of the 1000 let B say 760 for 550 shares, abd bidder c will
The board of directors will give you another 30 days say 760 for 450 shares. Kinsa man makadasug sa bid?
th
because at the end of the 30 day, that is where the Ang makadaug sa bid kini siya (referring to bidder C)
board of directors can declare you DELINQUENT not in Same bidding price for a lower number of shares.
default.
So the winning bidder will be given a certificate of stocks
 What is the result if it is declared delinquent? for 550 but the entire subscription is 1000 naa pay 550,
asa man na paingun ang 550 shares?
So the board of directors not earlier than 30 days and not
later than 60 days from the date of delinquency holds the Adto na sa original subscriber, o ngano man na?
public auction. The entire subscription is up for sale. manguna ka why is he rewarded na wala man siya
nakabayad?

29
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

He is being rewarded because he took the risks. Le t us Maghulat nalang kag mabayran ka. You can no
say that on the period of that subscription the company longer attend debates, you cannot vote, you have the
will be bankrupt that subscriber will be pursued up until right no right over the dividends, hulat nalang ka ug
his personal properties as to the balance of his bayran.
subscription. He took the risks. So iyaha ang 550 shares
maadto sa winning bidder ang 450 shares. The company will offer you a price, suppose you
do not agree what happens?
Now what happens if there is no bidder?If there is no
bidder, then the corporation will be the default winner. The company chooses a representative, you
choose a representative, and both of them will select a
 How does the corporation will get the entire 1000 third party and that is the committee who will determine
shares covered by the subscription? the proper appraised price.

It goes to the treasury thereby becoming a treasury So kana sila tulo, dili man na sila mag serve out
share. of the goodness of the heart, kinahanglan bayran man
an, so who will pay kanang appraisal committee?
Now, the 760 price for the bid will be deducted from the
unrestricted retained earnings and transferred to the You will pay for your own representative, the company
common stock, capital accounts sa balance sheet. Now will pay its own representative, and the third one will be
there are additionally issued shares that are 1000 shares paid by whoever is incorrect. If the price arrived at by the
but it will be put in the treasury. Alright, you get the committee is closer to the price arrive at by the
picture? stockholder, then the company should pay. If the price
they arrived at is closer to the company‟s offer, and it is
So unsaun man intawun sa corporation na walay the stockholder who is exercising the appraisal right, then
unrestricted retained earnings? Pagkobra sa mga dili it is the stockholder who must pay the compensation of
mabayad na subscriber unsaun man nila? Can they go the appraisal committee. Mao na ang rules. That is the
through this delinquency sale? rule.

They cannot because if there are no bidders they Remember these instances referred here are
become the default winner. If they are the default winner the instances when the corporation must acquire its own
they will be forced to purchase and they cannot purchase shares.
it because they have no unrestricted retained earnings.
But the law says, a stock corporation shall have the
So usa ka magsugod anang deleinquency, kinahanglan power to acquire or purchase its own shares for a
naa kay unrestricted earnings. legitimate corporate purpose or purposes. So even if it is
not necessary, the corporation can purchase its own
 Kung wala ka unrestricted retained earnigns unsa shares.
man imung buhatun?
 Why should a corporation purchase its own shares
You go to the regular courts. Muingun ka bayri ang when it is not necessary?
imung balance ug utang sa corporation, kanang 700
pesos, plus interest, plus penalties, ordinary money Example: Suppose you are a TWITTER. And presyo sa
claims na siya. twitter karun sigeg ka nubo sigeg kaubos despite the
number of its users. Wala man niingcrease ang number
Alright that is the second way wherein the Corporation sa ilang users but it is already in the millions and the
can purchase its own shares. number 1 high profile user of twitter is no less than the
president elect of the United States, Mr. Donald Trump.
3. Pay dissenting or withdrawing So ngano man na sigeg kaubos ug kaubos na sige man
stockholders entitled to payment for their unta ilang advertisement. Their advertisement revenue is
shares under the provisions of this Code. growing, but sige siya ug kaubos 30 % down na gud na
(Section 42 number 3, paragraph 2) just last year alone, pero ginansyado pa man sila, they
are making money so the board of directors ordered that
So we have seen already the instances where let us purchase our own shares.
the stock owner can exercise his appraisal right if the
corporation wishes to invest in another corporation and it Palitun nato ang atong kaugalingung shares, nganu
is not implied power. Everybody up to 2/3 will approve. man? The whole purpose is to make more money twice.
Ikaw wala ka muaaprove, 1/3 lang man mo so pilde mo. How do you do that if you purchase your own shares?
So you can exercise your appraisal right. To do so, you
must surrender your stock certificate to the secretary. 1. First you reduce the number of the shares
From thereon, you no longer have any right but to be outstanding, if you reduce the number of shares
paid, lanatawa ng exercise of appraisal right, there is a outstanding, your divisor as to the total net
whole chapter. profits becomes smaller.

30
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Let us say your net profit is 1000, before you could put because of the nature of a banking transaction, so kana
the shares 1000 shares outstabnding pero kung ha.
pamalitun nimu until 800 nalang nahibilin its earning per
share increases. Musaka ang earning per share kay As a general rule, a corporation is obligated to
gamay nalang man ang divisor. redeem those shares if it is redeemable shares. So,
power to purchase once own shares.
2. Now if it happens the public notices that, the
public will say taas na man diay ang dividend so General rule: There must be unrestricted
mupalit na niini. Adto ta didto. So musaka napud retained earnings.
and price nimu sa stock market. Pagsaka sa
price sa stock market kana ka pa mubaligya sa  What is the definition of unrestricted retained
stocks. So makaduha ka maka earn ug kwarta. earnings?

Is that a legitimate purpose? Yes!!! It is. The definition was given by Batas Pambansa
Corporations do that always. That happens when you are Representative Benedict Abello (?)
making profit and the market is oblivious of your
accomplishments and they recognize the market value of Unrestricted retained earnings refers to
your shares of stocks. accumulated profits realized out of the normal and
strenuous operations of the business after deducting
So you do that. You by your own shares because therefrom distribution to stockholders and transfer to
you believe that your own investment is better that the capital stock and other outcomes.
other shares. Naa kay kwarta na ikagasto, niya dili man
na imu kay unrestricted retained earnings, why is that You do transfer to a capital stock if you declare
allowed? Because you are not cheating the public, you stock dividend.
are not using the capital stock; you are already using
money in excess of your capital stock that you received Alright, Section 43, the power to declare
your issue in the original shares. dividends.

That is the power to acquire one‟s own shares.


Section 43. Power to declare dividends. - The board
And then what is not listed here is what is called of directors of a stock corporation may declare
redeemable shares, if these shares are already classified dividends out of the unrestricted retained earnings
in the articles of incorporation as redeemable. which shall be payable in cash, in property, or in
stock to all stockholders on the basis of outstanding
In fact there is already a date as to when it is to stock held by them: Provided, That any cash
be redeemable because the articles of incorporation says dividends due on delinquent stock shall first be
“Class C” redeemable shares and it is redeemable on or applied to the unpaid balance on the subscription
before the fifth year of the issuance of the shares. So in plus costs and expenses, while stock dividends shall
that period the corporation has the option to redeem the be withheld from the delinquent stockholder until his
shares, to buy back the shares. unpaid subscription is fully paid: Provided, further,
That no stock dividend shall be issued without the
Now, that is the exception to the general rule approval of stockholders representing not less than
that the corporation can only repurchase its own shares two-thirds (2/3) of the outstanding capital stock at a
through unrestricted retained earnings because if it is regular or special meeting duly called for the
redeemable, you can purchase even if you do not have purpose. (16a)
unrestricted retained earnings. That is the reason why
you are ordered to buy back those shares. Stock corporations are prohibited from retaining
surplus profits in excess of one hundred (100%)
The reason is, the shares of stock has the percent of their paid-in capital stock, except: (1)
attribute of a loan, mestizo lang ang redeemable shares. when justified by definite corporate expansion
It has an aspect of proprietary ownership, it also has an projects or programs approved by the board of
aspect that it is a loan. Sigurado gyud ka mapalit nimu directors; or (2) when the corporation is prohibited
imung principal, that amount that you paid for to receive under any loan agreement with any financial
those shares. institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such
So they allow it, but the exception to the consent has not yet been secured; or (3) when it can
exception is if those shares are shares of a bank, be clearly shown that such retention is necessary
because even if it is redeemable with an obligation under special circumstances obtaining in the
clearly established that a bank must redeem it a certain corporation, such as when there is need for special
period. If the Bangko Sentral does not allow it, the bank reserve for probable contingencies. (n)
is excused from redeeming those shares. That is

31
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

 Why is it that when you declare cash dividends  Can a corporation take back or counter back its
there is no need for stockholder ratification? But decision to declare dividend? If so when can it take
when you declare stock dividend dili cash dividend back its declaration of dividend?
you are required to 2/3 vote of the outstanding
capital stock at a regular or special meeting duly When can it revoke its declaration to declare
called for that purpose? cash? If it has declared in public mabawi pa ba niya?

The law reads Muiingun siya “OPPPsss sorry dili diay me


kadeclare”. Then pangutan un nganun man? “Nasayop
That no stock dividend shall be issued without the diay among auditor to declare profit”. So nasayop ang
approval of stockholders representing not less than among pagdeclare ug unrestricted retained earnings. So,
two-thirds (2/3) of the outstanding capital stock at a pwedi ba na?
regular or special meeting duly called for the
purpose. (16a) The rule is according to the Supreme Court, it is
easier to revoke stock dividend than cash dividend. The
moment the monies required to make the payment of
cash dividend has been segregated or earmarked; THE
Now question, is that 2/3 based on voting CORPORATION CAN NO LONGER REVOKE THE
shares alone or voting and non-voting? Tan aw dayun sa DECLARATION OF CASH DIVIDEND. It is already a
section 6 because that is where the non-voting shares is vested right of the stockholder.
provided. Is it one of the instances provided? Dili man so,
2/3 is just based on voting it does not include non-voting Example: I-identify man na nimu, pila baa ng
stock.Timan-e na. unrestricted retained earnings ang ihatag nato karun?
You segregate it, then you declare, that you will receive
Declaring stock dividends requires stockholders let us say 20 cents per share or 100 pesos per share.
ratification, but cash dividends does not require, only the
action of the board only the majority vote of the board. Tan awa gud nang PLDT, par value 10 pesos
pila man ang market value, 1,400 plus? kay their yearly
The law reads: dividend is about 100 pesos. Karun niubus na.

The board of directors of a stock corporation may When it was still 100 niabot na ug close 3000
declare dividends out of the unrestricted retained per share bought and sold into the public. That is par
earnings which shall be payable in cash, in property, value of 10 pesos. So the investor outside, muingun sya
or in stock to all stockholders on the basis of ug 100.
outstanding stock held by them: Provided, That any
cash dividends due on delinquent stock shall first be Kana siya naa sa bangko, how much deposit do
applied to the unpaid balance on the subscription you need to get 100? Na karun, pila na ang interest sa
plus costs and expenses, while stock dividends shall bangko? Niabot na ug 1%? That is how they solve it, the
be withheld from the delinquent stockholder until his dividends, and unrestricted retained earnings.
unpaid subscription is fully paid
Stock dividend on the other hand, they may be
countermanded at anytime before they are actually
 Are there delinquent subscribers when the
released. Why?
company is making a descent profit and declare
dividend?
It is because stock dividends does not really
give you anything. It just increase your number of shares.
Maghulam ka ug kwarta unya imung bayran and
It does not give you any increase. For purposes of
subscription balance nga wala nimu bayre kay makakuha
taxation, it is income unrealized. That is why it is not
pa man ug dividend. So kung wala ka kwarta ug walay
subject to income tax. You really receive anything in
gyud kay mahimu nay lain stockholder na muiingun na
stock. Musaka lang imung number of shares.
palitun ko nalang na, ako nalang bayad anang balance
nimu nga wala nimu bayri. Padaghanun naku ako shares
But, that is really reflected in your present
kay ginansyado man ning kompanyaha. Walay
holdings, because your present holdings the book value
deleinquency basta naay ganansya ang Corporation.
of your present number of shares prior to the issuance of
Naay tao na magpahulam nimun ug kwarta arun bayran
the stock dividend is already counting the unrestricted
nimu imung shares arun mapalit niya kadtong para nimu.
retained earnings.
Diba? Hunahunaa lang gyuid na. Theoretical ra kaayu
ning diskursuha dire. That‟s is theoretical.
Kana gud pagkuha nimu sa book value sa
balance sheet kuhaun nimu tanan numero sa capital
Now, there is this debate often undertaken:
accounts unya common stock, unrestricted retained
earnings, I-divide na nimu sa number of shares

32
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

outstanding net of present shares. Then you have the Halimbawa, signing bonus 5 million dollars.
book value. Sugod palang. 1.5 million dollars basic salary. Nya
magconduct ug mga auction tagaan dayun siya. Musikol
Ilista na, dugangan imung number of shares ang ilang board ug muiingun na sige kamo ang pangita.
mugamay imung book value pero pareha mo ug book Kinsa may bangiitan na president ang mugive up sa
value sa aggregate before the issuance of stock iyang tranaho arun dawatun ang barko na hapit na
dividends or after. matumba arung iyang banhawun ang pagtumba? Kinsa
man ang musokol ana kung dili nimu bayran sa sweldo
The aggregate value of your total shares is still na tupong sa langit. May rason sad diba? Mao na you
the same before or after the issuance of stock dividend. really have to entice him.
Kung maglisud man gani mo ana pangayo dayun uG
TABANG SA MGA ACCOUNTANTS kay gamitan ka ug How do you entice him? Kana dayung options.
mathematics. Asa man na kuhaun ang options? Didto na sa mabahin
bahin na dividend sa mga stockholders because you
That is why it can be revoked at any time prior promise the executive. You can buy shares at par value,
to its actual issuance. Stock dividends. 1 million shares and it is exercisable for the next 10
years.
Remember the Supreme Court has declared the
dividends whether stock or cash can only be issued to Par value is at 1 peso par value. Sa miyang
stockholders, it cannot be issued to non-stockholders. pagtrabaho dinha daghan dayun ug profits and
That is the case of unrestricted retained earnings. The share of stocks is
now traded at 22 per share. Naa siya outstanding option
Nielsen vs. CA and Benguet Consolidating to buy shares at 1 million shares at 1 peso par value then
Mining. issuehan sa sa company ug shares then iya dayung
ibaligya sa stock market at 22 per share. Kinsay dili
A geologist was enticed by the company to look ganahan ana?
for gold and was promised 10% of the profit that the
company will make because of his findings and sure Kinsa may naalaud ana? Ang naalaad kay ang
enough after his geologic findings, they realized so much mga stockholders kay dugangan man ug 1 million shares
profit and when the corporation declared dividend the and outstanding shares then mudako ang divisor sa net
10% was given to him on the reason that he was the profit. In other words, the option that you give is not part
person responsible for making profits and that the of the cost the corporation or expense of the company. It
corporation has already promised him the profits. The is taken from the expense of the stockholder. That is how
stockholders then complained. Why is he given when he the dividends is affected once the executive exercise the
is not a stockholder? He should not be given because he options. The whole issue of dividends.
has not shares. Now who is correct?
 Can you issue cash dividends out of capital gains?
The Supreme Court said that yes, the NO.
stockholders are correct. He is not to be given
dividends because he has no shares.  What is capital gains?

So what happens to the agreement that he be It is not realized on the ordinary and strenuous
given 10 % of the profit? The Supreme Court that is a operations of the business. Halimbawa, sa pamaligya
valid agreement, he must be given of that, that is the nimu ug tshirt naabot na imung profit ug 1 million kay
measure as to how much he is going to be given and that pirteng daghana tapos barato lang imung pagkuha sa
should be part of the expense of the corporation. The tshirt.
agreement is valid but the form of payment is invalid.
Then halimbawa gibaligya nimu inung pwesto,
ang kanang yuta na gipatindugan nimu. Barato lang
imung pagpalit ana. 20 years ago you only bought it 20
Now here is the system of executive pay. There pesos per 100 square meter. Pagbaligya nimu 12
is so much debate about the executive pay. thousand na per square meter. Pirte nang dagkua.
Nilakra na sa libro. Can you declare dividends out of
Muiingun sila, why is it that executive pay never that? That is capital gains. At the point of sale igo dayun
reflects the result of the executive obtains. Very seldom ka anang capital gains which is the sum of the sale price.
that does not have a direct correlation, magreason ang How much is capital gains? 6 % pero patungan naman
company, mangita sila ug bangiitan na executive. Na sad na ug 1.5 percent. Unsa man na siya? Documentary
maoy makasalbar sa kompanya. Hastang dakua sweldo Stamp tax. So 7.5 percent na ang kuhaun na tax.
ang ihatag, nagka ngidlay na gani ang kompanya nganu
dako man kayo ang sweldo? Question: is that a final tax? Or do you still have
to report in at the end which is subject to 30 percent

33
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

corporate tax? It is a final tax. Let us continue next percent of their paid-in capital stock, except: (1)
meeting. when justified by definite corporate expansion
projects or programs approved by the board of
January 11, 2017 Lapu, A. directors; or (2) when the corporation is prohibited
under any loan agreement with any financial
We are still in powers. Power to invest corporate institution or creditor, whether local or foreign, from
funds in another corporation for business or for any other declaring dividends without its/his consent, and such
purpose. By the way I would just like to point out to you consent has not yet been secured; or (3) when it can
that there is an important distinction between shares of be clearly shown that such retention is necessary
stocks and bonds. Shares of stock procedurally, under special circumstances obtaining in the
formalities an intrinsic provisions of the shares of stocks corporation, such as when there is need for special
are covered by corporation law. Bonds, only formalities reserve for probable contingencies.
are covered by corporation law, the internal provisions of
bonds are covered by civil law. So when you are already All right, power to declare dividends. It is easier
into the conditions of bonds, payment, the security of to declare cash dividends than stock dividends. Cash
bonds that is no longer in corporation law, because a dividends, only the board of directors decide. It must be
bond a contract of mutuum, and it is under the civil code. majority of all the members of the BOD. But if you
So disabuse yourself from the notion that if it is a bond, declare stock dividends, then you have to get the
you just file it in the intra-corporate court, because it must approval of the stock holders representing not less than
be covered by corporation law, the securities regulation 2/3 of the OCS. But then it does not require any
code, because it is a security, it is registered in the SEC. qualifying duties, because it is an irregular or special
meeting duly called for that purpose.
The moment you deal with the internal
conditions of bonds, it is no longer an intra-corporate, it is Now, it is voting and non-voting, 2/3? It is only voting,
the regular courts. because this is not included in one of the 8 instances
mentioned in Sec. 6. Now the issue is always,
Now we said that if you invest in another
corporation, not your own corporation, but it can be  Out of what can the corporation declare dividends?
understood as an exercise of an implied powers Section
42 is not applicable, when there is a need for a The primary source of dividends according to
confirmatory vote of the OCS voting and non-voting. And delegate Abello, the Batas Pambansa has discussed this
this is the reason why there is an insistence on the part law, when it was passed in 1980… The main source is
on the SEC that if you are a stock and profit corporation, net profits and in the (interpolation), they defined the
you must specify in pleading what is the primary purpose profits as the accumulated profits unrestricted retained
and what is the secondary purpose of the corporation. earnings as the accumulated profits realized out of the
Because the moment you engage in the business that is normal and strenuous operation of the business after
secondary purpose, you will still require the confirmatory deducting therefrom distribution to stock holders and
vote of the stockholders 2/3 voting and non-voting. transfer to capital stocks or other accounts. So
technically speaking for him, CAPITAL GAINS is a part of
Now, once again, there is the appraisal right. Any profits, it was subsequently corrected by the SEC.
dissenting stockholder shall have an appraisal right as
provided in this code. SEC said, you can declare profits specially
dividends from capital gains. “Capital Gains” is the same
Sec. 43. Power to declare dividends. - The board of form of assets. Corporation sells land, and it realizes
directors of a stock corporation may declare profit, that is not from the normal strenuous operation of
dividends out of the unrestricted retained earnings the business, that is, you gain out of the original
which shall be payable in cash, in property, or in purchase price, you deduct the original purchase price
stock to all stockholders on the basis of outstanding plus the expenses of the sale, and then the amount in
stock held by them: Provided, That any cash excess of that from the sale will be the profit.
dividends due on delinquent stock shall first be
applied to the unpaid balance on the subscription The SEC says you can declare. You can declare cash
plus costs and expenses, while stock dividends shall dividends from the capital gains.
be withheld from the delinquent stockholder until his
unpaid subscription is fully paid: Provided, further, How about Appraisal Gains? If you will appraise
That no stock dividend shall be issued without the property, there is a gain, can you declare divideds? The
approval of stockholders representing not less than SEC is saying, there is no true gain.
two-thirds (2/3) of the outstanding capital stock at a
regular or special meeting duly called for the How about premium of stocks, the amounts paid for the
purpose. issuance of new shares in the excess of the par value of
the shares, that has a separate capital accounts in the
Stock corporations are prohibited from retaining balance sheet. Capital stock, premium stock, then you
surplus profits in excess of one hundred (100%) have unrestricted premium earnings. Accumulated

34
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

urestricted earnings, that is what the law declares, Declare na ang mga directors karon vote, gitawag
dividends, now premium man na. Once again the SEC nila ang treasury, set aside 10% as cash dividend,
says, you can declare stock dividends, but you cannot so wa na, set aside na sa libro, then you can no
declare cash dividends on the premium of stock. longer retract the declaration basta cash dividend. If
it has been segregated and earmarked, but if it is
 Can a non-stock holder receive dividends? stock dividend, it can be revoked at any time as long
as it has not been disbursed, wa pa gani na issue,
That issue was answered in the NIELSEN case. then you can revoke it.

Nielsen vs Benguet Consolidated Mines. ( I cannot Then why is the rule different? Because in stock
find it online) dividend the stock holder has not taken yet anything
extra. Stock dividends, your number of shares increase,
The story of the aced Geologist who can smell but your aggregate share in the over-all capital of the
gold. He was engaged by the mining company to look for corporation remains the same. It remains the same.
gold upon the promise of 10% of net profits due to his Stock dividend. That is why you do not take income tax
findings, realized a (one engaged in mining) profit, and from it, because it has not realized income yet.
sure enough they hit high grade gold and the company
made a lot of profits. When the company declared After you issue stock dividend, the value per
dividends, they gave him cash dividends, 10% of the total share, which is the same par value of the original
cash dividends, but the stock holders protested. Why is number of shares, unya mao na ang bahin bahinon…
he given a cash dividend when he is not a stock holder? unya mao ra gihapon. So until it has been disbursed,
you can still countermand the order to declare stocks.
And the court said he is because the board
entered into a contract with him, and that binds the Now, stock corporations are prohibited receiving
corporation. So is that correct? surplus profits in excess of 100% of their paid capital
stocks. That is the rule, so therefore, in the Phils, up to a
1. Is the contract between him and the corporation certain point you can accumulate unrestricted retained
(that he will be given 10%) is valid or is that earnings, the moment it becomes 100%, double your
cheating the stock holder? paid capital, you must declare dividends.

2. 2. Can he receive 10% of the cash dividend That is not the rule in the US. (Fr. talks about
declared out of the profits that was gained? Warren Buffet‟s corporation Berkshire Hathaway which
has not declared stock/cash dividend, and the story in NY
2 Issues stock market and STOCK sharing).

st
The SC says the 1 issue is valid. If the Nag stock split na sila, padaghanun nila ug unit
corporation enters into a contract with him to give him ang ilang shares, maabot na sila ug 10, so ganahan na
10% then that stands because the contract was entered mamalit ang mga investors. But you cannot buy 3 or 4
at arm‟s length, there was no any nullity in the contract. shares of PLDT because that is not the lowest number of
shares that you can but, to make it worthwhile for stocks
nd
2 , can he get 10% of the cash dividends? The SC exchanges. (Talks about the charges/ commissions and
says No, because he is not a stockholder. Only the taxes).
stockholders can receive dividends. So the 10% of
the net profits that was agreed upon is a measure Gi laliman ka ana, mangayo ug commission ang
and a corporation must pay cash to him equivalent to sellers, ang buyer‟s broker naa sad commission, ang
10% because the corporation is bound by this stock exchange naa sad charges, naa sad ang BIR
agreement entered into by the Court of Appeals. capital gains, unya ug gusto pa jud kay stock certificate,
bayad nasad kag fee. Patong na sa imong cost. So pag
Declaration of dividends: compute nimo sa imong break even, na muabot aning
presyoha, ibaligya na dayon na,para maka ginansya ka,
 If a dividend is declared, can the mas taas imong gi hurdle.
corporation change its mind and So, because Berkshire Hathaway never
subsequently retract the declaration. Can declared dividends the value of shares just kept on
the corporation do that? increasing. (Talks about the annual stock holders
meeting).
The rule is dependent on what kind of dividend it is.
SC says if it is cash dividend, the moment where the (Segue: Nebraska as the third strategic air defense of
cash is already segregated from the corpus of cash the US. Bush after the 9/11 and Warren Buffet‟s reason
of the corporation and it is already earmarked as for not declaring dividends, because he doesn‟t want to
cash dividend, it can no longer be removed. pay taxes. He also does not invest in high tech stuff, only
in Gillette.

35
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Segue: Warren Buffet‟s investment in the Sear‟s plus costs and expenses, while stock dividends shall
Chocolate which earns a lot only once a year, Valentine‟s be withheld from the delinquent stockholder until his
day. ) unpaid subscription is fully paid: Provided, further,
That no stock dividend shall be issued without the
Disabuse yourself from the pedestrian notion that approval of stockholders representing not less than
dividend is the sure and undisputed sign of profitability two-thirds (2/3) of the outstanding capital stock at a
and success. It is not. regular or special meeting duly called for the
purpose. (16a)
(Segue: article in internet about Warren Buffet‟s secret
billionaires. Science teachers. They died, and donated Stock corporations are prohibited from retaining
their billions to the school they were teaching.) surplus profits in excess of one hundred (100%)
percent of their paid-in capital stock, except: (1)
Now if you exceed in profits your paid in capital when justified by definite corporate expansion
by 100%, you must declare dividends. Does not have to projects or programs approved by the board of
be cash dividends, could be stock dividend, but you have directors; or (2) when the corporation is prohibited
to declare dividends. What are the exceptions of that under any loan agreement with any financial
rule? institution or creditor, whether local or foreign, from
declaring dividends without its/his consent, and such
1. When justified by definite corporate expansion consent has not yet been secured; or (3) when it can
projects/ programs approved by the BOD. So you be clearly shown that such retention is necessary
have to write position papers for that, and submit it under special circumstances obtaining in the
to SEC. corporation, such as when there is need for special
reserve for probable contingencies. (n)
2. When the corporation is prohibited under any loan
agreement with any financial institution or creditor Now we are into Section 44:
whether local or abroad. So these are the
limitations of the loan agreements imposed on the Sec. 44. Power to enter into management contract. -
borrower that you cannot declare dividends until No corporation shall conclude a management
you have paid the amount of the loan. contract with another corporation unless such
contract shall have been approved by the board of
3. When it can be clearly shown that such retention directors and by stockholders owning at least the
is necessary under special circumstances majority of the outstanding capital stock, or by at
impleading in the corporation, such as when there least a majority of the members in the case of a non-
is a need for special reserve for probable stock corporation, of both the managing and the
contingencies. managed corporation, at a meeting duly called for the
purpose: Provided, That (1) where a stockholder or
Be sure to know all these exceptions because it is a great stockholders representing the same interest of both
source of questions, not the rule but the exception; the managing and the managed corporations own or
because when you know the exception then you really control more than one-third (1/3) of the total
know the rule. outstanding capital stock entitled to vote of the
managing corporation; or (2) where a majority of the
(Segue: Talks about Mary Knoll‟s corporation. Advice:
members of the board of directors of the managing
Let the SEC close you. Section 22 will take effect.
corporation also constitute a majority of the
Inactivity for 5 years. ) members of the board of directors of the managed
corporation, then the management contract must be
approved by the stockholders of the managed
January 12, 2017- Calatrava, KL
corporation owning at least two-thirds (2/3) of the
*Fr. talks about the visit of PM Abe of Japan here in total outstanding capital stock entitled to vote, or by
Davao and the history between Japan and US. Then Fr. at least two-thirds (2/3) of the members in the case of
talks about Taiwan and China.* a non-stock corporation. No management contract
shall be entered into for a period longer than five
So we left Section 43: years for any one term.

Sec. 43. Power to declare dividends. - The board of The provisions of the next preceding paragraph shall
directors of a stock corporation may declare apply to any contract whereby a corporation
dividends out of the unrestricted retained earnings undertakes to manage or operate all or substantially
which shall be payable in cash, in property, or in all of the business of another corporation, whether
stock to all stockholders on the basis of outstanding such contracts are called service contracts,
stock held by them: Provided, That any cash operating agreements or otherwise: Provided,
dividends due on delinquent stock shall first be however, That such service contracts or operating
applied to the unpaid balance on the subscription agreements which relate to the exploration,

36
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

development, exploitation or utilization of natural years. It can be renewed hopefully with


resources may be entered into for such periods as good terms.
may be provided by the pertinent laws or regulations.
(n) So 2 corporations, Managing and Managed. If the
Managing Corporation owns 1/3 of the managed or they
This is one way to circumvent Filipino have the same majority board of directors then the
ownership. Because a corporation can enter into a Managed Corporation must approve that this corporation
management contract with another corporation. Now, it is be the Managing Corporation in the Contract by 2/3 vote
clear. If you employ an individual, it is the Labor Code of the stockholders.
that covers him. If you employ a Corporation, it is the
Corporation Code, Section 44 that covers it. You can Does it include Non-voting shares? It is only voting
engage a corporation to work for another corporation. shares because Section 6 does not include the entering
into management contracts.
It says here Management Contract, so you can have
technical support agreement, marketing agreement, you Now, this is Standard. Yet this is new. This was just
can have all sorts of agreements. So much so that recognized in 1980, but that is Standard. Look at Tadeco.
probably that the owner of the core is Filipino but the rest Tadeco has a Management Contract with ANFLOCOR.
of the enterprise can be handled by foreign corporations. What is ANFLOCOR? Antonio Floirendo Corporation.
Management contracts. Before Davao Fruits, Hijo Plantation, those banana
plantations, they had a management contract with JVA
What are the requisites? Management Corporation. What is JVA? Jesus V. Ayala
Corporation. And so on. SM has a management
1. No corporation shall conclude a management agreement with the managing corporation of Henry Sy.
contract with another corporation unless such Gokongwei has his own management corporation. So it
contract shall have been approved by the board is standard.
of directors (majority of the board of directors,
absolute majority) and by stockholders owning There is a term in accounting which is derived from the
at least the majority of the outstanding capital production of water. It is called skimming. Skimming in
stock, or by at least a majority of the members ordinary sense is to take up the first froth of milk that is
in the case of a non-stock corporation, of both made to butter, and that is the best part. They say
the managing and the managed corporation, at management corporation is the legal way to skim, to
a meeting duly called for the purpose. regulate debt on your part. If you are a controlling
stockholders or controlling interest of the corporation.
2. Qualified notice is needed. The meeting must be Kuha ka na sa imong ginansya. Mao man to ang gi-
called just for that purpose. So you must let the awayan ni Lucio Tan sa Philippine Airlines ug Ramon
stockholders know. That is the general rule. Ang. Sugot na unta to si Lucio Tan pero Ramon Ang
installed this management corporation and the
3. Exception: That (1) where a stockholder or management corporation obtained by agreement a
stockholders representing the same interest of commission on the asset acquisition of Philippine
both the managing and the managed Airlines. So because it is the management corporation
corporations own or control more than one-third who negotiates, the source of funds and the acquisition
(1/3) of the total outstanding capital stock of assets, then the management agreement says that the
entitled to vote of the managing corporation; or managing corporation has a right to deduct 5% of the
(2) where a majority of the members of the cost of the assets that have ____. So it‟s an added cost.
board of directors of the managing corporation Where does the 5% go? It goes to the managing
also constitute a majority of the members of the corporation.
board of directors of the managed corporation,
then the management contract must be In PLDT, the same. First Pacific has a 5%
approved by the stockholders of the managed commission of the acquisition of assets of PLDT. How do
corporation owning at least two-thirds (2/3) of you find out about that? It‟s in one of the footnotes of its
the total outstanding capital stock entitled to annual report. Gamay kaayo. Naan a dinha. Kanang
vote, or by at least two-thirds (2/3) of the annual report ihatag nimo na, sigurado way mubasa. To
members in the case of a non-stock corporation; find out any significant figures, you have to read
everything. But it is there. Then they will say it‟s an arm‟s
4. No management contract shall be entered into length. We are doing you service and we are disclosing
for a period longer than five years for any one it, we‟re not hiding it. Pero pag pangita nimo, the
term. disclosure, it‟s like looking for a needle in a haystack if
the annual report is over 400 pages. But it is there, it is
a. Notice that there is no prohibition
disclosed.
against the renewal of a management
contract. It just says that the contract at
Now, management contract, second paragraph
any one time must not be longer than 5
says: The provisions of the next preceding paragraph

37
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

shall apply to any contract whereby a corporation ratifies it. How does it ratify it? If it requires a stockholder
undertakes to manage or operate all or substantially all of vote, they hold a stockholder‟s meeting. They vote 2/3,
the business of another corporation, whether such knowing that it was already done and they ratify it.
contracts are called service contracts, operating
agreements. Where do you find these contracts? You  If the corporation enters into a business which is
find them in the exploration, exploitation of natural not provided in the purposes of the corporation
resources. Filipino owns the claim or the right of the whether primary or secondary, can the corporation
franchise to develop the natural resource but since it has ratify it?
wherewithal, it enters into a service agreement or a
cooperating agreement. It lets a foreigner do it. Bring in Yes! The corporation can ratify it. The corporation amend
all the money that is needed, the assets, but it is the the Articles to add the business which is not yet there
Filipino who owns the right to exploit natural resources. and which the corporation entered into beyond its power.
That‟s _______, that‟s Malampaya. That is like Manila, That‟s the difference between ultra vires acts and illegal
water. Greater Manila is divided into two, one part is acts. Illegal acts, there is no cure. Ultra vires acts, there
serviced by Manila Water controlled by Ayala is a cure. That cure is post factum necessarily. After the
Corporation. Another part, the water is distributed by fact.
Maynilad Water which is controlled by Metro Pacific.
Although they say, there‟s this big argument going on „we TITLE V – BY LAWS
are not engaged in public utilities. We are the contractor
of the one engaged in public utilities. Who is the one Sec. 46. Adoption of by-laws. - Every corporation
engaged? NAWASA. NAWASA is still there and it‟s formed under this Code must, within one (1) month
incorporated. And the law creating NAWASA has not after receipt of official notice of the issuance of its
been changed. That‟s the argument now, we are just the certificate of incorporation by the Securities and
contractor. We are like a managing corporation. Take Exchange Commission, adopt a code of by-laws for
note the Supreme Court has not yet come out with a its government not inconsistent with this Code. For
decision settling that issue. the adoption of by-laws by the corporation the
affirmative vote of the stockholders representing at
It‟s the same thing as the LRT. Operation- least a majority of the outstanding capital stock, or of
maintenance agreement, it‟s a foreigner. The one who at least a majority of the members in case of non-
owns the concession to run the LRT is a Filipino stock corporations, shall be necessary. The by-laws
Corporation. It‟s an operating agreement. Is there a shall be signed by the stockholders or members
violation of Art. 15, Section 11 of the Constitution. No, voting for them and shall be kept in the principal
that is already held by the Supreme Court. They are just office of the corporation, subject to the inspection of
the operators. They are helping the franchise holder. the stockholders or members during office hours. A
That is how you enter, escaping (?) by entering into copy thereof, duly certified to by a majority of the
operating agreements. directors or trustees countersigned by the secretary
of the corporation, shall be filed with the Securities
Alright, Section 45: and Exchange Commission which shall be attached
to the original articles of incorporation.
Sec. 45. Ultra vires acts of corporations. - No
corporation under this Code shall possess or Notwithstanding the provisions of the preceding
exercise any corporate powers except those paragraph, by-laws may be adopted and filed prior to
conferred by this Code or by its articles of incorporation; in such case, such by-laws shall be
incorporation and except such as are necessary or approved and signed by all the incorporators and
incidental to the exercise of the powers so conferred. submitted to the Securities and Exchange
(n) Commission, together with the articles of
incorporation.
Ultra means above, high. The opposite of ultra
is „ordinary cinema‟ (aw.) Ultra, the opposite is infra, In all cases, by-laws shall be effective only upon the
infrastructure. Ultra is beyond, above. Vires is power. issuance by the Securities and Exchange
Vire is manpower. Ultra vires is beyond the power. Commission of a certification that the by-laws are not
inconsistent with this Code.
Utra vires acts of a corporation is to be
distinguished from illegal acts of the corporation. Ultra The Securities and Exchange Commission shall not
vires acts are acts without authority for the corporation to accept for filing the by-laws or any amendment
do. You are not talking about an officer of a corporation thereto of any bank, banking institution, building and
doing an ultra vires act. You are talking about a loan association, trust company, insurance
corporation doing something beyond its power to do. company, public utility, educational institution or
other special corporations governed by special laws,
So, ultra vires acts of a corporation may be unless accompanied by a certificate of the
corrected post factum. They have already done it. It has appropriate government agency to the effect that
no authority, how do you correct it? The corporation

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

such by-laws or amendments are in accordance with na. UP Law School. Naa man gyud na siyay kontra. UP
law. (20a) Law Center, kinontrahay man gyud na sila. Basic gud na.

The by-laws must be produced within 1 month if We are finished with, as Manny
the by-laws has not been filed with the SEC together with Pacquiao would say it „FOWER‟ (haha). Mao nay ingon ni
the Articles. Pacquiao. Sentaor. Ang unggoy bisag sininaan nimo,
suportahan nimo, unggoy lang gihapon (HAHA!). Ang
If the corporation does not have by-laws, and it tinuod na mga unggoy ang mga nagpili niya.
has been operative for 30 years, just like Loyola Grand
Villas, it is a de facto corporation. Can it be cured? Yes! (Father talks about Post-Industrial Revolution and
You cure it. You pass your by-laws. But if somebody gets continues the topic with service economy and the
ahead of you and files a Quo Warranto proceeding economy of the US. Service economy‟s biggest part is
attacking your personality as a corporation because you entertainment. Entertainment has an elastic demand.)
have no by-laws, wagtang ka. So dalia, file dayun. The
Supreme Court said in Loyola Grand Villas vs CA: that if
you do not have by-laws, you are a de facto corporation
and a de facto corporation cannot be attacked TITLE V: BY-LAWS
collaterally. You can only attack it by a direct attack,
separate proceeding to cancel its certificate registration, So, By-laws. You can submit the By-laws if
certificate of incorporation. there are already Articles at the time of Incorporation or
subsequently after 1 month after the issuance of the
LOYOLA GRAND VILLAS VS CA, G.R. NO. 117188, Certificate of Incorporation, you can have the by-laws
AUGUST 7, 1997 approved. Majority of the outstanding capital stock will
need the approval. Remember, it‟s not 2/3, just the
Moreover, the adoption and filing of by-laws is a condition majority.
subsequent which does not affect the corporate
personality of a corporation like the LGVHAI. This is so  Does it include non-voting shares? Voting and
because Section 9 of the Corporation Code provides that non-voting?
the corporate existence and juridical personality of a
corporation begins from the date the SEC issues a Yes, because section 6 includes adoption of by-laws.
certificate of incorporation under its official seal.
Consequently, even if the by-laws have not yet been Now, there‟s another way of making the by-
filed, a corporation may be considered a de facto laws, you can delegate the formulation of the by-laws to
corporation. the Board of Directors in which case you will need 2/3
vote, voting and non-voting. May be adopted or filed prior
Section 46 reveals the legislative intent to attach a or after.
directory, and not mandatory, meaning for the word
"must" in the first sentence thereof. Note should be taken The by-laws of these special corporations must
of the second paragraph of the law which allows the filing be endorsed by their own oversight agencies of
of the by-laws even prior to incorporation. This provision government, like banks, banking institutions, building and
in the same section of the Code rules out mandatory loan associations, trust companies, insurance
compliance with the requirement of filing the by-laws companies, public utility, educational institutions and
"within one (1) month after receipt of official notice of the other corporations.
issuance of its certificate of incorporation by the
Securities and Exchange Commission." It necessarily Sec. 47. Contents of by-laws. - Subject to the
follows that failure to file the by-laws within that period provisions of the Constitution, this Code, other
does not imply the "demise" of the corporation. By-laws special laws, and the articles of incorporation, a
may be necessary for the "government" of the private corporation may provide in its by-laws for:
corporation but these are subordinate to the articles of
incorporation as well as to the Corporation Code and 1. The time, place and manner of calling and
related statutes. conducting regular or special meetings of the
directors or trustees;
So, Section 45 just reiterates the rule that the
2. The time and manner of calling and conducting
powers of a corporation are conferred by law, by the
regular or special meetings of the stockholders or
code, by its articles of incorporation and those implied or
members;
incidental to the exercise of powers so conferred. Implied
powers or inherent powers which is denied by Justice
3. The required quorum in meetings of stockholders
Leonen. Justice Leonen denies it. I used to have a very
or members and the manner of voting therein;
high … of Leonen. Inherent powers that define a
corporation. Leonen says there are no inherent powers of
4. The form for proxies of stockholders and members
a corporation. Wa gyuy naka-correct niya. Tanawa ra gud
and the manner of voting them;

39
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

5. The qualifications, duties and compensation of TITLE VI


directors or trustees, officers and employees; MEETINGS

6. The time for holding the annual election of Section 49. Kinds of meetings. – Meetings of
directors of trustees and the mode or manner of directors, trustees, stockholders, or members may
giving notice thereof; be regular or special. (n)
7. The manner of election or appointment and the
term of office of all officers other than directors or Meetings: It may be provided in the by-laws
trustees; that the meeting of directors be held outside the
Philippines. That is allowed. For directors or trustees in a
8. The penalties for violation of the by-laws; non-stock corporation. But you cannot provide that the
meeting of stockholders or members of the corporation
9. In the case of stock corporations, the manner of will be held outside the Philippines, outside the territorial
issuing stock certificates; and jurisdiction of the Philippines.
10. Such other matters as may be necessary for the 1. It should be held in the principal office of the
proper or convenient transaction of its corporate corporation;
business and affairs. (21a)
2. If it cannot be accommodated there, it should be
This is where you should be able to tell what the held in the city where the principal office is
corporation can provide in its by-laws. located; and

Section 48. Amendments to by-laws. – The board of 3. It must at least be held within the territorial
directors or trustees, by a majority vote thereof, and jurisdiction of the Philippines.
the owners of at least a majority of the outstanding
capital stock, or at least a majority of the members of
a non-stock corporation, at a regular or special Section 50. Regular and special meetings of
meeting duly called for the purpose, may amend or stockholders or members. - Regular meetings of
repeal any by-laws or adopt new by-laws. The owners stockholders or members shall be held annually on
of two-thirds (2/3) of the outstanding capital stock or a date fixed in the by-laws, or if not so fixed, on any
two-thirds (2/3) of the members in a non-stock date in April of every year as determined by the
corporation may delegate to the board of directors or board of directors or trustees: Provided, That
trustees the power to amend or repeal any by-laws or written notice of regular meetings shall be sent to
adopt new by-laws: Provided, That any power all stockholders or members of record at least two
delegated to the board of directors or trustees to (2) weeks prior to the meeting, unless a different
amend or repeal any by-laws or adopt new by-laws period is required by the by-laws.
shall be considered as revoked whenever
stockholders owning or representing a majority of
the outstanding capital stock or a majority of the Special meetings of stockholders or members shall
members in non-stock corporations, shall so vote at be held at any time deemed necessary or as
a regular or special meeting. provided in the by-laws: Provided, however, That at
least one (1) week written notice shall be sent to all
stockholders or members, unless otherwise
Whenever any amendment or new by-laws are provided in the by-laws.
adopted, such amendment or new by-laws shall be
attached to the original by-laws in the office of the
corporation, and a copy thereof, duly certified under Notice of any meeting may be waived, expressly or
oath by the corporate secretary and a majority of the impliedly, by any stockholder or member.
directors or trustees, shall be filed with the Securities
and Exchange Commission the same to be attached Whenever, for any cause, there is no person
to the original articles of incorporation and original authorized to call a meeting, the Securities and
by-laws. Exchange Commission, upon petition of a
stockholder or member on a showing of good cause
The amended or new by-laws shall only be effective therefor, may issue an order to the petitioning
upon the issuance by the Securities and Exchange stockholder or member directing him to call a
Commission of a certification that the same are not meeting of the corporation by giving proper notice
inconsistent with this Code. (22a and 23a) required by this Code or by the by-laws. The
petitioning stockholder or member shall preside
thereat until at least a majority of the stockholders
or members present have chosen one of their

40
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

number as presiding officer. (24, 26) Articles here must be ratified by 2/3. Kinsay corporation
maka-agwanta ana. Magsige kag meeting ana, kadako
Section 51. Place and time of meetings of ug gasto ana.
stockholders of members. – Stockholder’s or
member’s meetings, whether regular or special, So in a Plan of Merger, the merging entities,
shall be held in the city or municipality where the those who push for merging entities they know when they
principal office of the corporation is located, and if have won, the moment they have won the proxy war by
practicable in the principal office of the corporation: which the proponent of the merger is given a wholesale
Provided, That Metro Manila shall, for purposes of proxy for both the Plan Vote, the Articles of Merger Vote
this section, be considered a city or municipality. and Amendment Vote….. the President of the acquiring
corporation. Siya man juy nag-duso ana nga merger.
Makuha gani na niya ang irrevocable proxy sa 2/3 of both
Notice of meetings shall be in writing, and the time the voting and non-voting, lusot na ng merger. Sigurado
and place thereof stated therein. na. Wa pa gani na, sayang lang iyang plano nga gwapo
kaayo na plan una pa niya mapresent, una pa niya ma-
All proceedings had and any business transacted at abruban. Bukid kaayo na. Di na mulusot. Kuhaon na
any meeting of the stockholders or members, if niya, kanang proxy. So he just maintains, he can fulfill the
within the powers or authority of the corporation, formalities of a merger or consolidation.
shall be valid even if the meeting be improperly held
or called, provided all the stockholders or members Pay attention to that because that is not in the
of the corporation are present or duly represented book. The book will tell you, you have to vote 2/3 for the
at the meeting. (24 and 25) plan, 2/3 for the Articles, 2/3 for the Amendment. Ka-
bukid ana, that‟s very expensive. Kuhaon nimo ng proxy.
Irrevocable proxy.
Section 52. Quorum in meetings. – Unless otherwise
provided for in this Code or in the by-laws, a quorum Then you pre-qualify the votes. Wa pa gani
shall consist of the stockholders representing a mag-meeting, niboto ka na. That‟s called pre-qualifying,
majority of the outstanding capital stock or a so that during the meeting already, the secretary will
majority of the members in the case of non-stock stand and say „All of you stockholders present here have
corporations. (n) read the resolutions that should be passed and ratified.
You are hereby informed that Mr. so and so has the vote
of 2/3 of the outstanding capital stock and it is exercised
Quorum: Can the by-laws provide a higher ratio to in favor of the approval these resolutions.‟ Sa ato pa,
determine the quorum? In the absence of any provision humana ang laban. Kay wa pa gani nagsugod ang
providing for the percentage of a quorum, the default is meeting, iya nang gipre-qualify, iya nang giingon „I am
quorum is that provided in the Corporation Code. the holder of these proxies. And I am voting for all the
resolutions.‟ Unya naa pay tao ga-singgit2 dinha, ga-
 What is the default quorum? diskurso. Unsa may buhaton sa chairman? „Mr. So and
So, you are reminded that what the Secretary says that
Default quorum is majority of the directors or 2/3 of the vote have already been cast in favor of
majority of the outstanding capital stock or the majority of approval. How much time will take for you to finish what
the members of the corporation. you have to say? You are hereby warned that if you
continue, you will be removed from these premises so
Suppose you are asked a question, can you that we can continue the regular business of this
have a meeting for stockholders duly called for the meeting.‟ Siyagit pa gani ka, Sgt. At Arms, you are
purpose, and only 1 stockholder appears, is it possible to directed by the Chair seeking the assistance of the
have a valid meeting? Usa ra ka stockholder. Yes, security guards to remove this character from this place.
theoretically because presence in stockholders meeting Wa na, tangtang ka na. Tubag pud kag „I thought this
is either by person or by proxy. was a meeting?‟ Naa pa gani kay gusto isulti, isulat na
unya ipublish, ihatag tagsa2 didto sa mga stockholders.
Suppose this single stockholder is the proxy of At your expense. Otherwise you are wasting the time of
all the other stockholders, so he himself is the entirety of the assembly.
the stockholders. You can have a meeting just with one
person there. Muingon kag, binuang man na Fr. Unsay Now, if you are the Secretary of the Corporation,
binuang? If you have a merger, daghan kaayo kag mao na imong siguraduhon, nakuha na ba nimo ang
approvan. 1. You have to approve the plan of merger. All proxy sa tanan? Irrevocable man ang proxy. Specifying
the constituent corporation must approve the plan of the meeting. Then know that you can vote the meeting
merger. Plan pa lang na. Pag-abot sa plan, buhaton na (?). Wa pa gani ka ana, .. mga damgo pa na nimo. Mga
nimo ug contract language, Articles of Merger. Mag- pangandoy ra na nimo. Klaruha imong mga pangandoy.
approve sad ka sa Articles of Merger. 2/3 plan to approve *Ayaw padala dayun ug invitation, wa pa gani ka
the plan, 2/3 vote of the outstanding capital stock. kasiguro nga gisugot ka na (HAHA)*
Paghuman ana mag-lalis pa mo. Any amendment to the

41
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

If you‟re a secretary and you don‟t have the Petitioner must exercise its powers and conduct its
votes, pareho ra ka sa nagpadala ug invitation na kaslon business through its Board of Trustees. Being a juridical
na siya pero wa pa diay siya sugta. person, petitioner cannot conduct its business, make
decisions, or act in any manner without action from its
Now, there is a distinction in the by-laws, Board of Trustees. The Board of Trustees must act as a
normally the officers are named in the by-laws and the body in order to exercise corporate powers. Individual
different duties and powers of the officers are also trustees are not clothed with corporate powers just by
enumerated there. My question is, being a trustee. Hence, the individual trustee cannot bind
the corporation by himself or herself.
 Are third parties outside the corporation, are they
under obligation to know the contents of the by- Kani ha, liability of the hospital. You know that
laws? the doctors that are consultants in the hospital are not
employees of the hospital. They are termed as
Let‟s say the by-laws says, it is the president of the consultants. Mu-opera gani ng consultant and he is
corporation who shall negotiate and enter into careless, naay nahabilin nga hanggus (?) unya namatay
agreements and sign the written contracts. Ikaw ang ang pasyente. The issue is, there is no debate as to
presidente. Unya ang imo gikasulti vice-president man, whether or not the surgeon is liable. He is liable, kay siya
hantud sa nag-sign mo ug agreement, is that agreement gud nag-atiman. The issue is, is the hospital liable?
valid? That is the issue and there are many decided Because so many times they sue the hospital. The
cases on that matter. surgeon has limited assets, gawas ug dugay na siya.
Bilyonaryo na siya. Pero kasagaran ana, they do not
Now, what do you have to look for? You have to have enough assets to answer for the damage. So they
look for whether the Apparent Delegation Rule is sue the hospital. The hospital‟s defense is always the
applicable? Whether it is effective. Even if in the by-laws, surgeon is a consultant, he‟s not an employee. What is
he does not have the authority, but you visit the more, even if we admit that he is connected with the
corporation‟s principal office and the other officers around hospital, at the time he makes the operation, the
they know of your negotiation, they know of your talks. employer-employee relationship with the hospital is
They even give you encouraging words. And then you suspended because the hospital no longer has direct
sign a contract and the officer who signs the contract is access to examining the procedures in the operating
no authorized, and later on the corporation by resolution room. It is the surgeon who must be followed. He directs
rescind the contract, is the corporation within its the anesthesiologist, he directs all the nurses. Command
prerogative by rescinding the contract? It cannot rescind na siya. Ang tanan mu-assist ra niya. So the liability of
the contract because its officers misled the third party the hospital, this is the theory, is suspended because it is
into believing that this kenkoy here has authority when in the surgeon.
fact he does not have under the by-laws. Then you know
that the third person, an innocent third person does not Now, that is the ruling in the old case. Now,
have any obligation to know the by-laws. there is this new case Capitol Medical. They are now
applying the so-called apparent delegation agency rule.
The by-laws are internal to the corporation. They are Just an ordinary patient. Nangita siya ug surgeon,
internal rules of the corporation. And the general public is nangita siya anang dako nga listahanan dinha. Gastro,
not obliged to be familiar of the by-laws. eyecare. Unya kakita siya dinha, uy kaila man namo ni.
Iya dayong gi-contact. Kani akong asawa kinahanglan ug
Now, you have the UM Case. The president did surgery bisag dili necessary. Elective surgery. Kana
not in fact have the authority of the corporation to make laging dali-dalion. According to the Supreme Court,
the UM properties the security of another corporation. Did because the hospital has put him there (list of
the apparent delegation rule find effect in that case? consultants) and the hospital has scheduled the
Supreme Court says it cannot be applied. Why? The operation, the nature of the operation, the hospital knows
Board did not even know. It was just the president acting that the doctor is going to operate. This doctor therefore
alone and with BSP. It is BSP who committed an has the apparent authority to act for and in behalf of the
egregious error. Accepting the property of another hospital so, if that doctor-consultant is negligent, that
corporation as a security for the loan of an entirely hospital is equally liable. The Doctrine of Apparent
distinct and different corporation. So, it does not bind the Delegation of Apparent Authority. Dili na officer of the
corporation. Because the apparent delegation rule does corporation ha, katong director. Lain pa gyud kung officer
not apply. siya sa hospital. But apparent delegation or agency
works to make the surgeon liable in case of negligence in
UM vs BSP, G.R. No. 194964-65, January 11, 2016 medical practice like an operation.

From FT: The mortgage contracts executed in favor of NOGALES et al vs CAPITOL MEDICAL CENTER et al,
respondent do not bind petitioner. They were executed G.R. No. 142625, December 19, 2006
without authority from petitioner.

42
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

From FT: In general, a hospital is not liable for the president or as provided in the by-laws.
negligence of an independent contractor-physician.
There is, however, an exception to this principle. The Meetings of directors or trustees of corporations may
hospital may be liable if the physician is the "ostensible" be held anywhere in or outside of the Philippines,
agent of the hospital. This exception is also known as the unless the by-laws provide otherwise. Notice of
"doctrine of apparent authority." regular or special meetings stating the date, time and
place of the meeting must be sent to every director
The doctrine of apparent authority essentially involves or trustee at least one (1) day prior to the scheduled
two factors to determine the liability of an independent- meeting, unless otherwise provided by the by-laws. A
contractor physician. director or trustee may waive this requirement, either
expressly or impliedly. (n)
The first factor focuses on the hospital's manifestations
and is sometimes described as an inquiry whether the
hospital acted in a manner which would lead a Section 54. Who shall preside at meetings. – The
reasonable person to conclude that the individual who president shall preside at all meetings of the
was alleged to be negligent was an employee or agent of directors or trustee as well as of the stockholders or
the hospital. In this regard, the hospital need not make members, unless the by-laws provide otherwise. (n)
express representations to the patient that the
treating physician is an employee of the hospital; Section 55. Right to vote of pledgors, mortgagors,
rather a representation may be general and implied. and administrators. – In case of pledged or
mortgaged shares in stock corporations, the pledgor
In the instant case, CMC impliedly held out Dr. Estrada or mortgagor shall have the right to attend and vote
as a member of its medical staff. Through CMC's acts, at meetings of stockholders, unless the pledgee or
CMC clothed Dr. Estrada with apparent authority thereby mortgagee is expressly given by the pledgor or
leading the Spouses Nogales to believe that Dr. Estrada mortgagor such right in writing which is recorded on
was an employee or agent of CMC. CMC cannot now the appropriate corporate books. (n)
repudiate such authority.
Executors, administrators, receivers, and other legal
The second factor focuses on the patient's reliance. It is representatives duly appointed by the court may
sometimes characterized as an inquiry on whether the attend and vote in behalf of the stockholders or
plaintiff acted in reliance upon the conduct of the hospital members without need of any written proxy. (27a)
or its agent, consistent with ordinary care and prudence.

The records show that the Spouses Nogales relied upon Section 56. Voting in case of joint ownership of
a perceived employment relationship with CMC in stock. – In case of shares of stock owned jointly by
accepting Dr. Estrada's services. Rogelio testified that he two or more persons, in order to vote the same, the
and his wife specifically chose Dr. Estrada to handle consent of all the co-owners shall be necessary,
Corazon's delivery not only because of their friend's unless there is a written proxy, signed by all the co-
recommendation, but more importantly because of Dr. owners, authorizing one or some of them or any
Estrada's "connection with a reputable hospital, the other person to vote such share or shares: Provided,
[CMC]." In other words, Dr. Estrada's relationship with That when the shares are owned in an "and/or"
CMC played a significant role in the Spouses Nogales' capacity by the holders thereof, any one of the joint
decision in accepting Dr. Estrada's services as the owners can vote said shares or appoint a proxy
obstetrician-gynecologist for Corazon's delivery. therefor. (n)
Moreover, as earlier stated, there is no showing that
before and during Corazon's confinement at CMC, the Section 57. Voting right for treasury shares. –
Spouses Nogales knew or should have known that Dr. Treasury shares shall have no voting right as long as
Estrada was not an employee of CMC. such shares remain in the Treasury. (n)

Alright, amendments of by-laws, mao gihapon majority


confirmatory vote if its piecemeal, 2/3 vote if it is Jan. 13, 2017 Romero, K
delegated to the directors or trustees.
Section 58. Proxies. – Stockholders and members
Section 53. Regular and special meetings of directors may vote in person or by proxy in all meetings of
or trustees. – Regular meetings of the board of stockholders or members. Proxies shall in writing,
directors or trustees of every corporation shall be signed by the stockholder or member and filed
held monthly, unless the by-laws provide otherwise. before the scheduled meeting with the corporate
secretary. Unless otherwise provided in the proxy, it
Special meetings of the board of directors or trustees shall be valid only for the meeting for which it is
may be held at any time upon the call of the intended. No proxy shall be valid and effective for a
period longer than five (5) years at any one time. (n)

43
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

court appointment that you are the administrator of the


estate of so and so who owns shares of stock. And then
The bylaws of a stock and profit corporation they are forced to accept you.
cannot deny proxies. That‟s the #1 thing you must
remember. You cannot provide in the bylaws that the  Can the court produce a proxy?
stockholder cannot appoint proxies. You can do that in a
non stock non profit corporation. You can provide that No, it cannot because the court is not named in
there are no proxies for members, but in a stock and the stock certificate. In fact, the business of the court is to
profit corporation, to deprive a stockholder of his proxy find when the corpus of the estate is supposed to -----.
rights is forbidden. Just like the stockholder cannot be Now since you are appointed by the court, you are the
prevented voting cumulatively. He has a right to cumulate substitute of the stockholder, you can attend the
his votes. stockholder‟s meeting.

A proxy has a definite form: 5 Year Limitation

 It must be in writing. There is no verbal No proxy will be effective for more than 5 years.
proxy. If you are stockholder, you can renew it. But supposed
 But the bylaws can provide that the proxy must there is no duration in the proxy, then the interpretation is
be notarized. that the least number of meetings. (??) That is only good
for the particular meeting and it cannot be extended. If
you say 2 years, then it can be interpreted as 2 years and
By the way, the word “proxy” can stand for an nothing more.
instrument by which you appoint another person to attend
the meeting in your behalf, and it can also refer to a  So is there such a thing as an implied revocation of
person that you appointed. the proxy?

Now a proxy can exercise the stockholder‟s Yes. When does that happen? When the
vote. So you can give a private instruction to the proxy to stockholder himself shows up in the meeting. Katong
vote according what you are choosing, if you are a mga gi appoint niya na proxy, atras na to sila kay naa na
stockholder. So he carries out your will. He is present man ang stockholder dira.
there because you cannot be present.
 But when does the implied revocation not have
But what if he violates your instruction? Now that effect even if the stockholder shows up?
that‟s between you and him. But his act or vote is valid
because the corporation is not minded about your The implied revocation does not happen if the
instructions. The corporation has no obligation to make stockholder shows up in the actual meeting in cases of a
sure that your instructions are followed. So when he publicly listed corporation with a pre-meeting deadline for
votes, he is exercising your vote. submission of proxies. When there is a cut off date, all
proxies must be submitted to the secretary one month
Double Proxy before the meeting. The stock and transfer book will be
closed one month before the meeting. That is allowed ha
 Now what happens if it is a double proxy? when we discussed Meetings. That is made necessary
because of the huge number of stockholders. So even if
The rule is different from double sale. In double the stockholder shows up in the meeting, it is not
sale, the earliest is the one that is preferred. In proxy, the interpreted as implied revocation of the proxy that has
latest that is preferred. Katong later date, because the been submitted.
presumption of the law is that the stockholder changed
his mind. Now if the stock certificate is an .. joint Voting Trust Agreement
certificate, the voting parties there that are joint must sign
the proxy. It is not enough that, let‟s say Maria, Jose,  What is a Voting Trust Agreement?
Edna, all 3 must sign. It‟s not enough na 2 lang, or
majority. ALL must sign. Section 59. Voting trusts. – One or more
stockholders of a stock corporation may create a
 Is there a possibility that you are not a proxy and voting trust for the purpose of conferring upon a
you are not a stockholder and yet you can still walk trustee or trustees the right to vote and other rights
down the hall where the stockholders meeting are pertaining to the shares for a period not exceeding
held, and you can attend and vote your shares? five (5) years at any time: Provided, That in the case
of a voting trust specifically required as a condition
YES. That is possible. When? It happens when in a loan agreement, said voting trust may be for a
you are appointed as administratix or administrator by the period exceeding five (5) years but shall
court and the estate of the deceased has shares of stock. automatically expire upon full payment of the loan.
What do you want to present there? You present the

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

A voting trust agreement must be in writing and  What is the difference between a proxy and a
notarized, and shall specify the terms and conditions voting trustee?
thereof. A certified copy of such agreement shall be
filed with the corporation and with the Securities and The proxy exercises the vote of the stockholder
Exchange Commission; otherwise, said agreement is named in the certificate. The voting trustee exercises
ineffective and unenforceable. The certificate or the vote that belongs to him and not the creator of
certificates of stock covered by the voting trust the voting trust agreement. The voting trustee can
agreement shall be cancelled and new ones shall be appoint a proxy! Because it is his vote, and that is not the
issued in the name of the trustee or trustees stating named stockholders vote. That is his vote by virtue of the
that they are issued pursuant to said agreement. In voting trust agreement. The voting trustee may be
the books of the corporation, it shall be noted that elected as a director in lieu of the named stockholder.
the transfer in the name of the trustee or trustees is That is the difference between the voting trustee and a
made pursuant to said voting trust agreement. proxy.

One or more stockholders of a stock corporation A Voting Trust Agreement as a Condition for a Loan
may create a voting trust for the purpose of conferring
upon the trustee or trustees the right to vote and other  How is a voting trust agreement a condition for a
rights pertaining to the shares for a period not exceeding loan?
5 years at any one time, provided that in case of a voting
trust specifically required as a condition in a loan I told you before that many banks, when a
agreement, said voting trust may be for a period corporation borrows money from a bank, they look at the
exceeding 5 years. capital structure of the corporation. They ask for a copy
of the articles and bylaws and they will see that this
Proxy vs Voting Trust Agreement corporation that has outstanding capital stock of 70% is
owned by 1 person. So he is a dominant stockholder.
The common denominator is: in both cases, the Now the bank will want to make the stockholder also a
one who exercises the vote is other than the main co-signatory to the loan of the corporation. So this ties
stockholder. In a proxy, the appointed proxy, in the voting the dominant stockholder because he if not a
trust agreement, it is the proxy. cosignatory, he must just get the proceeds of the loan
and disappear. He is not liable because there is a
Now the difference is, for a voting trust separate personality between the corporation and the
agreement, the length can be longer than 5 years if it is stockholder. So what the corporation does is that the
required of a loan agreement. A proxy cannot be dominant controlling stockholder is also made a co-
extended beyond 5 years but it can be renewed, but a signatory.
proxy cannot be entered longer than 5 years.
Now when a corporation borrows money and it
So if you write a voting trust agreement, it has no longer any collateral because all the assets are
cannot be secret. The voting trust agreement must be already collateral with other banks because he other
registered with the secretary of the corporation and it is loans, it‟s not enough to make the principal stockholder a
open for anybody else to look at. Then you surrender co-signatory. The bank will start to ask the principal to
your certificate of stock and the voting trust agreement execute a voting trust agreement, and for the duration of
must be in writing and notarized and shall specify the this loan, the bank will exercise your votes. Or so much
terms and conditions thereof. A certified copy of such of your votes will be exercised by the bank as to be the
agreement shall filed with the secretary of the corporation majority to decide issues that are raised by the board.
and with the SEC, otherwise said agreement is Not only a co-principal but also a voting trust agreement
ineffective and unenforceable. for the duration of the loan. That device is called a
DEBENTURE. The loan is not is secured not by a
The certificate or certificates of stock covered by physical asset but by negative covenant (Google:
the voting trust agreement shall be cancelled by the
secretary, and a new one shall be issued in the name of Negative Covenant is a bond covenant
the trustee or trustees, stating that they are issued preventing certain activities unless agreed to by the
pursuant to said agreement. In the books of the bondholders. They are written directly into the agreement
corporation, it shall be noted that the transfer in the name creating the bond issue, and are legally binding on the
of the trustee or trustees is made pursuant to the said issuer, and they exist to protect the best interests of the
voting trust agreement. Then a trustee or trustee shall bondholders.).
execute or deliver to the transferors voting trust
certificates which shall be transferable in the same As a corporation, you cannot declare dividends
manner and in the same effect as certificates of stock. as long as the loan is outstanding. But why would the
bank still grant the loan even if there are no more assets
So who votes now? The trustee. left? Because the bank knows that it is a viable business.
It knows and understands that this corporation is in

45
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

trouble not because of the business but because of the A Stockholder Who Is a Minor
managers behind this business.
 Now supposed you are a minor and you are
*Chika about sa Christmas party sa ONB and about how stockholder. Can you be a stockholder if you are a
corporations that offer services such as water and minor?
electricity never lose because these are necessities* 
YES! Minority does not limit ownership. It is
So this is why there is this practice of when a minor disposes that he is limited in his capacity to
debentures. And because there is this practice this is why act. So the minor must have assistance in this case.
a voting a trust agreement is allowed more than 5 years,
but it is restrictive of ownership.  Can a minor appoint a proxy?

If you read the case of San Miguel Corporation vs YES! But in so appointing, he must be assisted
Ernest Kahn et al, this is what happened: by his guardian because he cannot make the act of
appointing with legal effect because of his limitation by
San Miguel Corporation vs Ernest Kahn G.R. # 85339, reason of his age. Remember your Persons and Family
Aug 11, 1989 Relations. There is the personality and the capacity to
act. The personality is never diminished, but it is your
There was a voting trust agreement there because when capacity to act that is diminished.
Andres Soriano II sold his shares to the Danding
Cojuangco, he did not have enough money to pay for his Something which the Corporation Code or the
shares, so they had an intermediate agreement: make SEC has not answered is a case like this: you are an
the downpayment and then the shares were transferred owner of shares of stock in San Miguel and then you
to Cojuangco and Cojuangco executed a voting trust were convicted with plunder and you are now in jail
agreement, and this voting trust agreement remained serving a term for life imprisonment. What happens if you
effective until the balance was paid. So the transferor are serving maximum penalty? Diba there is also the
continued to exercise the vote because the transferee accessory penalty of civil interdiction. You can no longer
executed a voting trust agreement in favor of the into contracts or act with legal effect. Can you still appoint
transferor. a proxy? YOU CANNOT! Because you cannot act with
legal effect.

So what happens to your San Miguel shares?


How Others (non-named stockholders) Wa pay nakatubag ana! Daghan na tag kaso ana. Ayaw
Can Vote: ko ingna na si Jinggoy Estrada wa nay shares of stock!
So what happens? (Father Gus does not answer this )
1. Voting trust agreement
2. Proxy, Subscription

Those are the 2 ways by which someone other than the Subscription – covers unissued shares. The first
named stockholder exercises the vote of the stockholder. transaction of the shares is the issuance of the shares.
So if it is not issued, it is a subscription. No matter what
the name is called.

3.
rd
The 3 way, by way of exception is: if you are a  What is IPO?
court appointed administrator of the estate of
the deceased or if you are a court appointed That is the terminology used by a corporation
receiver in the bankruptcy of a particular debtor that initially makes a public offering of its shares. But the
under the FRIA law (Financial Rehabilitation and shares that it offers does not necessarily mean that it is
Insolvency Act of 2010). If the debtor owns unissued shares. It could be already issued shares and
shares of stock, then you can also be the yet it is being offered to the public.
designated person to vote.
Subscription always covers unissued shares or
the first transaction and when you talk about subscription,
Unless expressly renewed, all rights granted in you talk about issued value, whether its par value or no
a voting trust agreement shall automatically expire at the par value, there is an issued value. If it is no par value,
end of the agreed period and the voting trust certificates then there is only an issued value. If it is par value
as well as the certificates of stock in the name of the shares, there is par value and issued value. What is the
trustee or trustees shall be deemed cancelled and new relation? The issued value can never be lower than the
certificates of stock shall be issued or reissued in the par value. It can be higher than par value, but never
name of the transferors. The voting trustees may vote by lower. If it is lower than par value, then you have water in
proxy unless the agreement provides otherwise. the stocks (watered stocks). When there is water in the
stock, there is liability on the part of the directors and/or

46
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

officers who concerted and did nothing when they knew next trans of shares, the corporation will not peg the price
that the shares were issued for a consideration lower at par value. It will always be the same if not higher than
than par value. the book value of the shares, otherwise the stockholders
will rise up in arms.
Issuing Shares At a Discount
 When does it happen that the shares of stock will
 Now what does it mean when you issue shares at a be issued at a price lower than the market value or
discount? lower than the book value?

Is that lower than par value? A discount from The exception is when a considerable amount of
what? You are talking about shares that are traded in the investment, by let‟s say 1 business interest, and he can
stock market. If you are offered shares at lower than the add value to the corporation, when he comes in and he is
price ---- in the stock markets, which can never be higher a considerable investment and the corporation issues to
than par value, then it is said that the shares are being this 1 particular person, then it can be at a discount of the
issued at a discount. Take note, if there is no par value, market value.
no discount, nor is there a premium, there is just the
issued price. January 18, 2017 Banal, JMG

If you sign a subscription agreement, the TITLE VII


general rule is you are bound by it. You cannot retreat STOCKS AND STOCKHOLDERS
from it. The entire sum of shares covered by the
subscription, if it is par value then it allows for installment
payment of the shares (??). So you make a down
payment and then the balance is payable at the date We are now in stocks and stockholders.
specified in the subscription or upon call of the board of
directors. Section 60. Subscription contract. – Any contract for
the acquisition of unissued stock in an existing
If it is no par value shares, then the subscription corporation or a corporation still to be formed shall
is identical to the date of sale because the consideration be deemed a subscription within the meaning of this
received is considered as ---- and those shares are non Title, notwithstanding the fact that the parties refer to
assessable. So there is no balance in the subscription to it as a purchase or some other contract.
be paid of in no par value shares.

No Par Value Shares And the subject matter of a contract of


subscription is an issued stock.
In the beginning, the bylaws or the articles
specify the issued value. Let us say, it must not be issued Quiet simply, if it is no par value shares then
lower than 5 pesos. Can the Articles of Incorporation you make a payment only once, no subscription by
determine the subsequent value of the later prices of no installment, considered fully paid and non-assessable.
par value shares that are issued? They cannot! The But if it is par value shares then you can have payment
articles and bylaws cannot determine the issued values more than once, by installment.
of the next trans (??) of shares. Why? It cannot because
the stockholders can impose if after the course of the Now a pre-incorporation subscription is entered
normal business, the corporation makes money. into by the subscriber with the incorporators or with the
underwriter of the corporation still to be formed, but once
the corporation is already formed, the corporation takes
the place of the underwriter or the incorporators.
Naturally the book value of the shares of stock
that are no par value will increase higher than the issued
value. The next issuance of shares will be in the very
least have an issued value the same if not higher than Now pre-corporation subscription said in Section 61 shall
the book value because if it is lower, then it will be unfair be irrevocable for a period of at least 6months from the
to the existing stockholders. Mag rebelde ang existing date of subscription;
stockholders ana. That‟s why the issued value of no par
value shares cannot be predetermined. Section 61. Pre-incorporation subscription. – A
subscription for shares of stock of a corporation still
Par Value Shares to be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription,
That‟s the same in par value shares. Kung par value ang unless all of the other subscribers consent to the
pag palit nimo sa shares, and then the business of the revocation, or unless the incorporation of said
corporation is successful, the book value of your shares corporation fails to materialize within said period or
will be higher than the par value. When you issue the

47
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

within a longer period as may be stipulated in the 4. Previously incurred indebtedness of the
contract of subscription: corporation;
Provided, that no pre-incorporation subscription may 5. Amounts transferred from unrestricted
be revoked after the submission of the articles of retained earnings to stated capital; and
incorporation to the Securities and Exchange 6. Outstanding shares exchanged for stocks
Commission. in the event of reclassification or conversion.

Where the consideration is other than actual cash, or


Now, after the AOI have already been submitted consists of intangible property such as patents of
to the SEC then a pre-incorporation subscription may no copyrights, the valuation thereof shall initially be
longer be revoke. If it has not been submitted to SEC, determined by the incorporators or the board of
and all the subscribers agreed to your withdrawal, it directors, subject to approval by the Securities and
means they have adjust the articles to reflect your Exchange Commission.
withdrawal because if they do not then they AOI are
telling a lie, it is making an untruthful statement. Because
your subscription is counted in the subscribed capital and
also the paid in capital, if you do not adjust the Article Shares of stock shall not be issued in exchange for
then the Articles will be making an untruthful statement. promissory notes or future service.

So you must add that to the requirement, so that


even if all the incorporator agrees to you revocation, that
must be reflected in the AOI. They must file, let us say, a The same considerations provided for in this section,
substitute, or they will adjust it, they will reduce the insofar as they may be applicable, may be used for
capital and reduce the paid-up capital and that is still the issuance of bonds by the corporation.
within the requirements of the law, namely authorized
capital, 25% of subscribed capital and 25% of the The issued price of no-par value shares may be fixed
subscribed is paid up. in the articles of incorporation or by the board of
directors pursuant to authority conferred upon it by
 What is the requirement of subscription? Must it be the articles of incorporation or the bylaws, or in the
a written contract? absence thereof, by the stockholders representing at
least a majority of the outstanding capital stock at a
Notice that there is no required form. Why? meeting duly called for the purpose. (5 and 16)

If it is no par value shares, you just pay and then 1. Actual cash paid to the corporation
it is fully paid and then you can demand a stock
certificate because you have fully paid it. Stock certificate Par value shares cannot be less than par value.
follow as a matter of course if you have fully paid your You pay in cash, the cash also has par value, stated
subscription. So there is in fact execution already. value. 1000 ba na o 500, di pareho ra sila, pag ingon ang
shares kay 1 piso ang par value then you just make
Now if it is par value shares and it is in installment then it correspondence of 1-to1, if the issued price of the shares
might require that it be in writing. of stock is par value.

Now, unissued shares of a corporation; Section 62 says Now, par-value shares may be issued at price
this are the following that are allowed as a consideration higher but not lower than par value. No-par value shares
for the newly issued shares in a corporation. cannot be lower than issued value.
nd
Section 62. Consideration for stocks. – Stocks shall 2 allowable consideration:
not be issued for a consideration less than the par or
issued price thereof. Consideration for the issuance 2. Property, tangible or intangible, actually
of stock may be any or a combination of any two or received by the corporation and necessary or
more of the following: convenient for its use and lawful purposes at a
fair valuation equal to the par or issued value of
1. Actual cash paid to the corporation; the stock issued;

2. Property, tangible or intangible, actually So property can be the consideration; the


received by the corporation and necessary or problem is, there is no par value, so there must be the
convenient for its use and lawful purposes at a fair determination of the value of the property. If it is a real
valuation equal to the par or issued value of the property it will be a little easier to determine the value of
stock issued; the real property. There is no problem if you under-value
3. Labor performed for or services actually the RP, the corporation will received more property that
rendered to the corporation; the value of the shares of stock that it issued, but if you
over-value the property then the corporation will be

48
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

defrauded because it will be receiving less than the par Now if you want a higher value of the real
or issued value that it gives in exchange. property, then you will need so much more than just a
certification or justification because if the property that is
Now, if the exchange for the property of the given in exchange for shares of the corporation is over
newly issued shares is based on the assessed value of valued then there water in the stock. The corporation is
the provincial or city assessors; is that alright? receiving less consideration than is just and reasonable
and everyone who approved and consented to the
Assessed value for property tax, they call that transaction will be liable for the mockery of the stock.
tax declaration. Before you graduate from law school you
should see a tax declaration if you have not seen one. Now, can you get an approval of the SEC
Nalain na bia ron ang tax de kay nacomputerized na sila, without the use of and paying for a regular real property
pag nakakita ka pa gani og tax dec na fill in the blanks, appraiser and it is higher than the Zonal valuation, higher
dili nana mao; nausab na. than the market value and it is approved by the SEC?

Normally the SEC will allow the initial valuation You can. Some people will do it this way, of
to be handed over by subscriber; the subscriber makes course some of them have on going business, and they
the initial valuation. So if the value presented by the have regular relationship a bank. They will ask the bank
subscriber is the assessed value that is under-valuing his to have his property as a collateral as a loan. How much
property and that is alright. Because the corporation will by way of loan can they obtain? And the bank will inspect
receive more value than the shares of stock it will issue. the property and consult zonal valuation; appraiser and
Assessed value is one of the lowest valuation or real then they will give you by writing a letter, the maximum
property. loan-able value of the property. So you have a valuation
of the bank and that is considered as a conservative
Second valuation: if you present as the value of your valuation.
property in exchange for the newly issued shares the
Zonal Valuation of the BIR. What is the rule of thumb of the banks? What percentage
of the Market Value of the land is loan-able?
Where do you find the zonal valuation?
When it comes to agricultural land:
- The BIR will give it to you (? if you fully paid, or conservative loanable value is 30-40% of the value of the
you get it in the internet (?). land.

The zonal valuation is the minimum value that Residential: 40-50% of the market value of a
the BIR will accept if the property is sold, for purposes of residential property
capital gains tax. It is higher than assessed-value. That is
still considered fair and reasonable value and I don‟t think Commercial: 50-60% of the market value. But
the SEC can oppose the valuation based on zonal listing that is conservative. So that is enough for the SEC.
of the BIR.
Now, intangible properties; what kind of
Market value: intangible properties? Copyrights, patents, etc. Here you
will really need an appraiser. SEC the will require an
If you present a value, higher than assessed, appraiser, and not just any appraiser but one that has
higher than zonal what happens? experience in valuing intangible property.

Than is when the SEC will probably ask you to 3. Labor performed for or services actually
produce an Appraiser‟s Certification. A real property rendered to the corporation;
appraiser that is licensed will give an appraisal of the
market value and that will be considered fair and BUT it is labor in the past tense that can be
reasonable. consideration for certificate of stock.

How does the appraiser come up with the value of the Why is labor to be performed not allowed as
property? consideration?

it comes of the value normally by a comparative 1. Because it cannot be forced, if it is later


transaction most recent in that area, similarly located that on revoke or withdrawn by the subscriber.
will be turned over to the corporation. So Comparative
Price Method. That is normally what the appraiser uses If it could be the subject of specific
and you can still argue that, that is the value of the performance then it would be a
property. violation on the prohibition against
involuntary servitude.

49
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

2. Labor to be performed is actually speculative There will be new common shares that are
because many things can happen. issued to the stockholders, what will be the
consideration? The old certificate of stocks of the
Ex: the one who will perform the labor preferred shares, the old certificate are surrendered to
could be incapacitated even they like to. the corporation and in exchange will be the new common
If he can no longer perform, what stock because the old preferred shares are now
happens to the corporation if it has classified as common shares.
already issued the shares of stock? It
will not receive the consideration That can happen also with bonds. When a
therefore. Mamatay xa naigo siya‟g kilat corporation issued convertible bonds, the bonds are
so dli xa kaperform so the corporation is surrendered and in return, the corporations issues shares
short-changed. So it as to be (1) labor of stocks. So, pulihan ang imong bond certificate of
that has already been performed or (2) stocks certificate. Normally the conversion rate is agreed
services actually rendered to the upon at the time of the issuance of those convertible
corporation that is allowed. shares or there may be a formula or agreement by which
the conversion rate may be determined. So, the rate or
4. Previously incurred indebtedness of the conversion of formula is already agreed upon at the time
corporation; of the issuance of the shares that are reclassified or
converted to new shares.
That is dacion en pago. Let us say a bank has
loaned the corporation 1 million pesos and the The issued price of no-par value shares may be fixed
corporation can no longer pay and then the bank says we in the articles of incorporation or by the board of
are willing to receive instead of payment, shares of stock directors pursuant to authority conferred upon it by
if the corporation gets the OK from the stockholders. the articles of incorporation or the bylaws, or in the
Why? Because that will have to be exempted from the absence thereof, by the stockholders representing at
preemptive rights. least a majority of the outstanding capital stock at a
meeting duly called for the purpose. (5 and 16)
Then the corporation will issue the shares of
stock and the consideration for that is the loan unpaid. So those are the three instances of the
Do not say that it is cancelled; it is already not a loan but determination of the price of no-par value shares.
is now become equity. It ceases to be a loan in the same
manner that the bank ceases to be a creditor, it is now a First, the subscription contract, if it is a pre-
stockholder. There is a very marked difference in the incorporation subscription and it is a no par value shares,
expectation of the bank. As a creditor he can demand it must always be in the subscription contract because
payment of the loan whether or not the corporation there is still no board and no stockholders, and in fact
makes a profit. Once it is a stockholder, it goes with the there is still no corporation. And if you put it in the
fortunes of the corporation. If the corporation makes subscription contract you now that it is not lower than,
money, it has dividends; of not, then it loses. It is now a how much? It cannot be lower than 5 pesos according to
proprietary relationship. section 6, if you still remember.
5. Amounts transferred from unrestricted Suppose the subscription says 5 pesos no par
retained earnings to stated capital; value shares, after 5 years the corporation increases the
capital it wants to raise and it issues some more shares
They are balance sheet terminologies. from its unissued shares, who will determine the price?
When that happens, shares of stock are issued
and the consideration is the amounts transferred from
unrestricted retained earnings to stated capital. It will be the board of directors if they have
authority in the articles of incorporation. If there is no
That means that the corporation has declared authority then it will be the stockholders. You can be sure
Stock Dividends. that the stockholders will vote that the value of the issued
price will not be lower than book value of the shares of
6. Outstanding shares exchanged for stocks in stocks, otherwise lugi sila.
the event of reclassification or conversion
Certificate of Stock
Reclassification or conversion, you issue
preferred shares that are convertible shares. Now we are in certificate of stock. Certificate of stock and
shares of stock are not the same. Both are property, one
Now let us say that the option of converting is on the part is intangible and the other one is tangible.
of the corporation, and it exercised the right to convert
the shares from preferred to common shares, what What is the connection between the two?
happens?

50
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

The Certificate of Stock normally represents the No shares of stock against which the corporation
shares of stock. holds any unpaid claim shall be transferable in the
books of the corporation.
 Is there one certificate for every shares of stock?
Until you have fully paid your subscription you
No. the certificate is based on subscription, that cannot sell your shares of stock. For as long as your
is why a subscription is a indivisible contract. You cannot shares of stock, covered in your subscription, still not fully
say di nako kabayad sa balance, issue-hi na lang ko og paid, still not delinquent, you can vote for the shares, you
equivalent sa akong gibayad, issue-hi na lang ko og can receive dividends but you cannot sell it until you have
certificate of stock unya kamo na bahala adto akong dili fully paid your subscription and a certificate of stock has
mabayran. No, the laws says under section 64: No been issued.
certificate can be issued until the full payment of the
subscription is made. Now there is this case of:

So, certificate of stock stands for the shares of China Banking v. CA (270 SCRA 503)
stock included in the subscription. Dili na kay one-to-one,
50 shares, 100 shares, 1000 shares, 1M shares. Actually it is not shares of stock, but (ruling?) is the
same. This is a certificate of membership in a NSNF
 Mabuak nang certificate of stock?  corporation, Capitol Golf and Country Club. The
character here got a loan from China Bank; his security
Yes. You can break up the certificate of stock. for the loan is his membership certificate in Capital Golf,
(it is called shares loosely pero dili man na share, naa pa
How? Suppose you have 1000 shares and bay share sa Apo Golf, dili man na share, certificate of
you sell only 500 shares, but you have 1 certificate for membership man na kay no stock non profit man na, but
the 1000 shares, how can you sell 500? That is when you the membership is transferable)
execute a deed of sale. (Talks about what is written in a
deed of sale). Now he failed to pay, so China Bank executed on his
pledge. Once they executed, there was an auction sale,
Mao nana, dal-on nimo ng deed of sale, dal-on nobody bided on his certificate, so China Bank became
nimo nang certificate of stock na 1000, ngadto ka sa the default winner. China Bank consolidated ownership
secretary sa corporation to issue two certificates. 500 for after the auction sale and it went to Capitol Golf; we have
the buyer and 500 for the seller, mabuok tong original na been awarded, give us a new certificate, and cancel the
certificate of stocks. certificate of Mr. So and so. Capitol says they cannot
cancel, why? Because this character has not paid his
Now, in section 63 we find out that that there are club dues plus he has back accounts in the restaurant.
two additional officers in the corporation, the vice He has many unpaid claims according to Capitol; China
president and assistant secretary. Bank says that is no registered in the Certificate so it
does not bind the certificate, you must issue us a new
SECTION 63. Certificate of Stock and Transfer of certificate. Capitol says “NO”, we are relying on Section
Shares. — The capital stock of stock corporations 63.
shall be divided into shares for which certificates
signed by the president or vice-president, Issue now is: What the meaning of unpaid claim?
countersigned by the secretary or assistant
secretary, and sealed with the seal of the corporation The CA in ignorance said it includes unpaid dues and
shall be issued in accordance with the by-laws. restaurant bills.

The Supreme Court said that unpaid claim is not just any
other claim, it must be a claim related to the subscription.
Shares of stock so issued are personal property and If the subscription is not fully paid, there is unpaid claim
may be transferred by delivery of the certificate or but if the subscription has already been fully satisfied,
certificates indorsed by the owner or by his attorney- interest, penalty, etc., which is true in this case because
in-fact or other person legally authorized to make the there is already a certificate, then you must issue a new
transfer. certificate of stock.

No transfer, however, shall be valid, except as


between the parties, until the transfer is recorded in
the books of the corporation so as to show the This particular section up to section 64, balik2x lang ang
names of the parties to the transaction, the date of question sa bar. It‟s always between one stockholders
the transfer, the number of the certificate or who has made a double sale of his shares of stock, wa
certificates and the number of shares transferred. kabalo ang iyang gibaligyaan gipadugay-dugay nya,
hangtod namatay siya mga heirs na lng toy nahibilin, all
they have is a receipt, that Mr. so and so has already

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

paid his shares, he still holds on to his stocks certificate, Section 73. Lost or destroyed certificates. – The
what is your remedy? following procedure shall be followed for the
issuance by a corporation of new certificates of
Or that he has sold it again to another buyer, how
do you determine who has a better right to the issuance stock in lieu of those which have been lost, stolen or
of the stocks certificate by the secretary of the destroyed:
corporation?
1. The registered owner of a certificate of stock in a
Important to know, the first one to go to the corporation or his legal representative shall file with
secretary and record his sale is the first between two the corporation an affidavit in triplicate setting forth,
buyers and if you have sleep on your rights, you have if possible, the circumstances as to how the
been negligent in asserting your rights, that is also
certificate was lost, stolen or destroyed, the number
counted against you. If you have all the time and you did
not immediately, after full payment, asked for the of shares represented by such certificate, the serial
issuance of the certificate. number of the certificate and the name of the
corporation which issued the same. He shall also
The secretary of course, cannot be forced to issue a submit such other information and evidence which
new certificate in favor of the buyer who has fully paid, he may deem necessary;
unless the certificate of stock is surrendered. So your
remedy is an order from the court to compel the seller to 2. After verifying the affidavit and other information
surrender the certificate of stocks.
and evidence with the books of the corporation, said
corporation shall publish a notice in a newspaper of
January 19, 2017, Casan, J 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
Stocks and stockholders. registered owner of the certificate of stock which has
been lost, stolen or destroyed. The notice shall state
We took up in relation to Section 63 the China the name of said corporation, the name of the
Bank vs. CA. We said that the Supreme Court has registered owner and the serial number of said
pronounced that unpaid claims which bars the issuance certificate, and the number of shares represented by
of the certificate of stock are exclusively claims that are such certificate, and that after the expiration of one
tied with the subscription. They cannot be any other (1) year from the date of the last publication, if no
claims. So, once you have made payments subscribed in contest has been presented to said corporation
the subscription. You have a right to the certificate of regarding said certificate of stock, the right to make
stocks, it is your property. Separate and distinct from such contest shall be barred and said corporation
your shares of stock? Different from your shares. Why do shall cancel in its books the certificate of stock
I say that? which has been lost, stolen or destroyed and issue in
lieu thereof new certificate of stock, unless the
Naa kay shares of stock gibaligya nimu sa mag-
registered owner files a bond or other security in lieu
igsuon, gi endorse dayun nimu later on Hatag dayun niya
thereof as may be required, effective for a period of
nihatag dayun ka sa bayad. Ingun dayun imu igsuon na
one (1) year, for such amount and in such form and
nawala niya. Magingun siya ang iyang bag nabilin sa taxi
with such sureties as may be satisfactory to the
then nakalimot siya atong taxiha. Nawala. Miadto dayun
board of directors, in which case a new certificate
siya sa secretary sa corporation then musulti siya na
may be issued even before the expiration of the one
gipalit man nako. Naa man dire ang resibo. The
(1) year period provided herein: Provided, That if a
stockholder recorded in your book has put it inside the
contest has been presented to said corporation or if
receipt. So issue me a stock certificate under my name
an action is pending in court regarding the
because this receipts is equivalent to my rights in the
ownership of said certificate of stock which has been
stock certificate.
lost, stolen or destroyed, the issuance of the new
Under the rules of the corporation, it is still the certificate of stock in lieu thereof shall be suspended
transferor who has the right over the shares of stock. So, until the final decision by the court regarding the
it is still the transferor even if he has acceded hall rights ownership of said certificate of stock which has been
in the transferee who must go through the rubrics of lost, stolen or destroyed.
section 73. Lost or destroyed certificate of stocks.
Except in case of fraud, bad faith, or negligence on
the part of the corporation and its officers, no action

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

may be brought against any corporation which shall Before in the bar examinations, when legal
have issued certificate of stock in lieu of those lost, forms was still included in the bar exams. Write an
stolen or destroyed pursuant to the procedure affidavit of loss of a lost or destroyed certificate of stock.
above-described. (R.A. 201a)
Section 73. Lost or destroyed certificates. – The
Once he has the certificate, he can endorse it following procedure shall be followed for the
and give it back to the transferor. Because in the books issuance by a corporation of new certificates of
of the corporation for all purposes as to the whole world stock in lieu of those which have been lost, stolen or
the shares are still owned by the transferor. destroyed:

So, there is a distinction. Between stock 1. The registered owner of a certificate of stock in a
certificate and shares of stock. corporation or his legal representative shall file with
the corporation an affidavit in triplicate setting forth,
Now, I‟d like to point out to you section 71. I will if possible, the circumstances as to how the
not discuss anymore the whole process of delinquency certificate was lost, stolen or destroyed, the number
of shares represented by such certificate, the serial
sale in section 68. Section 71 the effect of delinquency.
number of the certificate and the name of the
corporation which issued the same. He shall also
Section 71. Effect of delinquency. – No delinquent submit such other information and evidence which
stock shall be voted for or be entitled to vote or to he may deem necessary;
representation at any stockholder’s meeting, nor
shall the holder thereof be entitled to any of the 2. After verifying the affidavit and other information
rights of a stockholder except the right to dividends and evidence with the books of the corporation, said
in accordance with the provisions of this Code, until corporation shall publish a notice in a newspaper of
and unless he pays the amount due on his general circulation published in the place where the
corporation has its principal office, once a week for
subscription with accrued interest, and the costs and
three (3) consecutive weeks at the expense of the
expenses of advertisement, if any. (50a) registered owner of the certificate of stock which has
been lost, stolen or destroyed. The notice shall state
So the moment you begin delinquent. Your right the name of said corporation, the name of the
is limited to dividends. But if you are given stock registered owner and the serial number of said
dividends just like anyone else. It is withheld until you certificate, and the number of shares represented by
have paid the balances in your subscription. 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
But if it is a cash given, the cash is withheld and
regarding said certificate of stock, the right to make
applied to the amounts still unpaid in your subscription. such contest shall be barred and said corporation
So that is what happen if you are declared delinquent. shall cancel in its books the certificate of stock
You cannot attend meetings, stockholders they cannot which has been lost, stolen or destroyed and issue in
vote, you cannot be voted for because you are lieu thereof new certificate of stock, unless the
delinquent. Otherwise, if you are not delinquent but you registered owner files a bond or other security in lieu
have not paid your subscription, you are entitled to vote thereof as may be required, effective for a period of
one (1) year, for such amount and in such form and
on your shares covered by the subscription, you are
with such sureties as may be satisfactory to the
entitled to be voted and vote in the election of the board board of directors, in which case a new certificate
of directors, you are entitled to receive all kinds of may be issued even before the expiration of the one
dividends stocks or cash, there is no problem. But the (1) year period provided herein: Provided, That if a
moment you are declared delinquent, then that is the contest has been presented to said corporation or if
consequence. Section 71. an action is pending in court regarding the
ownership of said certificate of stock which has been
Alright, section 72. 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
Section 72. Rights of unpaid shares. – Holders of ownership of said certificate of stock which has been
subscribed shares not fully paid which are not lost, stolen or destroyed.
delinquent shall have all the rights of a stockholder.
(n) 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

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

have issued certificate of stock in lieu of those lost, offense which shall be punishable under Section 144
stolen or destroyed pursuant to the procedure of this Code: Provided, That if such refusal is made
above-described. (R.A. 201a) 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
(Father then focused his discussion his discussion on
or trustees who voted for such refusal: and Provided,
bond). further, That it shall be a defense to any action under
this section that the person demanding to examine
I hope nakasulay na mo ug kuha ug bond. The first thing and copy excerpts from the corporation’s records
you do is look if the insurance company or the bonding and minutes has improperly used any information
company is included in the list of approved bond issuers secured through any prior examination of the
of a particular office or court in which you are situated. records or minutes of such corporation or of any
Lahi baya na ug lista sa Department of Labor, NLRC ug other corporation, or was not acting in good faith or
for a legitimate purpose in making his demand.
sa court. Lahi lahi na sila. Tan-awa gud.

So many are so fond of circumventing the 1 Stock corporations must also keep a book to be
year, they put up a bond. If you put up a bond, then the 1 known as the "stock and transfer book", in which
must be kept a record of all stocks in the names of
year period is short circuited. Issue hay sila ni secretary
the stockholders alphabetically arranged; the
because it is bonded. If the real owner comes up, oh installments paid and unpaid on all stock for which
niaya na. Oh na ( ?) na diay. subscription has been made, and the date of
payment of any installment; a statement of every
TITLE VII - CORPORATE BOOKS AND RECORDS alienation, sale or transfer of stock made, the date
thereof, and by and to whom made; and such other
Section 74. Books to be kept; stock transfer agent. – entries as the by-laws may prescribe. The stock and
Every corporation shall keep and carefully preserve transfer book shall be kept in the principal office of
at its principal office a record of all business the corporation or in the office of its stock transfer
transactions and minutes of all meetings of agent and shall be open for inspection by any
stockholders or members, or of the board of director or stockholder of the corporation at
directors or trustees, in which shall be set forth in reasonable hours on business days.
detail the time and place of holding the meeting, how
authorized, the notice given, whether the meeting No stock transfer agent or one engaged principally in
was regular or special, if special its object, those the business of registering transfers of stocks in
present and absent, and every act done or ordered behalf of a stock corporation shall be allowed to
done at the meeting. Upon the demand of any operate in the Philippines unless he secures a
director, trustee, stockholder or member, the time license from the Securities and Exchange
when any director, trustee, stockholder or member Commission and pays a fee as may be fixed by the
entered or left the meeting must be noted in the Commission, which shall be renewable annually:
minutes; and on a similar demand, the yeas and nays Provided, That a stock corporation is not precluded
must be taken on any motion or proposition, and a from performing or making transfer of its own
record thereof carefully made. The protest of any stocks, in which case all the rules and regulations
director, trustee, stockholder or member on any imposed on stock transfer agents, except the
action or proposed action must be recorded in full on payment of a license fee herein provided, shall be
his demand. applicable. (51a and 32a; P.B. No. 268.)

The records of all business transactions of the


corporation and the minutes of any meetings shall be
open to inspection by any director, trustee,
stockholder or member of the corporation at Only three books where the corporation code makes it
reasonable hours on business days and he may
demand, in writing, for a copy of excerpts from said mandatory or obligatory for the corporation; record of
records or minutes, at his expense. business transactions, books of minutes of meeting of
stockholders, board of directors or trustees and the stock
Any officer or agent of the corporation who shall and transfer book.
refuse to allow any director, trustees, stockholder or
member of the corporation to examine and copy The two books that are directly the responsibility
excerpts from its records or minutes, in accordance of the corporate secretary is the stock and transfer book,
with the provisions of this Code, shall be liable to and the books of minutes of meetings, or the
such director, trustee, stockholder or member for stockholders or member of the corporation.
damages, and in addition, shall be guilty of an

54
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Now for the purposes of the record of the Now, stock and transfer book. That is where all
corporation either corporate board or stockholders or the subscribers are there, those that have not been fully
members the book of minutes is considered as decisive paid, then subscribers that are paid on the basis of which
as to the final version of the transaction. stocks certificate are issued.

Nagdecide ba gyud ta ani? Asa man nato Now, it might be that the stock and transfer
makita? Adto na sa minutes sa book of minutes of board book is in the jurisdiction of the assistant secretary. Then
of directors. The minutes ha. The list of the resolutions of the assistant secretary reports to the secretary. But if the
the board. So, how is the resolution numbered? It is year, number of stockholders is of magnitude that it is already
and then the series. Example 2007-01, 2017-02. All the impractical for the corporation to handle it then they give
resolution must have that number. Kung mag away gani it to a stock and transfer agent. I-hire na sila. They are
mo, adto dayun didto sa minutes. corporations who are licensed by SEC to handle the
stock and transfer book and shares of stock of publicly
That is why it is important for the secretary to listed corporations because they are so numerous that
sign the minutes. That is why usually in a meeting, the are beyond the competence of the corporation itself to
minutes of the previous meeting is read. So that if you handle. Kung secretary lang imung ipagunit ana unya
have objections you say, ohh that is not what has been siya pa imung pahimuon sa tanan notices sa 2 million
agreed about. It will be corrected. After which, the stockholders then dili mana mahimo.
secretary sign. It is because the body to which the
content is attributable has already put its stamp in the Now there is a right to financial statements
meetings. So it is the secretary who holds the books of mentioned in section 75..
minutes of meetings.
Section 75. Right to financial statements. – Within ten
We have come across several formalities, isn‟t (10) days from receipt of a written request of any
that? There are kinds of resolutions which require special stockholder or member, the corporation shall furnish
formalities for example the increase of capital of stock, it to him its most recent financial statement, which
requires qualified notice, suppose the resolution was shall include a balance sheet as of the end of the last
passed, but then you did not actually comply with the taxable year and a profit or loss statement for said
qualified notice. taxable year, showing in reasonable detail its assets
and liabilities and the result of its operations.
 What do you do to close the door that you will not
have a problem on that resolution? At the regular meeting of stockholders or members,
the board of directors or trustees shall present to
You make the board, oh not only the board but such stockholders or members a financial report of
the entire stockholders in the annual meeting to ratify that the operations of the corporation for the preceding
year, which shall include financial statements, duly
particular resolution because if it is not ratified then the
signed and certified by an independent certified
effect is it is cured. Because they are only very few defect public accountant.
that are not curable in this book (referring to the
corporation code) that is the beauty of this code. Only if
However, if the paid-up capital of the corporation is
you know this code. So, by making the stockholders ratify less than P50,000.00, the financial statements may be
all the resolution, then you close the door of any possible certified under oath by the treasurer or any
order (?). responsible officer of the corporation. (n)

So have a list of all the resolutions, paghuman So, the provisions says that the annual meeting
sa stockholders meeting then ipapirma na tanan. Wala that is scheduled and fixed by the by-laws should be a
pa gani mahuman ang meeting ibalik balik na sa screen date such that by then the corporation is ready to present
na dako, kana balik balik. So have given everyone the to the stockholders or members of the corporation and be
chance to read the resolution and then somebody hopes given the financial statements. Which means it must be a
to ratify the resolution, and then ask are there any month or two after the end of the fiscal year. The
accounting period is the fiscal year. Human na ta. Mao
objection? Mao na kay gipangkapoy man na sa meeting.
na ang I revise sa independent certified public
Wala na muobject. So if there is no objection, what will accountant, it will take them a month or two. PLDT, the
the secretary put down? Unanimous! 100 percent fiscal year of PLDT begins in January 1 and ends in
ratification. December 31. When is the annual meeting of the
stockholders? June. 6 months. San Miguel? When is the
Stock and transfer book annual meeting? July. Kadugay. Why because San

55
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

Miguel is not just one corporation. It has many subsidiary. Any officer or agent of the corporation who
Its subsidiary, so I audit. Pagkahuman ana I consolidate shall refuse to allow any director, trustees,
man na nimu. stockholder or member of the corporation to examine
and copy excerpts from its records or minutes, in
 Why is it important to present to the stockholders? accordance with the provisions of this Code, shall be
liable to such director, trustee, stockholder or
Because the financial statement of the member for damages, and in addition, shall be guilty
corporation does not become the financial statement of of an offense which shall be punishable under
incorporator unless the stockholders or members vote to
Section 144 of this Code:
approve it. If they do not approve it, then it does not
become the corporation‟s financial statement. The Board
of Directors only present it and they only answer Last year there was a decision by the Supreme
questions from the stockholders and member and the Court which I think is an obiter because it was not really
majority must approve it. sound. The Supreme Court said that if you refuse
inspection, the officer will be held criminally liable. But
When is it a majority? Is it a majority of the voting and there was no case that makes you liable so it is an obiter.
non-voting shares? Or just voting shares? But under 144 its punishment is criminal sanctions of the
code. So if you reduce, you can only regulate but not
Go back to section 6 right away. It is only the reduce.
voting shares who can approve the financial
statements. It does not include non-voting. Pero kung illiterate ka, dili ka kabalo magbasa
can you bring along a CPA to understand the books of
Now who appoints the external auditor? It is the corporation? Yes. You can bring someone else to
usually one of the agenda in the stockholders annual assist you. Otherwise, if you do not bring your rights are
meeting. Why is that? Because the board proposes kung rendered nugatory.
SGV or Cunanan ba, the Board will recommend but it is
the act of the stockholders or the members. They vote
and delegate the board to delegate the compensation of Provided, That if such refusal is made
the external independent auditor. Daghan ang musipyat pursuant to a resolution or order of the board of
ana. The last paragraph of section 75 says. directors or trustees, the liability under this section
for such action shall be imposed upon the directors
However, if the paid-up capital of the corporation is or trustees who voted for such refusal: and Provided,
less than P50, 000.00, the financial statements may further, That it shall be a defense to any action under
be certified under oath by the treasurer or any this section that the person demanding to examine
responsible officer of the corporation. (n) and copy excerpts from the corporation’s records
and minutes has improperly used any information
So if the paid up capital is less than 50,000 then secured through any prior examination of the
they do not need an external auditor however, I am afraid records or minutes of such corporation or of any
that there still exists a corporation with 50,000 paid up other corporation, or was not acting in good faith or
capital.
for a legitimate purpose in making his demand.

Please take note that the right to financial So kung ikaw stockholder ka, unya nagdala ka
statement is distinct and different from the right of ug dumot(?) kay last year very inspect ka. Kay minor ka,
inspection. The right of inspection of the stockholder of naa sila defense. So unsa man imong buhatun? Mangita
the books of the corporation. The right of inspection, sad ka ug stockholder na manikog. So ikaw na sad bai.
section 74 second paragraph. Mangayo ug inspection. Naa ko magpaluyo nimu. Dili na
man to siya magbalibad. Mao man ang pama agi ana
The records of all business transactions of dire because the books are supposedly open to the
the corporation and the minutes of any meetings stockholders and he can bring along any qualified people
shall be open to inspection by any director, trustee,
to at the books whether there has been any irregularity.
stockholder or member of the corporation at Kung mangopya sila it shall be at his own expense. He
reasonable hours on business days and he may
cannot make the corporation pay for the reproduction.
demand, in writing, for a copy of excerpts from said Alright! We are through with the books of the corporation,
records or minutes, at his expense.
we will now be at merger and consolidation. The most
important in the merger and consolidation because
someday it will be asked in the bar examination,

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

What is a non-disclosure agreement? We will 4. Such other provisions with respect to the
continue next meeting. proposed merger or consolidation as are
deemed necessary or desirable. (n)
January 20, 2017, Tongo K

TITLE IX Two thirds vote of the outstanding capital stock of each


MERGER AND CONSOLIDATION corporation in the case of stock corporation. Or atleast
2/3 of the members in case of non-stock corporation shall
So today we take up mergers and consolidation. Title IX be necessary for the approval of such plan.
of the Corporation code. Section 76 to section 80. It is
supposed to be just four sections but they are long If a stockholder dissents then he has an appraisal right.
sections. And then, after the plan of merger you have to, the two
constituent corporations, those who are involved in the
From section 6 you know that mergers and consolidation merger and consolidation, may draw up the articles of
require the affirmative ratification vote of the stockholders merger or consolidation.
both voting and non voting because it is a fundamental
action of the corporation. So under this title you will find Once again the articles are approved not just by the
that the stockholders may vote three times. board of directors, but buy the stockholders .. again by
two thirds. And then you find out that any amendment to
The first time they will vote is to approve the plan of the articles must also be approved two thirds vote by
merger and consolidation. Two or more corporations may stockholders.
merge and then they shall approve a plan of merger.
So three things have to be voted for by the
What is to be contained in a plan (of merger)? stockholders

It is found in section 76 and then the action of the 1. plan of mergers,


stockholders or members. 2.articles of merger or consolidation;
3. Any amendment of articles of merger
Section 76. Plan or merger of consolidation. – Two or and consolidation
more corporations may merge into a single
corporation which shall be one of the constituent 2/3 vote, If you have that then there is no
corporations or may consolidate into a new single problem. You file it with the Securities and Exchange
corporation which shall be the consolidated commission and if you have the proper endorsement of
corporation. the relevant oversight government agency, for example if
you have two banks merging, the BSP must endorse it
The board of directors or trustees of each and the articles of merger are approved, if the
corporation, party to the merger or consolidation, appropriate government agency that has an oversight
shall approve a plan of merger or consolidation jurisdiction endorses it. Very simple.
setting forth the following:
But that is if you have already reached an
1. The names of the corporations proposing agreement. The problem is what happens before this.
to merge or consolidate, hereinafter referred
How do you reach an agreement.
to as the constituent corporations;
There is no merger and consolidation that
2. The terms of the merger or consolidation happens from below. You might think that that can
and the mode of carrying the same into
happen from below, it is really the top management of the
effect;
constituent corporation that will initiate the merger or the
consolidation. They‟re reading industry, their needs, etc,
3. A statement of the changes, if any, in the
articles of incorporation of the surviving they decides xx merge.
corporation in case of merger; and, with
respect to the consolidated corporation in Now, when a top executive of a corporation
case of consolidation, all the statements approaches another executive it is never direct, they
required to be set forth in the articles of always look for „go-betweens‟ . Because most of these
incorporation for corporations organized people, these corporations are rival, they belong to the
under this Code; and same industry, they are competitiors. So many times they
are not exactly in good terms. So they will ask something

57
BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

from the investment banking community to act as a „go- number 5, ang number one di ko gusto makipagmerge sa
between‟. number 1 kay number one naman siya. Ikaw number 2
ka, gusto ka makipagmerge nako kay number 5 ra man
Now, when they come together they will discuss ko aron ka ma number one. Ang number three ug
issues of control then they will discuss what is normally number four di man makipagmerge nako kay bisan
called ball-park figures. „How much is your corporation makipamerge sila nako di man sila ma number one
worth, how much is my corporation worth and then when because the resulting or consolidated corporation is not
we come together what is the result, who will control that big. Ikaw ra gyud ang nagkinahanglan nako. Ug
what.‟ mumerge ka sa number three, mahal ra kaayo to be
number one, ug mu merge ka sa number four mahal ra
Unlike marriage, the bigger the difference with kaayo. Ako affordable mao ng naa koy premium na
the constituent corporation the more successful the imong paliton. (isuga ni number 5 oi)
merger or consolidation is. Di man na pareha sa
marriage as much as possible pareho mog status, Those are the intangibles and those they will
pareho mog economic background, magtagbo mo diba? discuss. So those are beginning figures based on known
kay sa sine lang man ng dato (maminyo ug) pobre ana, financial statements and then if they are serious, they are
sa telenobela lang man na. lisud man na. (haha) already open in the principle to the merger and
consolidation then they will enter into an agreement.
But in mergers and consolidation, pareho ra mo What is that agreement? Normally it is called a due
ana, duha mo kabuok, gubot na na. Why? Because it is diligence period.
always an issue as to who controls. Dako man nang fight
kanang who controls. You can see that in the basketball Due diligence period
field. Kay kinsa man ga control mao man ng gahupot sa
bola. Kung tie ang score niya three seconds nalang, Naay time table. Let us say three months due
Kinsa man mu itsa? Si Stephen curry o Kevin Durant? diligence period. What do you agree, you agree that for
The accepted leader of the team, mao nay mukupot sa the next three months in this merger or consolidation
bola. Kinsa man na? wa man sila kahibawo. Mao man na phase that each constituent corporation will conduct its
ang issue. business in such a manner as to stay as close as
possible to there financial statements.
There might come a point where somebody has
to decide. And if no one is clearly in control, what is the In other words di ka mag sugod ug laing bag-
result? Chaos, inaction, walay mahitabo. Nahuman lang ong negosyo that is drastically making the corporation
bagting ang timer, wa na, walay maka itsa kay walay depart from its financial statements. Mao ning ni –a an gi
makadecide kung kinsa ang mu-take of the last three dak on sa imong cash, dili ka magpasagad ug mag invest
second shot. ug maski unsa na mausab ng cash because that is one
of the basis for quoting the price. As close as possible to
So, magtagbo gani ang top management naa na the balance sheet that is presented, mao ni imong
silay homework na gibuhat. And the homework they have buhatong when you .. and you will do it with due
gone through are the existing financial statements diligence.
available to them. Normally they will go back as far as ten
years, financial statements, balance sheet and profitable Now, nganong three months pa man? Because
statements and then they have a ballpark figure as to it will take three months to verify whether the initial
what is the overall value of this corporation. Naa na silay valuation based on the known financial statement is
number na gi buhat. niya muingon ang pikas „kanang accurate. Tagsa tagsaon man na nilag himay kanang
naa ninyo, . pero dungagan na nimo kay naa may mga assets, liability, each one will hire auditors to verify
daghang prospect, diba? Kung mag combine ta kita nay financial statements.
number one, kita nay kina dak-an,‟ there is a premium to
that. Mu ingon ka, nganong kinahanglan man na I verify,
kinahanglan pa ba na? tan-awon na. kay usahay ang
Let us say this particular industry has five big auditor mu tan-aw (niya mu ingon) „pila ka mga
corporation, number 2 is going to merge with number 5. empleyado dinhi sa ningni a diri sa one of the constituent
Gamay ra gud ng number 5 pero muingon siya corporation?‟ let us say they have ten thousand
„magpapalit ko nimo, magpamerge ko nimo, di naman ka employees. Then they look at the retirement fund. When
number 2, mahimo ka naming number one, so you have they look at the retirement fund it only covers fifty percent
to pay me for that result, mao nay value nako. Ako

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of the labor force. In other words their retirement fund is Now, when you enter into a due diligence
only half of the retirement, kulang ug fifty percent. agreement you also have a very essential feature called
non-disclosure clause. The constituent corporation that
When is a retirement fund fully funded? You get participate in the merger and consolidation they agree
all the employees, you get their total service (the number that they will not reveal to any third person whatever they
of years) you multiply it with the retirement fund they will find out in the course of due diligence period. In fact
get per CBA or company practice or the law whichever is during the negotiations they don‟t say anything. They
prevailing and then you arrive at the aggregate number maintain secrecy, they respect each other. Why? For the
and then you compare it to how much the retirement sake of keeping the industrial secrets and the peculiar
fund is, does it come up to it? Alkanse! Oh, I deduct na strategy of the corporation to itself. They don‟t want to
sa value sa corporation, kay ang musagubang anang reveal it to the whole world. So they bind each other to
corporation will still have to meet the fifty percent that is secrecy.
not funded. Maka pa ubos na sa presyo.
Each constituent corporation will know more
When you talk about international corporations secrets of the other and the other constituent will also
that are merging, let us say that the headquarters of the know your secret. So, if the negotiation does not pull
company or the corporation is in Sweden and it has through then you part and you keep each other‟s secrets.
branches of subsidiary corporation in 28 countries. And That is the idea of the non disclosure agreement.
then they list all the equipment and the factory facilities
according to the depreciation accumulated over .. assets Later on we will see the dilemma if you are
there. Now, adtuon na sa auditors, examinon man na. listed in the stock market because you are supposed to
„Kini it is just four years, from the acquisition price brand reveal any material fact that has a bearing in the
new naa pay nahibilin na six years kung 10 years ni .. investors to buy , hold or sell the shares of stock of your
So gawas sa ilang libro mao na, mao ng mga values. company. That is why you have the obligation to
Niya pag examine diay nimo, tan-aw sa auditor, pag disclose. And yet by agreement within the parties you
padala atong equipment, recondition, karaan na diay to have the obligation not to disclose. So how is that
na linya sa mother corporation, gi re-fervish niya gipadala resolved if you are listed in the stock market.
na didto, pagsugod palang gibayran na ug brand new,
lakra sa libro. Mahibaw-an man na sa auditor, mu-ingon Mao nay problema. Naay mga news articles
siya „That is not the true value, paubsa na,; kabawi naka.‟ that there is possible merger that is going to take place.
Di man na nimo makit-an sa financial statements. Ang So right away they confront these top officials of the
imong makit-an ran a brand new ang pagpadala didto, na company and the top officials normally will invoke the non
karon gi depreciate na as brand new pero diay disclosure clause and the result they cannot talk about
pagpadala ana, that is an old machine of the mother it. The moment they deny any disclosure because of
company that has been fully depreciated and is other obligation that means there is something going on.
refervished and sent there as brand new. Kana man na, Isn‟t that? Mao man ng tuyo sa mga business reporters,
you have to adjust the price and so on.. they want to find out, they bring you out in the open and
they will confront you. If you do not say anything that
After a due diligence audit then there will be means there is something going on, there is a negotiation
discussion. May be they have to adjust the price, lower going on.
or higher. When can it be adjusted higher? It can be
adjusted higher if the acquisition cost is the value of the Their normal answer is „We are always looking
asset stated in the financial statement and then the asset for opportunities to merge but the talks are still
has already grown in value. preliminaries. There is no firm direction of our talk but we
are considering several options‟ kana nakalikay pa na
Let us say it is commercial property and what is recorded siya. Pero pag ang reporter mu ingon „are you in talks
in the books as of ten years ago and it is a downtown with this company in a merger because we heard…‟
property. .. Real property di man na I depreciate. Then muingon na gani nag „I am very sorry I am covered by
they would say you have to adjust the price higher non-disclosure clause‟ that means there is a merger of
because that it is not the true value, what is in the books this particular ..
is not the true value. This has a higher value. That is
what the give and take during the final adjustment. When the company values itself, that is
equivalent to a self serving testimony. Mu ingon ka ,
Non-Disclosure agreement „nganong financial statements, naa man nay external

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auditor naghatag dihag certification that this reflects the And then to measure the stockholders, you get
true numerical scoring of the corporation in accordance a proxy and you get an irrevocable proxy. Or sometime
with generally accepted‟ … isn‟t not that enough? In the they will just announce in the meeting we already have
merger/consolidation world that is not enough. Because the votes and the proxies to vote two-thirds. So this is a
non quantifiable start to come in and it ,, the price. So pro forma announcement because the controlling stock
you will need another kind of certification. That is why holders already have a two thirds vote.
each constituent will normally engage the service of
reputable investment bank to be its adviser. If you do not have the two thirds vote, that
means you did not do your homework, you did not
So PLDT is going to buy SAM(?), SAM (?) will convince people, you must hold cocuses. You go down
have its own investment adviser, PLDT will have its own your stock and transfer book, you identify the big chunks
investment adviser. Reputable inverstment banks who of shareholders and you convince them first. Once you
will do the study of the industry, who will advise PLDT as get the two thirds then the meeting is just a formality. You
to what the reasonable price is, etc. Ofcourse PLDT will announce, then you go out to the press and daog ka na.
not go to a price that he thinks is not reasonable. But You have the vote, the approval for the plan and then
because there is this nverstment bank that is advising after you finish the articles of merger it will be voted also
you and it has already … then the investment community because you have votes, it is all just pro forma. And you
is assure that the pricing is according to sound will know it if you have a two thirds vote if your man is
investment principles because of the investment adviser. given the proxy.

Mao nay kuhaon nimo. They do not come cheap Kasagaran mahitabo ana isa nalang ka tao. He
because they go on a commission basis but you need has all the votes. Kana man na siya imong tawgon sa
them to be able to say to the investment community that stock holders meeting and it is just a formality that he
this particular transaction is fair and reasonable. signs because he carries the vote of two thirds or more of
Remember your shares of stock are traded daily and that the outstanding capital stock.
is why sometimes the stock exchange will order the
suspension of trading of shares of stock of the  What is the effect of merger and consolidation?
constituent corporation, freeze them until there is definite
news as to whether or not the merger will go through and Take note of section 80
the terms, the pricing of the merger are revealed.
Section 80. Effects of merger or consolidation. – The
So trading of their shares of stock are merger or consolidation shall have the following
effects:
suspended to give the investment community time to
evaluate this information which has a very strong
1. The constituent corporations shall become a
influence of the decision making of investors whether or
single corporation which, in case of merger, shall
not to sell, hold, or buys the shares of stock of this be the surviving corporation designated in the plan
corporation. That is the investing .. of merger; and, in case of consolidation, shall be
the consolidated corporation designated in the
Now magakasabot na gani na, una pa plan of consolidation;
magsugod ang klarong merger, articles of merger,
amendment .. 2. The separate existence of the constituent
corporations shall cease, except that of the
 How do you make sure that you can get the two surviving or the consolidated corporation;
thirds ratification vote?(in merger)
3. The surviving or the consolidated corporation
It is the first meeting of the stock holders that is shall possess all the rights, privileges,
crucial. You tell the stock holders „we are already in the immunities and powers and shall be subject to
road to merger you agree or you do not agree?‟ if you do all the duties and liabilities of a corporation
not agree appraisal right, but if it is publicly listed, organized under this Code;
normally what would those who disagree will do is that
they will just sell their shares, nganong maghuwat pa 4. The surviving or the consolidated corporation
shall thereupon and thereafter possess all the
man kag appraisal right na the market has already
rights, privileges, immunities and franchises of
appraised you. That is the price of the shares of stock. each of the constituent corporations; and all
property, real or personal, and all receivables

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due on whatever account, including of San Miguel that the following certificates must be
subscriptions to shares and other choses in annotated with the articles of merger, or articles of
action, and all and every other interest of, or consolidation „ this is the new name now of the
belonging to, or due to each constituent corporation‟. So it is annotated in the books, the stock
corporation, shall be deemed transferred to and
vested in such surviving or consolidated and transfer books of San Miguel and in the certificate of
corporation without further act or deed; and stocks. The certificate of stock is still under the name of
the old corporation but there is an annotation that that is
5. The surviving or consolidated corporation no longer obtaining there is a surviving and a
shall be responsible and liable for all the consolidated corporation.
liabilities and obligations of each of the
constituent corporations in the same manner as Daghag trabaho ang abogado ini, so much that
if such surviving or consolidated corporation they hire external counsel to do the work ofmaking these
had itself incurred such liabilities or various registrations. Real property, the titles are still in
obligations; and any pending claim, action or the old name of the constituent corporation that does no
proceeding brought by or against any of such
longer exist. What do you do? You file with the register of
constituent corporations may be prosecuted by
or against the surviving or consolidated deeds the originals of those title, that there is now a new
corporation. The rights of creditors or liens owner. You annotate it with the articles of merger or
upon the property of any of such constituent consolidation. That is the new constitution and by laws of
corporations shall not be impaired by such the new corporation.
merger or consolidation. (n)
Franchises

3. The surviving or the consolidated  What happens If there is a specific provision in the
corporation shall possess all the rights, franchise that says that any transfer of the
privileges, immunities and powers and shall franchise must be with the explicit prior
be subject to all the duties and liabilities of permission of the oversight governmental office?
a corporation organized under this Code;
What happens? Does it still belong to the
So mutambok na ana ang surviving corporation, iya surviving corporation?
man tanan.
Tan awa ng bachelor bus, wala gyud na merge.
4.) The surviving or the consolidated Daghan na silay franchises sa LTFRB with prior consent
corporation shall thereupon and thereafter of the LTFRB before there can be transfer. Gipalit na nila
possess all the rights, privileges, immunities
ng rural transit, yellow bus , series (?) ug unsa pa na. Wa
and franchises of each of the constituent
corporations; and all property, real or jud na nila gimerge. They remain separate corporation.
personal, and all receivables due on They just bought the shares of stock. So it remains a
whatever account, including subscriptions separate corporation because there is a problem with
to shares and other choses in action, and franchise.
all and every other interest of, or belonging
to, or due to each constituent corporation, Why does it require prior consent on the part of
shall be deemed transferred to and vested the oversight governmental office like the LTFRB.
in such surviving or consolidated
Precisely to prevent monopolies on particular .. that it will
corporation without further act or deed; and
end up with only one owner of a public utility vehicle..
particular vehicle. So to prevent that, the law itself says it
Here is a constituent corporation, he is not a
cannot franchise, cannot be transferred.
survivor, he owns shares of stock of SanMiguel and it
merges in the another corporation-- surviving corporation So, they might buy all the shares of stock and
what happens to the certificate of stock of San Miguel control that corporation anymore but they don‟t go to
under the name of the corporation? It says it now belong explicit merger or consolidation.
to the surviving corporation without any act or deed. But
the certificate of stock is still under the name of the old So that is merger and consolidation. Please
corporation that has already died, it no longer exist read the provision of merger and consolidation
because of the merger. What will happen? What do you
do to make that atleast outwardly belonging now to the In my service with the BOD in ONB for fifteen
surviving corporation. You serve a notice to the secretary years, we went through 3 mergers. Why three? Because

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ADDU-Law

there is an amendment of the rural banks law that if you of any class, or of extending or shortening the
merge with a distressed rural bank you become tax term of corporate existence;
exempt for 5 years of gross receipt tax. So ONB merged
with several troubled banks. In other words it is an Number 1 is when a corporation creates new
incentive that you merge. shares that gives superior advantages to existing stock
holders, then you can exercise your appraisal right if you
are the disadvantaged stockholder.
Now if you are in the review on audit committee,
ngadto labad sa ulo. Daghag yuta ning bangkuha, .... ila Also, when there is a Move to Extend the
nan a, repossessed. Tan-awon ta ni, examinon ta ni. corporate term, it is ground for exercise of your appraisal
Niya muingon dayon ng bangko, kamo nalang adto, wa right. But not the shortening, this is wrong. There should
pa man mi kakita ana. Kay naay mga di ingon ato kana be no appraisal right when you shorten the term. Why?
dinha. So how did the bank approve such security in the
bank load? Mu ingon ang bangko, “we did not approve - Because if you take a look at dissolution, one of
the methods of dissolving a corporation is by
that. we also got that from a bank that we bought. proposing an amendment to shorten the term.
Section 120, dissolution by shortening corporate
(father talks about the change of name of ONB to One term.
bank to ONB. Niya gasto daw mu-ilis ug pangalan kay
lisdan nimo ang sign kada branch. Niya suga suga
pagyud sa likod)
Section 120. Dissolution by shortening
corporate term. - A voluntary dissolution may
(second hour) Abad, IJ be effected by amending the articles of
incorporation to shorten the corporate term
TITLE X pursuant to the provisions of this Code. A copy
APPRAISAL RIGHT of the amended articles of incorporation shall be
submitted to the Securities and Exchange
Commission in accordance with this Code.
 When is appraisal right exercisable? Upon approval of the amended articles of
incorporation of the expiration of the shortened
It is listed in Section 81. term, as the case may be, the corporation shall
be deemed dissolved without any further
Section 81. Instances of appraisal right. – Any proceedings, subject to the provisions of this
stockholder of a corporation shall have the right to Code on liquidation. (n)
dissent and demand payment of the fair value of his
shares in the following instances:
If you are opposed to that, and you exercise
1. In case any amendment to the articles of your appraisal right, it is useless already because the
incorporation has the effect of changing or restricting corporation will now be dissolved and then everybody
the rights of any stockholder or class of shares, or of will be paid if there is some money left for payment to
authorizing preferences in any respect superior to the stockholders of their holdings after the payment of
those of outstanding shares of any class, or of just debts. So there is supposed to be no appraisal right
extending or shortening the term of corporate when you shorten the term.
existence;
2. In case of sale, lease, exchange, transfer,
2. In case of sale, lease, exchange, transfer, mortgage, mortgage, pledge or other disposition of all or
pledge or other disposition of all or substantially all of substantially all of the corporate property and
the corporate property and assets as provided in the assets as provided in the Code; and
Code; and
Number 2 ground is in case of sale or lease etc.
3. In case of merger or consolidation. (n)
You joined the corporation because you agreed with the
purpose, now, the corporation would be unable to carry
1. In case any amendment to the articles of out that purpose because it sells all, or substantially all
incorporation has the effect of changing or of the property, that is why you are allowed to exercise
restricting the rights of any stockholder or class your appraisal right
of shares, or of authorizing preferences in any
respect superior to those of outstanding shares 3. In case of merger or consolidation. (n)

Number 3 is in case of merger or consolidation.

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th
And there is a 4 , which is found in Section 42,
when a corporation invests in another corporation or If within a period of sixty (60) days from the date the
another business. You can exercise your appraisal right corporate action was approved by the stockholders,
according to Section 42. the withdrawing stockholder and the corporation
cannot agree on the fair value of the shares, it shall
Section 42. Power to invest corporate funds in be determined and appraised by three (3)
another corporation or business or for any other disinterested persons, one of whom shall be named
purpose. - Subject to the provisions of this Code, a by the stockholder, another by the corporation, and
private corporation may invest its funds in any other the third by the two thus chosen. The findings of the
corporation or business or for any purpose other than majority of the appraisers shall be final, and their
the primary purpose for which it was organized when award shall be paid by the corporation within thirty
approved by a majority of the board of directors or (30) days after such award is made: Provided, That
trustees and ratified by the stockholders representing no payment shall be made to any dissenting
at least two-thirds (2/3) of the outstanding capital stockholder unless the corporation has unrestricted
stock, or by at least two thirds (2/3) of the members in retained earnings in its books to cover such
the case of non-stock corporations, at a stockholder's payment: and Provided, further, That upon payment
or member's meeting duly called for the purpose. by the corporation of the agreed or awarded price,
Written notice of the proposed investment and the the stockholder shall forthwith transfer his shares to
time and place of the meeting shall be addressed to the corporation. (n)
each stockholder or member at his place of residence
as shown on the books of the corporation and
deposited to the addressee in the post office with  What is the effect if you did not submit the demand
postage prepaid, or served personally: Provided, That in writing after 30 days of the date of the vote?
any dissenting stockholder shall have appraisal right
as provided in this Code: Provided, however, That You are deemed to have waived your right of appraisal.
where the investment by the corporation is
reasonably necessary to accomplish its primary Now, in that demand to be paid the value, you
purpose as stated in the articles of incorporation, the have your own estimate of the value of your shares. The
approval of the stockholders or members shall not be company, the corporation is given 60 days from the time
necessary. (17 1/2a) the corporate action was approved to pay you.

What happens if he does not pay?


Now, how do you exercise your appraisal right it?
Then, a committee will be formed. The
- First, you oppose against the proposed corporation will have to appoint one person, while yo,u
action. If you did not vote against it, you the one who exercised the appraisal right will appoint
rd
do not have the right to exercise your your representative, and the 2 of them will appoint a 3
appraisal right. Of course, when you person. There will be a committee to appraise your
voted, you did not win the majority. property, your shares of stock.

- Then, you ask to be paid the value of your Now, if the amount arrived at by the committee
shares. How do you do that? You demand is closer to the amount proposed by the stockholder,
in writing the value of your shares then, it is the company who will pay the expenses of
within 30 days from voting against the forming the committee, if it is closer to the stockholder‟s
measure. value, the corporation pays.

Section 82. How right is exercised. - The appraisal Section 85. Who bears costs of appraisal. - The costs
right may be exercised by any stockholder who shall and expenses of appraisal shall be borne by the
have voted against the proposed corporate action, by corporation, unless the fair value ascertained by the
making a written demand on the corporation within appraisers is approximately the same as the price
thirty (30) days after the date on which the vote was which the corporation may have offered to pay the
taken for payment of the fair value of his shares: stockholder, in which case they shall be borne by the
Provided, That failure to make the demand within latter. In the case of an action to recover such fair
such period shall be deemed a waiver of the value, all costs and expenses shall be assessed
appraisal right.If the proposed corporate action is against the corporation, unless the refusal of the
implemented or affected, the corporation shall pay to stockholder to receive payment was unjustified. (n)
such stockholder, upon surrender of the certificate
or certificates of stock representing his shares, the
fair value thereof as of the day prior to the date on Now, the demand to be paid the value of one‟s
which the vote was taken, excluding any appreciation share is terminated under several grounds.
or depreciation in anticipation of such corporate
action. Section 84. When right to payment ceases. - No

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demand for payment under this Title may be him and his voting rights and his dividend rights are
withdrawn unless the corporation consents thereto. exercisable again because the appraisal right is no
If, however, such demand for payment is withdrawn longer effective. The corporation has changed its mind
with the consent of the corporation, or if the and there is no longer a ground for appraisal. So, you
proposed corporate action is abandoned or surrender your stock certificate when you exercise
rescinded by the corporation or disapproved by the your appraisal right.
Securities and Exchange Commission where such
approval is necessary, or if the Securities and Now take note, normally, appraisal right is applicable
Exchange Commission determines that such only to unlisted corporations. Why?
stockholder is not entitled to the appraisal right, then
the right of said stockholder to be paid the fair value Because if it is listed in the stock market, it is
of his shares shall cease, his status as a stockholder active in the stock market, it is being bought and sold, the
shall thereupon be restored, and all dividend market determines the value of your shareholdings. You
distributions which would have accrued on his just get your number of shares, multiply it with the last
shares shall be paid to him. (n) closing price of the shares traded in the stock market,
that is the value of your shares. So, if you are against the
corporate action, ayaw na og hagu-hago og sulat pa ana,
1. First, if the company announces that it is andto nalang sa stock market and you get the value, you
no longer going ahead with the action that get out of the corporation because you are against what
was approved because there are certain the corporation is doing. That is what you do. But if it is
factors that have arisen in between, after not listed, then you have to go to Title 10, section 81.
the approval of the action.
TITLE XI
2. Second, if the stockholder who first gave NON-STOCK CORPORATIONS
notice, changes his mind and withdraws his
demand to be paid the value of the shares.
Alright, we are getting close, Section 87.
3. And finally, if the dissenting stockholder
is not paid the value of the shares within 30 Section 87. Definition. - For the purposes of this
days after the award, his voting and Code, a non-stock corporation is one where no part
dividend right shall immediately be of its income is distributable as dividends to its
restored. members, trustees, or officers, subject to the
provisions of this Code on dissolution: Provided,
Section 83. Effect of demand and termination of right. That any profit which a non-stock corporation may
- From the time of demand for payment of the fair obtain as an incident to its operations shall,
value of a stockholder's shares until either the whenever necessary or proper, be used for the
abandonment of the corporate action involved or the furtherance of the purpose or purposes for which the
purchase of the said shares by the corporation, all corporation was organized, subject to the provisions
rights accruing to such shares, including voting and of this Title.
dividend rights, shall be suspended in accordance
with the provisions of this Code, except the right of The provisions governing stock corporation, when
such stockholder to receive payment of the fair value pertinent, shall be applicable to non-stock
thereof: Provided, That if the dissenting stockholder corporations, except as may be covered by specific
is not paid the value of his shares within 30 days provisions of this Title. (n)
after the award, his voting and dividend rights shall
immediately be restored. (n)
 What do you have to remember about non-stock?

You know, the dissenting stockholder, once his The purpose of the corporation must be anyone
shares of stock is appraised, he must surrender his of those listed under Section 88, or a combination of
certificate of stock. From then on, he cannot vote, and he those. If the corporation is not anyone of these, then it
has no dividend rights. But if the corporation does not cannot be a non-stock non-profit corporation.
carry out the action that was voted, that means the
corporation can change its mind also.
 What are those purposes?
Let us say, if it says, we will enter into a merger
with this company, and the stockholder exercises its Section 88. Purposes. - Non-stock corporations may
appraisal right, then all of a sudden something happens be formed or organized for charitable, religious,
that the merger would be disastrous to the corporation educational, professional, cultural, fraternal, literary,
should it go ahead, so the corporation changes its mind. scientific, social, civic service, or similar purposes,
So also, the appraisal right becomes ineffective. The like trade, industry, agricultural and like chambers, or
certificate of stock he surrendered must be returned to any combination thereof, subject to the special

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ADDU-Law

provisions of this Title governing particular classes organized, remember one of the purposes is recreation,
of non-stock corporations. (n) recreational, they are non-stock, but they have
transferrable ownership for consideration.

So, if it is not one of these then you cannot be a So, if you, let us say, are a member of the
non-stock corporation. Manila Golf Club, a share in Manila Golf Club now is,
how much? It went as high as 55 Million, now it is down,
 What is the essence of a non-stock corporation? it is about 28 Million. Why is it very expensive? Because
the number of members remain the same, only 500. It
has not gone up or gone down, just 500. And it is the
The essence of a non-stock corporation is the closest golf club to the Makati business district.
negative qualities. Why? Because you go back to Makakawat pa kag sayo mag golf ka pa. tabok lang ka sa
Section 3. Stock and non-stock is a classification of a Edsa, tua na ka sa Makati. And its membership is
corporation of the corporation code. transferrable, but it is non-stock, non-profit corporation.
What does it do with its profits? It bounces back to the
Section 3. Classes of corporations. - Corporations golf course. So, a non-stock, non- profit corporation is
formed or organized under this Code may be stock not prohibited from making profits.
or non-stock corporations. Corporations which
have capital stock divided into shares and are  What is a non-stock, non-profit corporation
authorized to distribute to the holders of such prohibited from doing?
shares dividends or allotments of the surplus
profits on the basis of the shares held are stock Distributing of profits by way of dividends,
corporations. All other corporations are non-stock allotments, to the shareholders, the members of the
corporations. (3a) corporation that is prohibited.

Now, can you do that indirectly? Muingon ka dissolve the


corporation. Pagdissolve, bayran na tanang utang unya
So what is the essence? The essence is it is naa pa may nahibilin na kwarta? Distribute it among the
not a Stock corporation. members, can you do it?

You cannot, because that is prohibited by Section


So, the issue again is
94, the rules of distribution of the assets of the non-stock
corporation in case of dissolution.
 What is a stock corporation?

The essence of a stock corporation is that there Section 94. Rules of distribution. - In case
is a proviso in its articles and/or by-laws that permit the dissolution of a non-stock corporation in
distribution of allotments or dividends from accumulated accordance with the provisions of this Code, its
profits on the basis of your share holdings. assets shall be applied and distributed as
follows:
So you have a corporation, the capital stock of
which is divided into shares and there is a proviso which 1. All liabilities and obligations of the
allows distribution of accumulated net profits to the corporation shall be paid, satisfied and
shareholders from accumulated profits. If there is none of discharged, or adequate provision shall be made
that, there is no such proviso, then, it is a non-stock therefore;
corporation.
2. Assets held by the corporation upon a
Now, we ask the question condition requiring return, transfer or
conveyance, and which condition occurs by
 Can a non-stock corporation make profits? Is it reason of the dissolution, shall be returned,
prohibited to register profits? If it has profits, is it transferred or conveyed in accordance with such
taxed on its net profits? requirements;

Time again, the SC has decided, there is a long 3. Assets received and held by the corporation
list of decided cases. Because, daghan kaayo na nga subject to limitations permitting their use only
mga kaso, ambakan kaayo na sa BIR. The BIR is for charitable, religious, benevolent, educational
desperate of taxes, if the BIR sees a chance of taxability, or similar purposes, but not held upon a
they jump on it. condition requiring return, transfer or
conveyance by reason of the dissolution, shall
The oldest case is San Juan de Dios Hospital be transferred or conveyed to one or more
vs. CIR, after that there is Cebu Country Club vs. CIR, corporations, societies or organizations engaged
and many others. Because these country clubs are in activities in the Philippines substantially
similar to those of the dissolving corporation

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according to a plan of distribution adopted So they have 5 members, dili ba mo mahadlok ana. Kana
pursuant to this Chapter; ra sang 5 members mahimong directors. Unsa maning
inyong corporation? Gawasnong Pagbalay Sa Mga
4. Assets other than those mentioned in the Mayukmok sa Toril. Sige. Lima kabuok. Okay ra ng lima.
preceding paragraphs, if any, shall be distributed Mamatay ng tulo, duha nalang mabilin, wala na, goodbye
in accordance with the provisions of the articles corporation, dissolved. You cannot create anymore
of incorporation or the by-laws, to the extent that members, wala naman, there is no quorum for the
the articles of incorporation or the by-laws, members meeting, no quorum for the directors meeting,
determine the distributive rights of members, or the corporation can no longer act.
any class or classes of members, or provide for
distribution; and Diha ka mukita na ang corporation is wholly and
completely dependent on natural persons. Wala gani
5. In any other case, assets may be distributed to enough natural persons, wala na, patay na ang
such persons, societies, organizations or corporation.
corporations, whether or not organized for profit,
as may be specified in a plan of distribution So, beware ha. Mga isog ra baya kaayo nang
adopted pursuant to this Chapter. (n) mga non-stock corporation. Bilib nako nimo og
makasabot ka ani, they do not care about the law. Until
they begin fighting each other. Apil na na sila og basa sa
That is the rule. Katong gihuwaman, iuli. by-laws. Before that, they do not care. Then all of a
Kadtong giassign lang, iuli ngadto sa ilang assignor, etc. sudden, naa man diay questionable quest sa SEC kay
and then whatever is left behind, you give to another non- wala man silay file file, gikalimtan man nila. Mao na ang
stock non-profit corporation with a similar purpose. But it problema.
does not go to the members, if it does, then that is an
indirect violation. And then there is a problem if you just get the
ready-made articles and by-laws of the SEC. Baligya
CHAPTER I- MEMBERS lang na sa SEC, tag 500. Imo dayon gixerox, magfile
dayon ka, unya dili dawaton sa SEC kay makabalo sila
Section 89. Right to vote. - The right of the members na Xerox kay I4 man diay na ang size sa papel. Special
of any class or classes to vote may be limited, size na ilang articles and by-laws. It is a liitle bit smaller
broadened or denied to the extent specified in the than the regular 8.5 by 11. So, pagpaxerox nimo,
articles of incorporation or the by-laws. Unless so kinahanglan man kag 3 copies, so sakpan ka. Palit
limited, broadened or denied, each member, nalang kag I4 unya anhan ka magpaxerox dinha.
regardless of class, shall be entitled to one vote.
Karon, kay kana ilang form na tag 500 pesos,
Unless otherwise provided in the articles of there is no provision towards ending membership. There
incorporation or the by-laws, a member may vote by is a provision on how you become a member of a non-
proxy in accordance with the provisions of this Code. stock corporation, but no provision of terminating
(n) membership. Many non-stock corporations here in
Davao, the acts of the corporations are questionable,
Voting by mail or other similar means by members of because they do not have a quorum when they meet,
non-stock corporations may be authorized by the by- daghan man silag members. Kasagarang members nila,
laws of non-stock corporations with the approval of, they are free spirits. Unlike Stock Corporation, the
and under such conditions which may be prescribed members have shares and they have money at stake
by, the Securities and Exchange Commission. there, kini wala man.

Unsa may qualification anang Gawasnong


Now, right to vote, unless it is specified, there is Pagbalay Sa Mga Mayukok Sa Toril, unsa may purpose
no cumulative voting. There is also no voting by proxy ana - The abstracted passion for housing for the poor.
unless it is specified in the by-laws. Voting by mail or Taas kaayo ang requirement. This is exultation; this
other similar means by members of non-stock cannot be verified in law. No one can exceed this passion
corporations may be authorized by the by-laws of non- for housing. Unsaon nimo pagkakita ana. These are not
stock corporations with the approval of, and under such demonstrable legally.
conditions which may be prescribed by, the Securities
and Exchange Commission. Loser. That is Non-stock So, Membership as a General rule is non-
Corporation. transferrable, unless the articles and by-laws of the
corporation otherwise provide.
I will just tell you my experience ha why these
non-stock corporation create their own problem. Many of Section 90. Non-transferability of membership. -
them are NGOs. They hate the law. Many of them, they Membership in a non-stock corporation and all rights
do not like the law. So they say, pila may minimum aron arising therefrom are personal and non-transferable,
maka non-stock corporation. Well, only 5 incorporators. unless the articles of incorporation or the by-laws

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ADDU-Law

otherwise provide. (n) So, Place of meetings, you cannot provide that
the meetings be outside the territorial jurisdiction. The
place of meetings should be within the Philippines, as
Now if they are transferrable, the SEC and the much as possible, it will be held in the principal office of
BIR has a say. The BIR can slap capital gains, doc stamp the non-stock corporation.
etc., and the SC has upheld the BIR in that case.
Transferrable gani ang shares, magbayad ka. Apo Gulf CHAPTER III - DISTRIBUTION OF ASSETS IN NON-
and Country Club, mamaligya gani ka sa imong shares, STOCK CORPORATIONS
naa kay capital gains, etc., mamaligya ka sa imong
playing rights, naa gihapon, islap gihapon ka og capital Section 95. Plan of distribution of assets. - A plan
gains. providing for the distribution of assets, not
inconsistent with the provisions of this Title, may be
adopted by a non-stock corporation in the process of
dissolution in the following manner:
CHAPTER II - TRUSTEES AND OFFICES
The board of trustees shall, by majority vote, adopt a
Section 92. Election and term of trustees. - Unless resolution recommending a plan of distribution and
otherwise provided in the articles of incorporation or directing the submission thereof to a vote at a
the by-laws, the board of trustees of non-stock regular or special meeting of members having voting
corporations, which may be more than fifteen (15) in rights. Written notice setting forth the proposed plan
number as may be fixed in their articles of of distribution or a summary thereof and the date,
incorporation or by-laws, shall, as soon as time and place of such meeting shall be given to
organized, so classify themselves that the term of each member entitled to vote, within the time and in
office of one-third (1/3) of their number shall expire the manner provided in this Code for the giving of
every year; and subsequent elections of trustees notice of meetings to members. Such plan of
comprising one-third (1/3) of the board of trustees distribution shall be adopted upon approval of at
shall be held annually and trustees so elected shall least two-thirds (2/3) of the members having voting
have a term of three (3) years. Trustees thereafter rights present or represented by proxy at such
elected to fill vacancies occurring before the meeting. (n)
expiration of a particular term shall hold office only Now, dissolution, there is a provision here that a
for the unexpired period. plan of the distribution of the assets of the corporation
may be approved, by the SEC – a plan of distribution.
No person shall be elected as trustee unless he is a
member of the corporation. You know very well that Ateneo is non-stock
non-profit corporation; it has a lot of assets, suppose
Unless otherwise provided in the articles of Ateneo dissolves, you will say, transfer the remaining
incorporation or the by-laws, officers of a non-stock assets to a similar institution with the same purpose –
corporation may be directly elected by the members. education, so look for a non-stock corporation. But
(n) Ateneo has a plan of distribution in its by-laws. The
transfer of its assets, equipment of the Ateneo, is
mediated by another non-stock corporation, which is the
Now, the term of the members of the Board of corporation sole of the Jesuits in the Philippines and that
Trustees is 1/3 of them expires every year. is Isabella Corporation, that is the corporation sole of the
Jesuit provincial superior who will assign the assets here
So their term is 3 years and they are staggered to another school ran by the Jesuits. That is allowed plan
so that 1/3 only expires in 1 year. Why is that? of distribution.

So there would be Continuity. They foresee that if there is So, we are through with non-stock corporations.
no Continuity, then if all of them would decide that they
end their term in the same year, because the members Remember: You can form a Non-Stock Non-Profit
do not have a monetary stake in the corporation. Corporation just by amending the articles and by-
laws of a Stock corporation, but you cannot form a
Section 93. Place of meetings. - The by-laws may stock corporation by just amending the articles and
provide that the members of a non-stock corporation by-laws of a non-stock corporation.
may hold their regular or special meetings at any
place even outside the place where the principal Why? That is an Opinion issued by the SEC. You cannot
office of the corporation is located: Provided, That form, transform a non-stock corporation in to a stock and
proper notice is sent to all members indicating the profit corporation, but you can transform the latter into a
date, time and place of the meeting: and Provided, former. Why? You look for the answer. You look for the
further, That the place of meeting shall be within the answer. You assume that you are a non-stock
Philippines. (n) corporation for 10 years, and then all of a sudden you

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ADDU-Law

changed into a stock corporation. What is the result? can be less than 20 but cannot be
Okay. We will meet again if we meet again Next Week. more than 20 stockholders.

January 25, 2017 Ching, K.


So the limitation is on the stockholders.
We are still in Corporation Code. We have
finished mergers and consolidation. Non-stock 2.) That all issued stock of all
Corporation. process shall be subject to one or
more specified restrictions on
TITLE XII- transfer permitted by this title.
CLOSE CORPORATION
So later you will find out that the limitation cannot
be more restrictive than affording to corporation or
So we are now in CLOSE CORPORATION. fellow stockholders of the right to purchase any
Close without a “D” please. Nganong close mana na rd
stockholder‟s share first into offering it to 3 parties. So,
walay D? that‟s the second feature.

*Joke time ni Fr. like Color TV, SSS, Cokes,


Piece/Pieces etc* 3.) Negative Condition. And this
corporation shall not list in any stock
Section 96. Definition and applicability of Title. - A exchange or any public offerings of any
close corporation, within the meaning of this Code, is of its stock of any class.
one whose articles of incorporation provide that: (1)
All the corporation’s issued stock of all classes,
exclusive of treasury shares, shall be held of record So because of that feature, close corporations
by not more than a specified number of persons, not are disqualified from entering the business of public
exceeding twenty (20); (2) all the issued stock of all utilities. Public utility corporations are required by the
classes shall be subject to one or more specified Public utilities law to offer atleast 10% of their
restrictions on transfer permitted by this Title; and outstanding general stock to the general public.
(3) The corporation shall not list in any stock
exchange or make any public offering of any of its
stock of any class. Notwithstanding the foregoing, a So these three features constitute what is a
corporation shall not be deemed a close corporation close corporation. Now, there can be additional features
when at least two-thirds (2/3) of its voting stock or of a close corporation.
voting rights is owned or controlled by another
corporation which is not a close corporation within
the meaning of this Code.
SEC 97: Articles of incorporation. – The articles of
Any corporation may be incorporated as a close incorporation of a close corporation may provide:
corporation, except mining or oil companies, stock
exchanges, banks, insurance companies, public 1. For a classification of shares or rights and
utilities, educational institutions and corporations the qualifications for owning or holding the
declared to be vested with public interest in same and restrictions on their transfers as
accordance with the provisions of this Code. may be stated therein, subject to the
provisions of the following section;

The provisions of this Title shall primarily govern 2. For a classification of directors into one or
close corporations: Provided, That the provisions of more classes, each of whom may be voted
other Titles of this Code shall apply suppletorily for and elected solely by a particular class of
except insofar as this Title otherwise provides. stock; and

3. For a greater quorum or voting requirements


3 ESSENTIAL ELEMENTS OF A CLOSE in meetings of stockholders or directors
CORPORATION: than those provided in this Code.

These must be found in the Articles of The articles of incorporation of a close corporation
Incorporation. may provide that the business of the corporation
shall be managed by the stockholders of the
1.) All the issued stock exclusive of corporation rather than by a board of directors. So
treasury shares shall be held of long as this provision continues in effect:
record by not be more than 20 , it
1. No meeting of stockholders need be called

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to elect directors; Absolute Majority:


2. Unless the context clearly requires Total number of Directors divided by 2 plus 1.
otherwise, the stockholders of the That is absolute majority.
corporation shall be deemed to be directors
for the purpose of applying the provisions of Stockholders: Sum total of shares
this Code; and
3. The stockholders of the corporation shall be Non-stock Holders:
subject to all liabilities of directors. Outstanding shares net of treasury shares divided by
2 plus 1 that is the default quorum requirement in the
The articles of incorporation may likewise provide Corporation.
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 The Close Corporation may provide that the
directors. quorum is 2/3 or ¾ of the outstanding capital stock. Let
me warn you, if you are going to do that, you are risking
failure of meetings every time you call stockholders
1. For a classification of shares or rights meeting. Very difficult for you to get absolute majority,
and the qualifications for owning or with all the more reason, it will be very difficult to get a
holding the same and restrictions on their higher quorum.
transfers as may be stated therein,
subject to the provisions of the following Mao nay problema sa mga subdivisions, kanang
section; mga subdivision, pagdevelop niana, and developer
biyaan lang na. Ang magpadagan sa subdivision kay
So, qualifications for the board, it might say that only mao na ang Homeowners Association. Maayo gani
those who can trace their lineage to Ramirez and Santos mamayad na sila sa ilang fee, sigurado ka na naa moy
family can own shares of stock of this Close Corporation. quorum. Di na gani mamayad sa ilang monthly fee ang
And they specify who the Santos is, and who the majority, wala jud moy quorum ana. Dili naman
Ramirez is. Husband and Wife. You must be able to trace manunga. Dili naman gani mukuha silag proxy sa ilang
your lineage to either one of them, then you can you can name para mutunga didto. Mao nay problema sa mga
be qualified to own shares of stock. subdivision.

2. For a classification of directors into The higher end the subdivision, the higher the
one or more classes, each of whom may fee. Normally, the fee in the subdivision is based on a
be voted for and elected solely by a per-square meter basis. Kanang fee muingon sila, 30
particular class of stock; pesos a month per square meter. Naa kay 500 square
meters, eh di 1500 nana. 1500 a month. Mubayad ka ana
And when you do that, remember that feature in para sa imong yuta? Para unsa mana?
Section 6, there must be class of shares that has
complete voting rights. So, if you classify directors, into
directors that can be only voted by Class A, there are
also directors that can be voted for only by Class B  Bayad sa Guard.
shares, you must have shares of stock that can vote for  Bayad sa garbage collection.
all directors because that is what the section provide for  Bayad sa mamutol sa sagbot diha sa mga
a valid articles of incorporation and valid classification of empty lots kay naa naman mga bitin diha
share. There must be a class of shares that has muadto sa inyong balay kay bugnaw ang
complete voting rights. inyong salog.
 Bayad sa Suga. Kanang suga diha sa
3.) It may provide For a greater quorum or dalan. Naa mana dinha. Kinsa man
voting requirements in meetings of mubayad ana? Association ang mubayad
stockholders or directors than those ana.
provided in this Code.

Daghan kaayo na. Ang pagbayad sa fee, dili


gani on time of the majority, wala jud kay quorum
Default quorum under this code is Majority – makuha sa meeting. Unya non-stock non-profit manang
Absolute majority. The Absolute majority of Subdivision Home Owners Association Incorporated.
stockholders or of directors. Non-stock, non-profit mana.

Formula: Suwayig buhat na ang quorum kay 3/4, wala na,


mangamatay nalang mo tanan, dili jud mo makameeting.

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Naglisod man gani ug tagbo anang majority, Simple


Absolute Majority. Kini close corporation, why did they
put this particular feature? Restrictions on the right to transfer shares
must appear:

1.) In the articles of incorporation and


4. Here is` another particular feature of a close 2.) In the by-laws
corporation 3.) As well as in the certificate of stock;
otherwise, the same shall not be
Sec 97 xxx binding on any purchaser thereof in
xxx good faith.
The articles of incorporation of a close
corporation may provide that the business of the
corporation shall be managed by the stockholders of Here are rules of evidence and the issuance or
the corporation rather than by a board of directors. transfer of stock in breach of qualifying conditions. These
So long as this provision continues in effect: are presumptions that obtained once the facts are
1. No meeting of stockholders need be called proven.
to elect directors; (Kay wala may directors)
2. Unless the context clearly requires There are:
otherwise, the stockholders of the corporation shall
be deemed to be directors for the purposes of 1.) Tentative Presumptions
applying the provisions of this Code; and 2.) Conclusive Presumptions
3. The stockholders of the corporation shall
be subject to all liabilities of directors.
Can you name one conclusive presumption from
the Rules of Court?

So a close corporation, need not have directors. For the lessee, it is conclusive that he cannot
Kung wala kay directors, wala kay meeting sa directors. defeat the ownership of the lessor. You recognized kay
Not less than 20 man. So kamo tanan, mura mog mao mana siya ang tag-iya. Dili gyud ka makadaug.
partners. Kamo man ang mumanage sa corporation. *chika about lessor and lessee and conclusive
presumption.*
Or again, The articles of incorporation may
likewise provide that all officers or employees or that The party who alone is in possession of the
specified officers or employees shall be elected or evidence sought by the court refuses to submit or show
appointed by the stockholders, instead of by the board of that evidence, what is the conclusion?
directors.
The conclusion is the evidence is inimical to his
So this is an EXCEPTION to the General Rule cause. That is conclusive. Gitaguan nimo ang evidence,
that in a stock and profit corporation, it is the board of ikaw may naa anang evidence, dili nimo ipagawas,
directors who appoint the officers of the corporation, not ngano dili nimo ipagawas? Ngano man? Makakaulaw.
the stockholders. If there are no directors, then it is the Pildi ka. Because you do not show it, because it is
stockholders who will appoint the appoint the officers, inimical to your cause. Daghan kaayo na.
who will hire the employees.
Kini malingaw kag basa ni ini. Basaha ni 1-4. Dili
Section 98: Validity of restrictions on transfer of nalang nko ni basahon kay its so obvious.
shares. – Restrictions on the right to transfer shares
must appear in the articles of incorporation and in
the by-laws as well as in the certificate of stock;
otherwise, the same shall not be binding on any Section 99. Effects of issuance or transfer of stock in
purchaser thereof in good faith. Said restrictions breach of qualifying conditions. -
shall not be more onerous than granting the existing
stockholders or the corporation the option to 1. If stock of a close corporation is issued or
purchase the shares of the transferring stockholder transferred to any person who is not entitled under
with such reasonable terms, conditions or period any provision of the articles of incorporation to be a
stated therein. If upon the expiration of said period, holder of record of its stock, and if the certificate for
the existing stockholders or the corporation fails to such stock conspicuously shows the qualifications
exercise the option to purchase, the transferring of the persons entitled to be holders of record
stockholder may sell his shares to any third person. thereof, such person is conclusively presumed to
have notice of the fact of his ineligibility to be a
stockholder.
Sec 98: Validity of restrictions on transfer of shares.

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2. If the articles of incorporation of a close unsay nakabutang dinha. kay Buta man ka, nanawag ka
corporation states the number of persons, not ug tao na basaha na diha kung naa diha. Because that is
exceeding twenty (20), who are entitled to be holders a conclusive presumption.
of record of its stock, and if the certificate for such
stock conspicuously states such number, and if the
issuance or transfer of stock to any person would *Sabi ni Fr. masteron daw nato ang Evidence, Rules of
cause the stock to be held by more than such Court kay dili daw ta makaingon sa korte ug Time-out*
number of persons, the person to whom such stock
is issued or transferred is conclusively presumed to Section 99 is Rules of Evidence. Section 99 1-7.
have notice of this fact.

3. If a stock certificate of any close corporation


conspicuously shows a restriction on transfer of Section 100. Agreements by stockholders. -
stock of the corporation, the transferee of the stock
is conclusively presumed to have notice of the fact 1. Agreements by and among stockholders executed
that he has acquired stock in violation of the before the formation and organization of a close
restriction, if such acquisition violates the restriction. corporation, signed by all stockholders, shall survive
the incorporation of such corporation and shall
4. Whenever any person to whom stock of a close continue to be valid and binding between and among
corporation has been issued or transferred has, or is such stockholders, if such be their intent, to the
conclusively presumed under this section to have, extent that such agreements are not inconsistent
notice either (a) that he is a person not eligible to be with the articles of incorporation, irrespective of
a holder of stock of the corporation, or (b) that where the provisions of such agreements are
transfer of stock to him would cause the stock of the contained, except those required by this Title to be
corporation to be held by more than the number of embodied in said articles of incorporation.
persons permitted by its articles of incorporation to
hold stock of the corporation, or (c) that the transfer 2. An agreement between two or more stockholders,
of stock is in violation of a restriction on transfer of if in writing and signed by the parties thereto, may
stock, the corporation may, at its option, refuse to provide that in exercising any voting rights, the
register the transfer of stock in the name of the shares held by them shall be voted as therein
transferee. provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.
5. The provisions of subsection (4) shall not be
applicable if the transfer of stock, though contrary to 3. No provision in any written agreement signed by
subsections (1), (2) or (3), has been consented to by the stockholders, relating to any phase of the
all the stockholders of the close corporation, or if the corporate affairs, shall be invalidated as between the
close corporation has amended its articles of parties on the ground that its effect is to make them
incorporation in accordance with this Title. partners among themselves.

6. The term "transfer", as used in this section, is not 4. A written agreement among some or all of the
limited to a transfer for value. stockholders in a close corporation shall not be
invalidated on the ground that it so relates to the
7. The provisions of this section shall not impair any conduct of the business and affairs of the
right which the transferee may have to rescind the corporation as to restrict or interfere with the
transfer or to recover under any applicable warranty, discretion or powers of the board of directors:
express or implied. Provided, That such agreement shall impose on the
stockholders who are parties thereto the liabilities for
managerial acts imposed by this Code on directors.
Tan-awa ning Number 3
5. To the extent that the stockholders are actively
3. If a stock certificate of any close engaged in the management or operation of the
corporation conspicuously shows a business and affairs of a close corporation, the
restriction on transfer of stock of the stockholders shall be held to strict fiduciary duties to
corporation, the transferee of the stock is each other and among themselves. Said
conclusively presumed to have notice of the stockholders shall be personally liable for corporate
fact that he has acquired stock in violation of torts unless the corporation has obtained reasonably
the restriction, if such acquisition violates the adequate liability insurance.
restriction.

CONCLUSIVE NA HA. Unya buta man ko, wala man Then Section 100 is another series of Rules
ko kabasa ana, buta ko. TOOOO BAAAAD. Conclusively of evidence. WHY?
presume. Mupalit ba diay ka kung wala ka kahibawo

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Because for a close corporation, agreements reduce a quorum or voting requirement stated in said
between and among the stockholders, survive the articles of incorporation shall not be valid or effective
incorporation. unless approved by the affirmative vote of at least two-
thirds (2/3) of the outstanding capital stock, whether with
What does that mean? or without voting rights, or of such greater proportion of
shares as may be specifically provided in the articles of
If two stockholders of a close corporation enter incorporation for amending, deleting or removing any of
into an agreement, that agreement survives after the the aforesaid provisions, at a meeting duly called for the
incorporation. Nagsabot silang duha, ”We agree that purpose.
every year, only one of us will exercise the total number
of votes of the two of us. This year, it is A. Next year, it is
B.” Puli puli ta. Unya nag incorporate ning close  Why is this 2/3 necessary?
corporation, that agreement survives.
Because this is fundamental. The amendment
might need that the close corporation ceases to be a
close corporation. So, if the corporation now chooses to
Is that not a circumvention of the Rule that “Proxies Do amend the particular proviso, xxx the corporation which
Not Last for More than 5 Years” ? says the maximum number of stockholders is only 20 and
it will not list in any stock exchange.
The answer is NO. Because proxies is a
general rule. Survival of Agreements between Suppose there is an amendment to change, remove
stockholders in close corporation is a specific rule. those two requirements, then it is not only affirmative
Between the General and Specific, the Specific prevails. consent, technically you have accomplices by consent.
And so on. So read Agreements of Stockholders. But for a close corporation, it must be 5 affirmative votes.

Nakalimot namo, there are two ways to amend the


Articles of incorporation in terms of the participation of
Pre-emptive Rights of Close Corporations the stockholders.
Stockholders
1.) Vote or
2.) Written Assent

Section 102. Pre-emptive right in close corporations.


– The pre-emptive right of stockholders in close Kini mahimo na ning written assent lang if it is
corporations shall extend to all stock to be issued, an ordinary corporation. Because the amendment is not
including reissuance of treasury shares, whether for one of those included in the 8 instances in Section 6. But
money, property or personal services, or in payment here, when it is a close corporation, it must by SECRET
of corporate debts, unless the articles of BALLOT/ AFFIRMATIVE VOTE.
incorporation provide otherwise.
Section 104. Deadlocks. – Notwithstanding any
contrary provision in the articles of incorporation or
So Pre-emptive rights extend up to sale of by-laws or agreement of stockholders of a close
treasury shares. ALL issuance, to ALL stock to be corporation, if the directors or stockholders are so
issued. Naa nay gi-issue, exercise na tanan, except one divided respecting the management of the
who fails to exercise his pre-emptive right, do the others corporation’s business and affairs that the votes
who already exercised, do they have pre-emptive right required for any corporate action cannot be obtained,
over the shares over which one stockholder did not opt to with the consequence that the business and affairs
subscribe? of the corporation can no longer be conducted to the
advantage of the stockholders generally, the
YES, because it says ALL ISSUANCES. In Securities and Exchange Commission, upon written
ordinary corporations, there is no pre-emptive right over petition by any stockholder, shall have the power to
shares that the other stockholders have not exercised arbitrate the dispute. In the exercise of such power,
their pre-emptive right. the Commission shall have authority to make such
order as it deems appropriate, including an order:
But here, THERE IS, because it extends to ALL
stock to be issued including the issuance of treasury (1) Cancelling or altering any provision contained in
shares. the articles of incorporation, by-laws, or any
stockholder’s agreement;
Section 103. Amendment of Articles of Incorporation. – (2) Cancelling, altering or enjoining any resolution or
Any amendment to the articles of incorporation which act of the corporation or its board of directors,
seeks to delete or remove any provision required by this stockholders, or officers;
Title to be contained in the articles of incorporation or to (3) Directing or prohibiting any act of the corporation

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or its board of directors, stockholders, officers, or


other persons party to the action;
(4) Requiring the purchase at their fair value of (2) The SEC can issue and order cancelling,
shares of any stockholder, either by the corporation altering or enjoining any resolution or act of
regardless of the availability of unrestricted retained the corporation or its board of directors,
earnings in its books, or by the other stockholders; stockholders, or officers;
(5) Appointing a provisional director;
(6) Dissolving the corporation; or It can countermand past resolutions of the
(7) Granting such other relief as the circumstances Board. Super board na ang SEC. It has more powers
may warrant. than the stockholders.

A provisional director shall be an impartial person (3) It can issue and order directing or
who is neither a stockholder nor a creditor of the prohibiting any act of the corporation or its
corporation or of any subsidiary or affiliate of the board of directors, stockholders, officers, or
corporation, and whose further qualifications, if any, other persons party to the action;
may be determined by the Commission. A
provisional director is not a receiver of the (4) It can issue an order requiring the
corporation and does not have the title and powers purchase at their fair value of shares of any
of a custodian or receiver. A provisional director stockholder, either by the corporation
shall have all the rights and powers of a duly elected regardless of the availability of unrestricted
director of the corporation, including the right to retained earnings in its books, or by the
notice of and to vote at meetings of directors, until other stockholders;
such time as he shall be removed by order of the
Commission or by all the stockholders. His So it can order you to sell your shares
compensation shall be determined by agreement
between him and the corporation subject to approval (5) It can issue an order appointing a
of the Commission, which may fix his compensation provisional director;
in the absence of agreement or in the event of
disagreement between the provisional director and The SEC will appoint a director. Provisional. Dili
the corporation. gani xa stockholder pero makaappoint xa ug provisional
director. Kung mgkasamot ang situation, is the SEC
liable? NO. IT IS NOT. Bahala namo diha magkaguliyang
Section 104 is the reason why nobody is using a mo. Ako ng naappoint ang provisional director.
Close Corporation. No one, wala pa gyud nagpabuhat sa
akoa ug articles of Close corporation. Wala pa. Ngano
man? Basaha ninyo ang Section 104.
(6) It can issue an order dissolving the
corporation; or

―By ANY Stockholder” The SEC has the power of life and death of the
Close Corporation.
Usa lang kabuok na stockholder musuwat, then
muadto sa SEC, then the SEC has the power to arbitrate. (7) It can issue an order granting such other
relief as the circumstances may warrant.
What does the “Power to Arbitrate” mean?

104 continues, In the exercise of such power


(POWER TO ARBITRATE), the Commission shall have Mao ng kapait sa close corporation.
authority to make such order as it deems appropriate,
including an order:

(1) Cancelling or altering any provision SECTION 105: (LAWPHIL VERSION)


contained in the articles of incorporation,
by-laws, or any stockholder‟s agreement; Section 105. Withdrawal of stockholders or
dissolution of corporation. – In addition and without
prejudice to other rights and remedies available to a
stockholder under this Title, any stockholder of a
Tan-awa ra na. Ang SEC na nuon magbuot. Wa close corporation may, for any reason, compel the
man gani magka agree ang mga stockholders, ang SEC said corporation to purchase his shares at their fair
na nuoy magbuot. It will cancel or alter. Unsa ng naa diha value, which shall not be less than their par or issued
sa Articles of incorporation. value, when the corporation has sufficient assets in
its books to cover its debts and liabilities exclusive

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of capital stock: Provided, That any stockholder of a The corporate structure can only build on
close corporation may, by written petition to the natural way. It cannot substitute it. Naa kay buang2x na
Securities and Exchange Commission, compel the igsoon, walay trabaho, mao kinagastador sa tanan,
dissolution of such corporation whenever any of acts buhaton pa na nimo ug member sa corporation, nangita
of the directors, officers or those in control of the ka ug hole in the head. Kay mao na magdala ug
corporation is illegal, or fraudulent, or dishonest, or problema. Minor mana xa, ay sus!, Masakyan na ug
oppressive or unfairly prejudicial to the corporation abogadong buang buang wala moy pahuway. Exercise
or any stockholder, or whenever corporate assets are right of inspection, exercise... mabuang mo sa kaso ana.
being misapplied or wasted.
So the intentions behind close corporations may
have been noble but the effect is disastrous. Hopefully,
SECTION 105: FATHER‟S VERSION. (Iba ang nasa by the time they will amend the corporation code, they
lawphil at sa giread niya na provi sa book but I think will do away with this useless series of provisions. The
same lang ang thought guys ;) whole idea of this close corporation is to produce a
hybrid, an organization that has both the good points of
Section 105. Withdrawal of stockholders or a partnership and good points of the corporate structure.
dissolution of corporation. Any stockholder of a Mao unta na. It turns out that they created not a hybrid
close corporation, may by written petition to the but a monster. They have elated a runaway monster. A
Securities and Exchange Commission compel the Godzilla of a Corporate World. I do not advise anyone to
dissolution of such corporation whenever any of the form a close corporation. So we are finished with close
of acts of the directors, officers or those in control of corporation.
the corporation is illegal, or fraudulent, or dishonest,
or oppressive or unfairly prejudicial to the Special corporations, what follows is:
corporation or any stockholder, or whenever
corporate assets are being dissipated or wasted. 1.) Educational Corporation
2.) Religious Corporation
3.) Dissolution
It covers everything, Tyabaw ka lang, singgit ka 4.) Foreign Corporations
“gidaug2x ko” Wala na. Dissolve na ang Corporation. 5.) Miscellaneous Provision.
You might think na maayo kay family, xxx walay
makasulod na lain taga gawas. 20 ra gud ang maximum.
JAN 26- NO CLASS
Remember this: THE MOST BITTER January 27 2017, Montefolca Z
CORPORATE FIGHTS ARE BETWEEN PEOPLE WHO
ARE NATURALLY CLOSEST.
Its time to study corporation law. The most interesting
Mag away gani ng amahan ug anak sa diha sa subject in commercial law (LOL) we are now in special
corporation, mas grabe pa na sa away sa dili nimo
corporations.
igsoon. Some of the bitterest fights are between husband
and wife in a corporation. Mangutana ka why? Because,
The special corporations enumerated here:
just because you are in a corporate structure does
not exempt you from the loss of natural relations.
1. Educational corporation, and
Why is it the most bitter fights are between the 2. The religious corporation.
closest people?

Because there can be no “go between” Asa pa The educational corporations are divided
man closer between the wife and the husband? Who can into two kinds:
be closer than the husband and the wife? Unya kung
mag away mo, kinsa may magtunga tunga ninyo? Wala 1. Educational corporations that are
man. Because you are the closest. That‟s why the fight non-stock non-profit
between the closest people is the most bitter fight. And
that happens in a corporation because corporate 2. Educational corporations that are
structure does not take the place of natural law.
stock and profit
Mao ng Advise ha, maremember tingali ni ninyo
kung magkagidlay namo. You form a corporation sa You will notice that so many of the tycoons have
inyong family, ipamember or paapilon gani nimo sa entered into stock and profit educational corporations. Its
corporation ang family member na dili gani makaapil not the need the richest man in the world to enter, not the
ninyo as a family kay black sheep siya, daghan kaayo world but the Philippines, to enter into education as as
siya kagubot na buhaton, that is a sure recipe of trouble business. Henry Sy has taken over national university.
and probably break down of the family corporation.

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That is like now raising the profile in what is really only for the unexpired period. Trustees elected
essential in education which is for.. (father continues to thereafter to fill vacancies caused by expiration of
talk about NU) term shall hold office for five (5) years. A majority of
the trustees shall constitute a quorum for the
Yuchengco group owners of RCBC, Malayan transaction of business. The powers and authority of
trustees shall be defined in the by-laws.
insurance, they put up a college here in Mcarthur
highway. (Father talks about traffic kay daghag itukod na
For institutions organized as stock corporations, the
malls ug schools)
number and term of directors shall be governed by
the provisions on stock corporations. (169a)
Yuchengco is in education. Philma(?) group is in
education. Lucio tan is in education. Lucio tan controls
Then your board of trustees shall not be less
university of the east. If you in are educational institution
than 5 nor more than 15 provided however, that the
and you are stock and profit then you are treated just like number of trustees shall be in multiples of 5. so you
any other stock and profit corporation. You will be treated either have a board of 5, 10 or 15. or you do not have a
th
like non-stock non-profit corporation. Ordinary. But if you BOT at all because it says in multiples of 5 so that 1/5 of
are non-stock non-profit then you are treated by the the number of directors shall expire every year. So you
special provisions in the corporation code in section 106, staggered the terms of the directors of the BOT so there
107 and 108. is a hold-over.

TITLE XIII This is another provision in the constitution that


SPECIAL CORPORATIONS must be Filipino against national xxx very parochial.
Education is already international. Can you imagine in
CHAPTER I - EDUCATIONAL CORPORATIONS
the sciences only UP can offer a PhD program by itself.
The other university, Ateneo they have to undergo a
Section 106. Incorporation. – Educational consortium they cannot offer by themselves. Ingon ka
corporations shall be governed by special laws and gamay man ka you go to Hongkong pilay population sa
by the general provisions of this Code. (n) HK? It has 3 first class univeristy that offer this stem.
Science and technology, engineering and math.
Section 107. Pre-requisites to incorporation. – Except Mathematics! Not even UP standing alone by itself can
upon favorable recommendation of the Ministry of offer a PhD in math. It has to be in consortium with la
Education and Culture, the Securities and Exchange salle and ateneo because it does not have enough PhDs
Commission shall not accept or approve the articles to run a program.
of incorporation and by-laws of any educational
institution. (168a) (Father talks about losing faith on Solita Monson right
after the edsa revolution when she said that she
repudiate all the deaths of marcos.. Notice the day that I
Pre-requisites, endorsement by the ministry of
stand appearing in Tv my days in teaching are over. You
education and culture if you are dealing with primary and
don‟t have time to read anymore. You begin to love the
secondary education. But if you are putting up a
sound of your voice. As well as Pia Cayetano )
university then you must also get the endorsement of
higher education oversight or supervising body which is
the CHED. Commission on higher education. And If you (Father talks about Cornell university)
put up a law school, you must also get the endorsement
of LEB it is the legal education board. So if you are an educational institution that is
stock and profit you have no hope in being a place where
Section 108. Board of trustees. – Trustees of you study for knowledge‟s sake. You have first to study
educational institutions organized as non-stock something for learning itself not for any possible
corporations shall not be less than five (5) nor more application. All the top universities in Europe, US, South
than fifteen (15): Provided, however, That the number America, Africa, they are not stock and profit university.
of trustees shall be in multiples of five (5). They are not. There are many profitable educational
institutions in the United States. What are they? They are
the review schools. Kanang nursing, medicine, law. Mao
Unless otherwise provided in the articles of
na sila. Highly profitable. Mao na sila ang mga naa sa
incorporation on the by-laws, the board of trustees of
lisod. Kanang anak ni kiniti kalima ka unom na nikuhag
incorporated schools, colleges, or other institutions
bar wa gihapon kapasa. Mao na sila. Anha nag review
of learning shall, as soon as organized, so classify
dinha. Anak ni kaplan. Nursing mao na! Many of those
themselves that the term of office of one-fifth (1/5) of
but not the univeristy. A university should be knowing for
their number shall expire every year. Trustees
knowledge‟s sake.
thereafter elected to fill vacancies, occurring before
the expiration of a particular term, shall hold office

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CHAPTER II- RELIGIOUS CORPORATIONS the religious denomination, sect or church to which
he belongs; and
Section 109. Classes of religious corporations. –
Religious corporations may be incorporated by one 5. The place where the principal office of the
or more persons. Such corporations may be corporation sole is to be established and located,
classified into corporations sole and religious which place must be within the Philippines.
societies.
The articles of incorporation may include any other
Religious corporations shall be governed by this provision not contrary to law for the regulation of the
Chapter and by the general provisions on non-stock affairs of the corporation. (n)
corporations insofar as they may be applicable. (n)
So section 111 articles of incorporation of a
corporation sole is actually an affidavit because you
cannot have a contract like the articles of incorporation.
Section 110. Corporation sole. – For the purpose of
administering and managing, as trustee, the affairs, Articles of incorporation of XYZ corporation.
property and temporalities of any religious Who executes the contract? The incorporators “we noble
denomination, sect or church, a corporation sole men by these presents, we the undersigned
may be formed by the chief archbishop, bishop, incorporators have in this day bonded ourselves together
priest, minister, rabbi or other presiding elder of to form XYZ corp.” the undersigned incorporators. Then
such religious denomination, sect or church. (154a) you put down the terms of the corporation.

Religious corporation. Again, two kinds. If you are a corporation sole you execute an
Corporation sole legal anomaly of the corporation affidavit because you are the only one. In order to
composed of only 1 natural person holding an office. It is become a corporation sole he chief archbishop, bishop,
a legal anomaly because only by xxx is in the priest, minister, rabbi or presiding elder of any religious
corporation. Daghan mo unya nagkahi-usa mo. Unsaon denomination, sect or church must file with the Securities
pagka corpo na usa ra man na? and Exchange Commission articles of incorporation
setting forth the following. Affidavit diay ni. Kay usa ra
man siya.
Section 111. Articles of incorporation. – In order to
become a corporation sole, the chief archbishop,
bishop, priest, minister, rabbi or presiding elder of I told you that AOI according to the SEC of a religious
any religious denomination, sect or church must file corporation does not require a term because according to
with the Securities and Exchange Commission the sec the presumption is that it has perpetual
articles of incorporation setting forth the following: existence. So even if you put a term and it has already
lapsed it is still not dissolved because it is supposed to
be perpetual existence. That‟s according to the sec. I
1. That he is the chief archbishop, bishop, priest, gave you the circular.
minister, rabbi or presiding elder of his religious
denomination, sect or church and that he desires to
become a corporation sole; Section 113. Acquisition and alienation of property. –
Any corporation sole may purchase and hold real
estate and personal property for its church,
2. That the rules, regulations and discipline of his
charitable, benevolent or educational purposes, and
religious denomination, sect or church are not may receive bequests or gifts for such purposes.
inconsistent with his becoming a corporation sole Such corporation may sell or mortgage real property
and do not forbid it; held by it by obtaining an order for that purpose from
the Court of First Instance of the province where the
3. That as such chief archbishop, bishop, priest, property is situated upon proof made to the
minister, rabbi or presiding elder, he is charged with satisfaction of the court that notice of the application
the administration of the temporalities and the for leave to sell or mortgage has been given by
management of the affairs, estate and properties of publication or otherwise in such manner and for
his religious denomination, sect or church within his such time as said court may have directed, and that it
territorial jurisdiction, describing such territorial is to the interest of the corporation that leave to sell
jurisdiction; or mortgage should be granted. The application for
leave to sell or mortgage must be made by petition,
4. The manner in which any vacancy occurring in the duly verified, by the chief archbishop, bishop, priest,
office of chief archbishop, bishop, priest, minister, minister, rabbi or presiding elder acting as
rabbi of presiding elder is required to be filled, corporation sole, and may be opposed by any
according to the rules, regulations or discipline of

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member of the religious denomination, sect or are extended to 76 to 77 usa mukuhag replacement. Mu
church represented by the corporation sole: abot na kag 75 mu file naka daan ug letter requesting to
be relieved of your duty. Musuwat ka didto. Normally
Provided, That in cases where the rules, regulations what Rome does is okay we are going to look for your
and discipline of the religious denomination, sect or successor but at the same time you are no longer the
church, religious society or order concerned bishop but you will still be the administrator. What is the
represented by such corporation sole regulate the difference? You are administrator you cannot make acts
method of acquiring, holding, selling and mortgaging of disposition you cannot make changes . because you
real estate and personal property, such rules, are no longer a bishop. To that is the normal rule. The old
regulations and discipline shall control, and the bishop becomes the administrator.
intervention of the courts shall not be necessary.
(159a) There is an old bishop here I will not tell you what
diocese. Pag file niya sa iyang resignation gidawat dayun
unya gi ingnan siya di ka administrator. Kanang assistant
Acquisition and alienation of property. It says
nimo nga pari mao ng administrator. Nganu mana?
“Such corporation may sell or mortgage real property
Alzheimer's disease na siya. Unya makalimot man siya,
held by it by obtaining an order for that purpose from the
ang gi appoint niya parish priest sa cathedral sunod
Court of First Instance” which is now RTC.
bulan naa napud siyay gi appoint, I nag away na nuon.
Kinsa man gyuy tinood? Kalimot naman siya. Alzheimers
“of the province where the property is situated naman. You know you may make rules based on
upon proof made to the satisfaction of the objective criteria such as age but each of us has his own
court that notice of the application for leave to internal temporal clock. Naa may uban nga sayu pa gani
sell or mortgage has been given by wa na pawung na ang suga. Thats the life the almighty
publication or otherwise in such manner and has granted you and yours is not the reason why yours is
for such time as said court may have directed” just to accept and die.

Why? Because the corporation sole is supposed So if you are a cardinal you can go up to 80 you
to be the administrator. He is not the owner of the are sill a voting cardinal at 80 when the pope is elected
properties of the church or denomination. He is the you can still go to rome up to 80 years old you can vote.
administrator. Who is the owner? The owner is the Can you imagine that? Can you trust an 80 year old to
religious congregation. The faithful themselves. So before vote? That‟s why they say that is proof that the church is
the corp sole whose name app[ears in all the real held together and run by the holy spirit. The holy spirit
properties of the church, before he can sell the property, works double time because its a recipe for abuse. The
alienate the property he must ask the concurrence and bishops have no term, human science and political
approval of the congregation. The real owners. science has found that a position with no term always
leads to abuse that is why most constitutions have terms.
Is that true in all cases? No there is an exception Somebody who is just put there without the consent of
because the law says: the governed there will be a problem but that is a church
it is not a democracy.
“Provided, That in cases where the rules,
regulations and discipline of the religious So make sure ha how to.. you look at bishop, prinda nato
denomination, sect or church, religious society ning kuan kay magtukod tag building and then a newbie
or order concerned represented by such in the bank where they borrowed the money is a new
corporation sole regulate the method of layer “kinahanglan diay na ma publication that is what
acquiring, holding, selling and mortgaging real sec 112 says”. exception is the catholic church. Canon
estate and personal property, such rules, law. Quiboloy tingali he has to go to court. I don‟t know
regulations and discipline shall control, and what rule he follows. He is not subject to rules because
the intervention of the courts shall not be he is a prophet a son of god. (father talks about pope
rd
necessary.” john the 23 being the servant of the servants)). priests
have to have own xxx before, atung mga pari
kinahanglan pahakan. That was the old tradition of the
So what is the rule of the catholic church? The
Roman empire to distinguish the free man from the
rule is the bishop can dispose of property by his own slaves, the slaves pahakan. That is the mark that you‟re
good self under canon law. The bishop can. So he does a slave. Karon wa na na. Wa nay pahak2. karon hair
not have to go to court. grooming na. Hair transplant.

Now you already taken the corporation sole now


Section 112. Submission of the articles of
the bishop is changed. When is the bishop retired? When
incorporation. – The articles of incorporation must be
Rome says so. What is the rule of thumb? The rule of
verified, before filing, by affidavit or affirmation of the
thumb is when you are a bishop you retire at 75. But
chief archbishop, bishop, priest, minister, rabbi or
because it takes ages for Rome to move, most of them

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presiding elder, as the case may be, and eldest daughter of the church became extreme and they
accompanied by a copy of the commission, slaughtered so many priest the ones that made the
certificate of election or letter of appointment of such famous novelist, the birth of the modern government
chief archbishop, bishop, priest, minister, rabbi or written by hemingway(?). it used to be placed by the
presiding elder, duly certified to be correct by any vatican under the xxx list because that was the first time
notary public. that an act of intercourse was described in the novel.

nd
From and after the filing with the Securities and 2 Hour, Sadsad A
Exchange Commission of the said articles of
incorporation, verified by affidavit or affirmation, and Let us go to Dissolution.
accompanied by the documents mentioned in the
preceding paragraph, such chief archbishop, bishop, TITLE XIV
priest, minister, rabbi or presiding elder shall DISSOLUTION
become a corporation sole and all temporalities,
estate and properties of the religious denomination,
sect or church theretofore administered or managed Section 117. Methods of dissolution. – A corporation
by him as such chief archbishop, bishop, priest, formed or organized under the provisions of this
minister, rabbi or presiding elder shall be held in Code may be dissolved voluntarily or involuntarily.
trust by him as a corporation sole, for the use, (n)
purpose, behalf and sole benefit of his religious
denomination, sect or church, including hospitals,
schools, colleges, orphan asylums, parsonages and Under Title XIV there are two kinds of
cemeteries thereof. (n) dissolution – voluntary and involuntary.

Voluntary is when one goes to SEC, because


Religious societies are formed just like any other the SEC has original and exclusive jurisdiction on
non-stock non-profit corporations. At least 5 or 15 dissolution. But once the proceedings flow to liquidation,
incorporators and then it is governed by non-stock non- the SEC loses jurisdiction. The SEC asks the help of the
profit rules. regular court and it the regular court that liquidates after
dissolution.
 Now what is the nationality of a religious society?
So voluntary and involuntary
The nationality is the majority of the citizens of Voluntary - it is the corporation that asks to be
the congregation. That is the nationality. dissolved. Involuntary, someone other than the
corporation asks that the corporation be dissolved. It
That‟s what happened to the contemplative Nenedictine could be the creditors or it could be the government. If it
nuns in Digos. They came from Germany, head nila is the government it is either through a quo warranto
German naa silay tulo ka koreans unya naa silay duha ka proceeding or it is by the prosecution arm of SEC under
buok japanese. Puro sila foreign. Unya magtukud silag PD 902-A.
monastery in digos. Atung mga bishops maka ingon nga
di na sila maka own ug property. But they can make use Section 118. Voluntary dissolution where no
of a land. They put it under the title of the bishop. And if creditors are affected. – If dissolution of a
they are afraid that the bishop might convert it to his own corporation does not prejudice the rights of any
use, they had it annotated that it shall be for the use of creditor having a claim against it, the dissolution
the monastery. It was annotated so that they will have may be effected by majority vote of the board of
peace of mind that it will not be taken away from them. directors or trustees, and by a resolution duly
Religious societies. adopted by the affirmative vote of the
stockholders owning at least two-thirds (2/3) of
We have an old American priest and before the the outstanding capital stock or of at least two-
second world war in 1930‟s the big civil war in spain thirds (2/3) of the members of a meeting to be
occurred. The Society of Jesus had ..provinces in spain held upon call of the directors or trustees after
but the big provinces Aragon and since the communist publication of the notice of time, place and object
were very strong already they began to confiscate church of the meeting for three (3) consecutive weeks in
properties. What the religious superior did was to transfer a newspaper published in the place where the
all properties to him in his name. He was an American principal office of said corporation is located; and
Citizen. Walter highland from Massachusetts. so he said if no newspaper is published in such place, then
at one time the whole aragon province was mine. Aron di in a newspaper of general circulation in the
makuha sa communists. So it can happen. When he tied Philippines, after sending such notice to each
down he gave it back to the province of Aragon. Thats an stockholder or member either by registered mail
interesting.. in Spain very religious supposed to be the or by personal delivery at least thirty (30) days
prior to said meeting. A copy of the resolution

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authorizing the dissolution shall be certified by a Then you have publication. Three consecutive weeks in a
majority of the board of directors or trustees and newspaper of general circulation.
countersigned by the secretary of the
corporation. The Securities and Exchange Then you have a plan of distribution.
Commission shall thereupon issue the certificate
of dissolution. (62a) So its not very easy to dissolve a corporation.

Section 119. Voluntary dissolution where creditors


You have to have the vote of the absolute are affected. – Where the dissolution of a corporation
majority of the Board and then you have confirmatory may prejudice the rights of any creditor, the petition
vote of 2/3 of the stockholders or members vote to for dissolution shall be filed with the Securities and
approve the voluntary dissolution and a meeting duly Exchange Commission. The petition shall be signed
called for the purpose. There must be qualified notice. by a majority of its board of directors or trustees or
other officers having the management of its affairs,
A variant of so-called voluntary dissolution is a verified by its president or secretary or one of its
petition to amend the articles for the shortening of the directors or trustees, and shall set forth all claims
corporate term. Once you shorten the corporate term, and demands against it, and that its dissolution was
you are actually saying, “I would like to die sooner.” So resolved upon by the affirmative vote of the
that is also a way of dissolution. The petition, before it is stockholders representing at least two-thirds (2/3) of
entertained by the SEC, the SEC must make a judgment the outstanding capital stock or by at least two-thirds
as to whether or not the petition is sufficient in form and (2/3) of the members at a meeting of its stockholders
substance. or members called for that purpose.

The form that is required is: If the petition is sufficient in form and substance, the
Commission shall, by an order reciting the purpose
 Vote of the Board; of the petition, fix a date on or before which
 2/3 vote of stockholders of members. objections thereto may be filed by any person, which
date shall not be less than thirty (30) days nor more
than sixty (60) days after the entry of the order.
You must show proof of those. If you cannot Before such date, a copy of the order shall be
show proof of that, the SEC will dismiss your petition. published at least once a week for three (3)
You will also need to give a comprehensive list of your consecutive weeks in a newspaper of general
creditors. The SC has said time and again even if this is circulation published in the municipality or city
not an adversarial case, because you are not saying XYZ where the principal office of the corporation is
Corp v SEC, the title is the case is In Re: Petition for situated, or if there be no such newspaper, then in a
Dissolution of XYZ Corp. It is not adversarial but the SC newspaper of general circulation in the Philippines,
has said that all creditors are necessary parties in and a similar copy shall be posted for three (3)
interest. You cannot leave out one. There is a recent consecutive weeks in three (3) public places in such
case that was brought up last year. Their employees municipality or city.
have not been paid their salaries. The employees
registered the complaint that they should be included in
the dissolution proceedings. The corporation failed to Upon five (5) day’s notice, given after the date on
give notice to all employees. The SC nullified the order of which the right to file objections as fixed in the order
the SEC because the SC said that each one of the has expired, the Commission shall proceed to hear
employees are now creditors. The nonpayment of wages the petition and try any issue made by the objections
has reduced their claim to money claims of creditors and filed; and if no such objection is sufficient, and the
there are as many employee creditors as there are material allegations of the petition are true, it shall
employees. All of them are necessary parties even if the render judgment dissolving the corporation and
proceeding is non-adversarial. So you have to give a directing such disposition of its assets as justice
comprehensive list of your creditors. After that, you give requires, and may appoint a receiver to collect such
an explanation how you will meet the claims of your assets and pay the debts of the corporation. (Rule
creditors. If you have already settled, then you append 104, RCa)
the settlement with the petition.

Then you have to secure tax clearance from the Section 120. Dissolution by shortening corporate
BIR. The SEC will not approve the dissolution if you term. – A voluntary dissolution may be effected by
cannot produce a tax clearance. Now the tax clearance amending the articles of incorporation to shorten
from the BIR also includes tax clearance from the Local the corporate term pursuant to the provisions of
Government because the LGU collects property taxes. this Code.
Then you endorse you clearance from the City or
Provincial Treasurer to the BIR. A copy of the amended articles of incorporation
shall be submitted to the Securities and Exchange

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Commission in accordance with this Code. Upon property. To be an owner of property, to be a lawful
approval of the amended articles of incorporation transferee, there must a mode of transfer. And the mode
of the expiration of the shortened term, as the case of transfer must be executed by one who has the
may be, the corporation shall be deemed dissolved capacity to transfer.
without any further proceedings, subject to the
provisions of this Code on liquidation. (n) Remember pag liquidation na it is no longer with
the SEC, it is endorsed to the RTC because the
corporation has been transformed into multiple legal
Section 121. Involuntary dissolution. – A corporation contracts many of which are not covered by the
may be dissolved by the Securities and Exchange jurisdiction of SEC.
Commission upon filing of a verified complaint and
after proper notice and hearing on the grounds There are very few cases when there are strict
provided by existing laws, rules and regulations. (n) and simple liquidation. Why? Because our culture is that
we hate being labeled as having lost financially. So the
corporation that is submitted for liquidation will always
 Now what happens in corporate liquidation? fight it out that it be rehabilitated financially. That is
covered by FRIA.
Section 122. Corporate liquidation. – Every
corporation whose charter expires by its own From and after any such conveyance by the
limitation or is annulled by forfeiture or otherwise, corporation of its property in trust for the benefit of
or whose corporate existence for other purposes its stockholders, members, creditors and others in
is terminated in any other manner, shall interest, all interest which the corporation had in the
nevertheless be continued as a body corporate for property terminates, the legal interest vests in the
three (3) years after the time when it would have trustees, and the beneficial interest in the
been so dissolved, for the purpose of prosecuting stockholders, members, creditors or other persons in
and defending suits by or against it and enabling it interest.
to settle and close its affairs, to dispose of and
convey its property and to distribute its assets, but Upon the winding up of the corporate affairs, any
not for the purpose of continuing the business for asset distributable to any creditor or stockholder or
which it was established. member who is unknown or cannot be found shall be
escheated to the city or municipality where such
At any time during said three (3) years, the assets are located.
corporation is authorized and empowered to
convey all of its property to trustees for the benefit Except by decrease of capital stock and as otherwise
of stockholders, members, creditors, and other allowed by this Code, no corporation shall distribute
persons in interest. any of its assets or property except upon lawful
dissolution and after payment of all its debts and
liabilities. (77a, 89a, 16a)
Now at any time during the three years, the
corporation is empowered or authorized to convey all its
property to trustees for the benefit of the stockholders,
members or creditors. W
So nahatag na tanan pero naa pay nahibilin na
What do you mean by “at any time the corporation wa ka kabalo kinsay angay hatagan ana, the only answer
may convey its assets to trustees in liquidation”? is gobyerno ra na. And yet the government must have a
mode of acquisition. The government may “inherit”
A corporation is dissolved and no longer doing business corporate property in dissolution but it must have a mode
so there is no more Board of Directors and yet the of acquisition known as escheat.
properties are in the name of the corporation. What is the
mode of conveyance to the winner of the bid? It is still the TITLE XV
corporation. There must be a resolution by the Board that FOREIGN CORPORATIONS
you are now parting this property to the winner of the bid
which is named by the bidmaster. But there is no more
Section 123. Definition and rights of foreign
Board of Directors.
corporations. – For the purposes of this Code, a
foreign corporation is one formed, organized or
How can there be a valid deeding?
existing under any laws other than those of the
Philippines and whose laws allow Filipino citizens
That is why there is need for the corporation to hold a
and corporations to do business in its own country
sale conveying the property to the trustee so that now it
or state. It shall have the right to transact business in
is in the name of the trustee and the trustee can conduct
the Philippines after it shall have obtained a license
auction sales. It goes back to the fundamentals of
to transact business in this country in accordance

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with this Code and a certificate of authority from the by classes, par value of shares, shares
appropriate government agency. (n) without par value, and series, if any;

Section 124. Application to existing foreign 9. A statement of the amount actually paid
corporations. – Every foreign corporation which on in; and
the date of the effectivity of this Code is authorized
to do business in the Philippines under a license 10. Such additional information as may be
therefore issued to it, shall continue to have such necessary or appropriate in order to enable
authority under the terms and condition of its the Securities and Exchange Commission to
license, subject to the provisions of this Code and determine whether such corporation is
other special laws. (n) entitled to a license to transact business in
the Philippines, and to determine and assess
Section 125. Application for a license. – A foreign the fees payable.
corporation applying for a license to transact
business in the Philippines shall submit to the Attached to the application for license shall
Securities and Exchange Commission a copy of its be a duly executed certificate under oath by
articles of incorporation and by-laws, certified in the authorized official or officials of the
accordance with law, and their translation to an jurisdiction of its incorporation, attesting to
official language of the Philippines, if necessary. The the fact that the laws of the country or state
application shall be under oath and, unless already of the applicant allow Filipino citizens and
stated in its articles of incorporation, shall corporations to do business therein, and
specifically set forth the following: that the applicant is an existing corporation
in good standing. If such certificate is in a
1. The date and term of incorporation; foreign language, a translation thereof in
English under oath of the translator shall be
2. The address, including the street number, attached thereto.
of the principal office of the corporation in
the country or state of incorporation; The application for a license to transact
business in the Philippines shall likewise be
3. The name and address of its resident accompanied by a statement under oath of
agent authorized to accept summons and the president or any other person authorized
process in all legal proceedings and, by the corporation, showing to the
pending the establishment of a local office, satisfaction of the Securities and Exchange
all notices affecting the corporation; Commission and other governmental agency
in the proper cases that the applicant is
solvent and in sound financial condition, and
4. The place in the Philippines where the setting forth the assets and liabilities of the
corporation intends to operate; corporation as of the date not exceeding one
(1) year immediately prior to the filing of the
5. The specific purpose or purposes which application.
the corporation intends to pursue in the
transaction of its business in the Foreign banking, financial and insurance
Philippines: Provided, That said purpose or corporations shall, in addition to the above
purposes are those specifically stated in the requirements, comply with the provisions of
certificate of authority issued by the existing laws applicable to them. In the case
appropriate government agency; of all other foreign corporations, no
application for license to transact business
6. The names and addresses of the present in the Philippines shall be accepted by the
directors and officers of the corporation; Securities and Exchange Commission
without previous authority from the
7. A statement of its authorized capital stock appropriate government agency, whenever
and the aggregate number of shares which required by law. (68a)
the corporation has authority to issue,
itemized by classes, par value of shares, Section 126. Issuance of a license. – If the Securities
shares without par value, and series, if any; and Exchange Commission is satisfied that the
applicant has complied with all the requirements of
8. A statement of its outstanding capital this Code and other special laws, rules and
stock and the aggregate number of shares regulations, the Commission shall issue a license to
which the corporation has issued, itemized the applicant to transact business in the Philippines

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for the purpose or purposes specified in such Philippines. (n)


license. Upon issuance of the license, such foreign
corporation may commence to transact business in Section 127. Who may be a resident agent. – A
the Philippines and continue to do so for as long as it resident agent may be either an individual residing in
retains its authority to act as a corporation under the the Philippines or a domestic corporation lawfully
laws of the country or state of its incorporation, transacting business in the Philippines: Provided,
unless such license is sooner surrendered, revoked, That in the case of an individual, he must be of good
suspended or annulled in accordance with this Code moral character and of sound financial standing. (n)
or other special laws.
Section 128. Resident agent; service of process. –
Within sixty (60) days after the issuance of the The Securities and Exchange Commission shall
license to transact business in the Philippines, the require as a condition precedent to the issuance of
license, except foreign banking or insurance the license to transact business in the Philippines by
corporation, shall deposit with the Securities and any foreign corporation that such corporation file
Exchange Commission for the benefit of present and with the Securities and Exchange Commission a
future creditors of the licensee in the Philippines, written power of attorney designating some person
securities satisfactory to the Securities and who must be a resident of the Philippines, on whom
Exchange Commission, consisting of bonds or other any summons and other legal processes may be
evidence of indebtedness of the Government of the served in all actions or other legal proceedings
Philippines, its political subdivisions and against such corporation, and consenting that
instrumentalities, or of government-owned or service upon such resident agent shall be admitted
controlled corporations and entities, shares of stock and held as valid as if served upon the duly
in "registered enterprises" as this term is defined in authorized officers of the foreign corporation at its
Republic Act No. 5186, shares of stock in domestic home office. Any such foreign corporation shall
corporations registered in the stock exchange, or likewise execute and file with the Securities and
shares of stock in domestic insurance companies Exchange Commission an agreement or stipulation,
and banks, or any combination of these kinds of executed by the proper authorities of said
securities, with an actual market value of at least one corporation, in form and substance as follows:
hundred thousand (P100,000.) pesos; Provided,
however, That within six (6) months after each fiscal
year of the licensee, the Securities and Exchange "The (name of foreign corporation) does hereby
Commission shall require the licensee to deposit stipulate and agree, in consideration of its being
additional securities equivalent in actual market granted by the Securities and Exchange Commission
value to two (2%) percent of the amount by which the a license to transact business in the Philippines, that
licensee’s gross income for that fiscal year exceeds if at any time said corporation shall cease to transact
five million (P5,000,000.00) pesos. The Securities and business in the Philippines, or shall be without any
Exchange Commission shall also require deposit of resident agent in the Philippines on whom any
additional securities if the actual market value of the summons or other legal processes may be served,
securities on deposit has decreased by at least ten then in any action or proceeding arising out of any
(10%) percent of their actual market value at the time business or transaction which occurred in the
they were deposited. The Securities and Exchange Philippines, service of any summons or other legal
Commission may at its discretion release part of the process may be made upon the Securities and
additional securities deposited with it if the gross Exchange Commission and that such service shall
income of the licensee has decreased, or if the actual have the same force and effect as if made upon the
market value of the total securities on deposit has duly-authorized officers of the corporation at its
increased, by more than ten (10%) percent of the home office."
actual market value of the securities at the time they
were deposited. The Securities and Exchange Whenever such service of summons or other
Commission may, from time to time, allow the process shall be made upon the Securities and
licensee to substitute other securities for those Exchange Commission, the Commission shall, within
already on deposit as long as the licensee is solvent. ten (10) days thereafter, transmit by mail a copy of
Such licensee shall be entitled to collect the interest such summons or other legal process to the
or dividends on the securities deposited. In the event corporation at its home or principal office. The
the licensee ceases to do business in the sending of such copy by the Commission shall be
Philippines, the securities deposited as aforesaid necessary part of and shall complete such service.
shall be returned, upon the licensee’s application All expenses incurred by the Commission for such
therefor and upon proof to the satisfaction of the service shall be paid in advance by the party at
Securities and Exchange Commission that the whose instance the service is made.
licensee has no liability to Philippine residents,
including the Government of the Republic of the In case of a change of address of the resident agent,
it shall be his or its duty to immediately notify in

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writing the Securities and Exchange Commission of appropriate government agency, a copy of the
the new address. (72a; and n) articles of merger or consolidation duly
authenticated by the proper official or officials of the
Section 129. Law applicable. – Any foreign country or state under the laws of which merger or
corporation lawfully doing business in the consolidation was effected: Provided, however, That
Philippines shall be bound by all laws, rules and if the absorbed corporation is the foreign corporation
regulations applicable to domestic corporations of doing business in the Philippines, the latter shall at
the same class, except such only as provide for the the same time file a petition for withdrawal of its
creation, formation, organization or dissolution of license in accordance with this Title. (n)
corporations or those which fix the relations,
liabilities, responsibilities, or duties of stockholders, Section 133. Doing business without a license. – No
members, or officers of corporations to each other or foreign corporation transacting business in the
to the corporation. (73a) Philippines without a license, or its successors or
assigns, shall be permitted to maintain or intervene
Section 130. Amendments to articles of incorporation in any action, suit or proceeding in any court or
or by-laws of foreign corporations. – Whenever the administrative agency of the Philippines; but such
articles of incorporation or by-laws of a foreign corporation may be sued or proceeded against
corporation authorized to transact business in the before Philippine courts or administrative tribunals
Philippines are amended, such foreign corporation on any valid cause of action recognized under
shall, within sixty (60) days after the amendment Philippine laws. (69a)
becomes effective, file with the Securities and
Exchange Commission, and in the proper cases with Section 134. Revocation of license. – Without
the appropriate government agency, a duly prejudice to other grounds provided by special laws,
authenticated copy of the articles of incorporation or the license of a foreign corporation to transact
by-laws, as amended, indicating clearly in capital business in the Philippines may be revoked or
letters or by underscoring the change or changes suspended by the Securities and Exchange
made, duly certified by the authorized official or Commission upon any of the following grounds:
officials of the country or state of incorporation. The
filing thereof shall not of itself enlarge or alter the 1. Failure to file its annual report or pay any
purpose or purposes for which such corporation is fees as required by this Code;
authorized to transact business in the Philippines. (n)
2. Failure to appoint and maintain a resident
Section 131. Amended license. – A foreign agent in the Philippines as required by this
corporation authorized to transact business in the Title;
Philippines shall obtain an amended license in the
event it changes its corporate name, or desires to
pursue in the Philippines other or additional 3. Failure, after change of its resident agent
purposes, by submitting an application therefor to or of his address, to submit to the Securities
the Securities and Exchange Commission, favorably and Exchange Commission a statement of
endorsed by the appropriate government agency in such change as required by this Title;
the proper cases. (n)
4. Failure to submit to the Securities and
Section 132. Merger or consolidation involving a Exchange Commission an authenticated
foreign corporation licensed in the Philippines. – One copy of any amendment to its articles of
or more foreign corporations authorized to transact incorporation or by-laws or of any articles of
business in the Philippines may merge or merger or consolidation within the time
consolidate with any domestic corporation or prescribed by this Title;
corporations if such is permitted under Philippine
laws and by the law of its incorporation: Provided, 5. A misrepresentation of any material matter
That the requirements on merger or consolidation as in any application, report, affidavit or other
provided in this Code are followed. document submitted by such corporation
pursuant to this Title;
Whenever a foreign corporation authorized to
transact business in the Philippines shall be a party 6. Failure to pay any and all taxes, imposts,
to a merger or consolidation in its home country or assessments or penalties, if any, lawfully
state as permitted by the law of its incorporation, due to the Philippine Government or any of
such foreign corporation shall, within sixty (60) days its agencies or political subdivisions;
after such merger or consolidation becomes
effective, file with the Securities and Exchange 7. Transacting business in the Philippines
Commission, and in proper cases with the

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outside of the purpose or purposes for If you are incorporated (not in the Phil) and you
which such corporation is authorized under want to do business here, the law here says you must
its license; obtain a license to do business in the Philippines. And
there follows the application for a license. Take a look
8. Transacting business in the Philippines as because its more complicated than filing articles of
agent of or acting for and in behalf of any incorporation and by-laws, creating a corporation.
foreign corporation or entity not duly
licensed to do business in the Philippines; If your corporate papers, articles and by-laws or
or its equivalent is in a foreign language then you must hire
a competent translator. After he has done his work, then
the translator must execute an affidavit that he has
9. Any other ground as would render it unfit transalated the articles in another language as accurate
to transact business in the Philippines. (n) as he could under their law. You have to prove that their
laws are still obtaining so you must get certifications from
Section 135. Issuance of certificate of revocation. – their embassy. Then you must put up a bond. Because
Upon the revocation of any such license to transact you are a foreign corporation, you are not a resident of
business in the Philippines, the Securities and the Philippines. You can fly anytime. To tie you down so
Exchange Commission shall issue a corresponding that your customers will not be left emptyhanded, there is
certificate of revocation, furnishing a copy thereof to a bond that you post to answer for liabilities. The amount
the appropriate government agency in the proper of you bond increases as your business increases. This
cases. surety is supposed to answer for the money claims of
Filipinos against this foreign corporation.
The Securities and Exchange Commission shall also
One of the most important requirement is that
mail to the corporation at its registered office in the
you must have a resident agent.
Philippines a notice of such revocation accompanied
by a copy of the certificate of revocation. (n)
 What is a resident agent?

Section 136. Withdrawal of foreign corporations. – He is the so called default agent for court
Subject to existing laws and regulations, a foreign processes.
corporation licensed to transact business in the
Philippines may be allowed to withdraw from the If you‟re a foreign corporation licensed to do
Philippines by filing a petition for withdrawal of business here in the Philippines, and you have cases and
license. No certificate of withdrawal shall be issued since you are not found here, what happens? The
by the Securities and Exchange Commission unless resident agent is the one who is qualified to receive
all the following requirements are met; summons.

1. All claims which have accrued in the Resident agents can be natural persons or
Philippines have been paid, compromised or juridical persons. What is their common denominator?
settled; They are all also licensed by the SEC. Service to them is
equivalent to service to a foreign corporation. So that if
the court issues judgment, it is binding on them. Over
2. All taxes, imposts, assessments, and and above the license, a foreign corporation must also
penalties, if any, lawfully due to the sign an undertaking that if its resident agent for some
Philippine Government or any of its agencies reason goes away, then your default agent is the SEC
or political subdivisions have been paid; and itself.

3. The petition for withdrawal of license has  What is “doing business”? Does one act constitute
been published once a week for three (3) doing business?
consecutive weeks in a newspaper of
general circulation in the Philippines. As a general principle, NO. But there are SC
decision that says this one single lone solitary act is
already doing business and so this corporation is already
against the law.

Foreign because it is incorporated under laws What is an example of one single act that is
other than the Philippine corporation law. Close to 50% of considered as doing business? A corporation that has not
all corporations in the US are incorporated in the state of yet acquired a license to do business in the Philippines
Delaware. Caltex, IBM, Coca-Cola all those big enters into a lease agreement for a commercial space.
corporations are incorporated in Delaware. You cannot do that, you must have a license because
next to that lease are subsequent transactions because
you are now having an office.

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 Is more than one transaction an indicator that you corporation buys an interest therein, the corporation is
are already doing business? deemed to be engaged in doing business because by
definition of the partnership, a partner can participate in
the management of the business.
The SC also says NO. Why? Here is a candy factory in
Paranaque, he tries to buy sweeteners from a California Alright, this is still to get a SC nod, but this is the
corporation. Letter of credit unya wa sila kabayad. The advance opinion of the SEC. I give you a copy of this.
California corporation filed a case in the Philippines.
Moved to dismiss because the company who‟s filing has Now we are finished with the, what is this. I just
already engaged in business without obtaining a license. want to point out, by international law that even if you are
Unsa may ingon sa California Sweetener? I did not do not registered to do business, you can still file a case in
business in the Philippines. Did he do business or not? the Philippines for infringement of patent, patent not
The SC says he did business in the Philippines because registered here in the Philippines ha, provided that the
the goods were transported and they were made use of country of that foreign corporation grants the similar
in the Philippines. But is he penalized for that? The SC privilege to corporate or juristic citizens of the Philippines.
says he is just engaged in an isolated transaction. Patent infringement.

 If you are a foreign corporation, and you buy What is an example of that? There‟s a law firm
stocks dinha sa PSE, are you already engaged in that was engaged by Disney Corporation to run after
business? Do you need a license? those people in Quezon Boulevard making bags with
Mickey Mouse at low cost at the back of the backpacks of
Mere passive investment as opposed to direct these elementary kids. Naundang sila. Disney just
investment is not considered as doing business procured an agent to bring an action. Disney is not
.However when your investment is of such registered in the Philippines. It is not registered as doing
nature and magnitude that you now play a part in the business. But they can by virtue of international protocol *
business of the company in which you are investing, wa respecting intellectual property.
na! You are engaged in business and you are required to
obtain a license. Again:

Last year the SC came up with a decision: If he 1. Action for infringement,


makes and investment in a joint venture which is oil 2. Unfair competition, or
exploration, passive, he was not involved in the running 3. False designation of origin, and
or the exploration venture but in the agreement of the 4. False description of mark or trademark,
consortium, there is a clause that says, “All participants provided that the country of such foreign
of this joint venture are ready to put in their share of corporation grants a similar privilege to
managerial duty if they are called.” The SC says that is corporate or juristic persons of the
now doing business. Philippines.

February 1, 2017 Duco, L.


Republic Act No. 8293 June 6, 1997
I give you this 2014 Memorandum answering AN ACT PRESCRIBING THE INTELLECTUAL
the INC query. There is no term for a religious PROPERTY CODE AND ESTABLISHING THE
corporation. Both the Corporation Law and * (section 109 INTELLECTUAL PROPERTY OFFICE, PROVIDING
I think) of the Corporation Code BP 68 do not provide for FOR ITS POWERS AND FUNCTIONS, AND FOR
a term of the existence of a religious corporation. This is OTHER PURPOSES
according to the SEC. We await the SC.
Section 3. International Conventions and Reciprocity.
We discussed the other day about doing - Any person who is a national or who is domiciled or
business, and we said that mere passive investment or has a real and effective industrial establishment in a
owning stocks in a corporation is not considered doing country which is a party to any convention, treaty or
business. Therefore, a foreign corporation buys shares of agreement relating to intellectual property rights or
stocks and it does not require that they be licensed to do the repression of unfair competition, to which the
business. Philippines is also a party, or extends reciprocal
rights to nationals of the Philippines by law, shall be
And there is this legal opinion then of SEC entitled to benefits to the extent necessary to give
dated February 21, 2014. If a foreign corporation enters effect to any provision of such convention, treaty or
into an unregistered joint venture, so it is in effective reciprocal law, in addition to the rights to which any
partnership according to the SEC, that does not follow owner of an intellectual property right is otherwise
the same rule as if you bought just shares of stocks in a entitled by this Act. (n)
corporation. Why? Because in a partnership, the partners
are participating management of a corporation. That is Section 160. Right of Foreign Corporation to Sue in
why if it is an unincorporated venture, and the foreign Trademark or Service Mark Enforcement Action. -

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Any foreign national or juridical person who meets corporations may, through their articles of
the requirements of Section 3 of this Act and does incorporation or their by-laws, designate their
not engage in business in the Philippines may bring governing boards by any name other than as board
a civil or administrative action hereunder for of trustees. (n)
opposition, cancellation, infringement, unfair
competition, or false designation of origin and false
description, whether or not it is licensed to do Incorporation and other fees, the SEC can
business in the Philippines under existing laws. (Sec. charge you.
21-A, R.A. No. 166a)
Section 139. Incorporation and other fees. - The
Securities and Exchange Commission is hereby
You know that this has become a problem: false authorized to collect and receive fees as authorized
designation of origin. You have the origin stated in the by law or by rules and regulations promulgated by
product and it is a protected *. You say Kono (but I think the Commission. (n)
it‟s Kona) coffee. Kona coffee is the third most well-
known and most expensive coffee in the world. It comes
from the island of Ouahu, raised at an altitude facing the Stock ownership in certain corporations, you
sea, the sea breeze, and it grown there and it is known already know it requires public ownership.
as Kona coffee. That‟s the Kona District of Ouaho Island
in the state of Hawaii.

Ang imong coffee tua ra nimo gipadako sa Mt. Section 140. Stock ownership in certain
Apo, and then it grows a bit, it looks like the Kona coffee corporations. - Pursuant to the duties specified by
and you mark it as Ouaho. Apo ra diay to dili diay Ouaho. Article XIV of the Constitution, the National
That is violation of false marketing of the origin. There Economic and Development Authority shall, from
are many like that. time to time, make a determination of whether the
corporate vehicle has been used by any corporation
Again, a foreign corporation not licensed to do or by business or industry to frustrate the provisions
business in the Philippines can file an action for tort that thereof or of applicable laws, and shall submit to the
occurred in the Philippines, and when the party sued is Batasang Pambansa, whenever deemed necessary, a
barred by the principle of estoppel from questioning the report of its findings, including recommendations for
capacity of the foreign corporation to file the action. their prevention or correction. Maximum limits may
Those are the instances when even if you do not have a be set by the Batasang Pambansa for stockholdings
license to do business in the Philippines, you can still in corporations declared by it to be vested with a
sue. public interest pursuant to the provisions of this
section, belonging to individuals or groups of
So we are through already of Corporation Code. individuals related to each other by consanguinity or
Because after this is miscellaneous. I leave it to you to affinity or by close business interests, or whenever it
read the miscellaneous provisions. Outstanding capital is necessary to achieve national objectives, prevent
stock defined, it is issued shares net of treasury shares. illegal monopolies or combinations in restraint or
trade, or to implement national economic policies
TITLE XVI declared in laws, rules and regulations designed to
MISCELLANEOUS PROVISIONS promote the general welfare and foster economic
development. In recommending to the Batasang
Pambansa corporations, businesses or industries to
be declared vested with a public interest and in
Section 137. Outstanding capital stock defined. - The formulating proposals for limitations on stock
term "outstanding capital stock", as used in this ownership, the National Economic and Development
Code, means the total shares of stock issued under Authority shall consider the type and nature of the
binding subscription agreements to subscribers or industry, the size of the enterprise, the economies of
stockholders, whether or not fully or partially paid, scale, the geographic location, the extent of Filipino
except treasury shares. (n) ownership, the labor intensity of the activity, the
export potential, as well as other factors which are
germane to the realization and promotion of
Designation of governing boards, I told you business and industry.
disregard this provision.

Annual reports of corporations, now they fine


corporations that fail to give annual reports, it is now
Section 138. Designation of governing boards. - The daily, because before, it was just a one-time fee and
provisions of specific provisions of this Code to the there were those who deliberately delay the filing of their
contrary notwithstanding, non-stock or special annual reports.

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BUSINESS ORGANIZATION II TRANSCRIPT
From the lectures of Fr. Gus Nazareno| 3 Manresa2016-17
ADDU-Law

remedy in favor of or against any corporation, its


stockholders, members, directors, trustees, or
Section 141. Annual report or corporations. - Every officers, nor any liability incurred by any such
corporation, domestic or foreign, lawfully doing corporation, stockholders, members, directors,
business in the Philippines shall submit to the trustees, or officers, shall be removed or impaired
Securities and Exchange Commission an annual either by the subsequent dissolution of said
report of its operations, together with a financial corporation or by any subsequent amendment or
statement of its assets and liabilities, certified by any repeal of this Code or of any part thereof. (n)
independent certified public accountant in
appropriate cases, covering the preceding fiscal year Section 146. Repealing clause. – Except as expressly
and such other requirements as the Securities and provided by this Code, all laws or parts thereof
Exchange Commission may require. Such report inconsistent with any provision of this Code shall be
shall be submitted within such period as may be deemed repealed. (n)
prescribed by the Securities and Exchange
Commission. (n)
Section 147. Separability of provisions. – Should any
provision of this Code or any part thereof be
Section 142. Confidential nature of examination declared invalid or unconstitutional, the other
results. – All interrogatories propounded by the provisions, so far as they are separable, shall remain
Securities and Exchange Commission and the in force. (n)
answers thereto, as well as the results of any
examination made by the Commission or by any Section 148. Applicability to existing corporations. –
other official authorized by law to make an All corporations lawfully existing and doing business
examination of the operations, books and records of in the Philippines on the date of the effectivity of this
any corporation, shall be kept strictly confidential, Code and heretofore authorized, licensed or
except insofar as the law may require the same to be registered by the Securities and Exchange
made public or where such interrogatories, answers Commission, shall be deemed to have been
or results are necessary to be presented as evidence authorized, licensed or registered under the
before any court. (n) provisions of this Code, subject to the terms and
conditions of its license, and shall be governed by
Section 143. Rule-making power of the Securities and the provisions hereof: Provided, That if any such
Exchange Commission. – The Securities and corporation is affected by the new requirements of
Exchange Commission shall have the power and this Code, said corporation shall, unless otherwise
authority to implement the provisions of this Code, herein provided, be given a period of not more than
and to promulgate rules and regulations reasonably two (2) years from the effectivity of this Code within
necessary to enable it to perform its duties which to comply with the same. (n)
hereunder, particularly in the prevention of fraud and
abuses on the part of the controlling stockholders, Section 149. Effectivity. – This Code shall take effect
members, directors, trustees or officers. (n) immediately upon its approval.

Section 144. Violations of the Code. – Violations of Approved, May 1, 1980


any of the provisions of this Code or its amendments
not otherwise specifically penalized therein shall be
punished by a fine of not less than one thousand
(P1,000.00) pesos but not more than ten thousand
(P10,000.00) pesos or by imprisonment for not less
than thirty (30) days but not more than five (5) years, “Because the higher you go in studies it‟s all about
or both, in the discretion of the court. If the violation pain! Its like the marathon after 20 kilometers you
is committed by a corporation, the same may, after no longer train for it. (you) cannot train for it.
notice and hearing, be dissolved in appropriate Suwayig dagan adlaw adlaw 20 kilometer. May‟g di
proceedings before the Securities and Exchange ka mamatay ana. You cannot train for it. After 20
Commission: Provided, That such dissolution shall kilometers its all about will power. Ass power.
not preclude the institution of appropriate action Lingkod ka ba. Wa gani ka kalingkod ana wa kay
against the director, trustee or officer of the depth. …If you cannot read from sun to sun down
corporation responsible for said violation: Provided, stay and do it as a habitual day. Layo paka.
further, That nothing in this section shall be Because there is more and more to read..” – Father
construed to repeal the other causes for dissolution Augusto Nazareno
of a corporation provided in this Code. (190 1/2 a)

Section 145. Amendment or repeal. – No right or

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