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Rights of SH Sec 39

PR everyone has it
Directors cannot suggest no Preemptive right except by AC or amendment or waiver
right to transfer or dispose cannot be prohibited but for a reasonable time.
AC cannot prohibit the same.
If there is no right of first refusal shall be expressly provided otherwise they
can sell to anyone.
Right to dividends(receipt) is upon declaration of dividends of the corp by the
Dividends are taken from the URE.
SEC 43: Exceptions for distribution of dividends
Kinds of dividends:
cash, dividends, and property

Board decides on the distribution of:

cash, and property
stock dividends shall be by the board and SH

Right to attend meeting and vote

notice shall be made to SH
SH can have proxy
SH can transfer such rights or via Voting Trust Agreement (read) (it’s
like a letter given to a proxy who might have bought the shares but have
not been registered)
GR: all with shares can vote. EXN: AC states non-voting rights to certain class or
members like common or preferred.

See SEC 6: even non-voting can vote

Outstanding Capital Stock = All issued shares minus Treasury shares

Treasury Shares = shares bought back and do not have the right to vote

Kinds of meeting


can only be exercised in special cases found in Sec 81(read)
Can SH sell if under the process of his appraisal rights proceedings? Yes, the
corp, upon written demand and later determine his shares and records then buy.

If no URE at the time of selling, the corp cannot buy.

Rights to Inspect and Copy Corporate Records: because of their inchoate interest
they are allowed to know books and records like:
1. business transactions
2. minutes of meetings
3. stock and transfer book
4. financial statements
5. annual report
GR: cannot be denied otherwise can be charged criminally EXN: reasonable hours-
GR: cannot take the records EXN: only copy
Note: Inspection can be denied when there is use of improper use of information by
the person when it is confidential information or in another corporation.

The only express limitations on the right of inspection under Sec. 74 are:
(a) it should be exercised at reasonable hours on business days;
(b) the person demanding the right to examine and copy excerpts from the corporate
records and minutes has not improperly used any information secured through any
previous examination of records; and
(c) the demand is made in good faith or for a legitimate purpose.

FIle Derivative Suit: lodged to the Board

If refuse:
majority: change the board
minority: by law they file DS
DS: the corporation is the real party in interest

c. Requisites of Derivative Suit

The foregoing requisites before a stockholder can file a derivative suit:
(a) the party bringing suit should be a shareholder during the time of the act or
transaction complained of, the number of shares not being material;
(b) the party has tried to exhaust intra-corporate remedies, relief, but the latter
has failed or refused to heed his plea; and
(c) the cause of action actually devolves on the corporation; the wrongdoing or
harm having been or being caused to the corporation and not to the particular
stockholder bringing the suit.

Section 1, Rule 8 of the Interim Rules lays down the requirements for the proper
filing a derivative suit:
(1) Relator was a stockholder/member at the time the acts or transactions subject
of the action occurred and at the time the action was filed;
(2) He exerted all reasonable efforts, and alleges the same with particularity in
the complaint, to exhaust all remedies available under the articles of
incorporation, by-laws, laws or rules governing the corporation or partnership to
obtain the relief he desires;
(3) No appraisal rights are available for the act or acts complained of; and
(4) The suit is not a nuisance or harassment suit. Yu v. Yukayguan, 589 SCRA 588
Can 2 or more causes of action allow for derivative suit?

Must Not Be a Nuisance or Harrassment Suit: Nuisance and harassment suits are
prohibited, and in determining whether a suit is a nuisance or harassment suit, the
court shall consider, among others, the follow:
(a) The extent of the shareholding or interest of the initiating stockholder or
(b) subject matter of the suit;
(c) legal and factual basis of the complaint;
(d) availability of appraisal rights for the act or acts complained of; and
(e) prejudice or damage to the corporation. In case of nuisance or harassments
suits, the court may motu proprio or upon motion dismiss the case.

10. Right to Proportionate Share of Remaining Assets Upon Dissolution (Sec. 122)
Note: stockholder rights after dissolution is 3 years period.

Classification of Shares (Sec. 6)

a. Common Shares: entitles the shareholder to a pro rata division of profits.
Preferred stocks are those which entitle the shareholder to some priority on
dividends and asset distribution.
Redeemable shares: bought-back share by the corporation from a stockholder by way
of money or property. Once bought is excluded as part of the Authorized Capital

Authorized Capital Stock all shares that the corporation have. is require to be
designated or indicate in the AC upon registration. Ex. 1M at 250 shares

Note: classification of shares shall be indicated in the AC otherwise considered

common shares: also must be in writing
ACS = Shares/Par Value
!m=1 share x 10 pesos par value

Note: Risk for SH they are last priority in case of loss for distribution

Preferred Shares:
(1) Cumulative or Non-cumulative
(2) Participating or Non-participating
(3) Priority in Asset Distribution Upon Dissolution
(4) Par Value or No-Par Value

Note: If no par value, how do you know i paid the SCS, the corporation can
designate the payment or amount so long the share does not price below 5 pesos per

Redeemable Shares: a corporation can buy back or compel to buy whether or not there
is URE: This depends in the terms and conditions for redeemable shares stated in
the AC. Ex. RS can be exercised within 1 year from etc…

Treasury Shares (Sec. 9): Treasury shares are stocks issued and fully paid for and
re-acquired by the corporation either by purchase, donation, forfeiture or other
means, and do not have the status of being outstanding shares and are not entitled
to be voted upon nor participate in dividend declarations.

g. Re-Classification and Exchange of Shares

From preferred to common and vice versa.
Increase and Decrease of ACS by amending AC by changing the par value. Not allowed
when affects creditors.

Note: While a SH can sell and transfer shares, consent of the corporation shall be
If other than cash, property is subject to the evaluation of the board and approval
of the SEC. Cannot be less than the par value of the shares and cannot include
future property.
Corporation can designate or issue par value as long as not lower than that of its
current par value otherwise it is considered watered stocks
Unpaid Balance: due depends on the subscription agreement.
If no period stated, the board can use “call” to pay-up
When become Delinquent SH, remedies are: court, delinquency proceeding. Cannot vote
anymore and meetings etc

The power of the Board of Directors to make a call on unpaid subscription cannot be
limited by the provisions of the subscription contract.

Procedure SEC 28

Certificate of Stock (Sec. 63)

Written in form and signed by the President and Corp. Secretary and
Can be had after SH is fully paid when sold shares to another.
By way of:
Assignment: requires consent of the corporation.
GR: no transfer of share with unpaid balance

Shares and Transfer Book is only primary evidence but not conclusive because there
can be irregularity or irregularity. Better eveidence could be open like AC

As a Rule, a corporation that purchases the assets of another will not be liable
for the debts of the selling corporation, e.g. liabilities and transaction attached
to the fselling corporation, provided the former acted in good faith and paid
adequate consideration for such assets, Except when any of the following
circumstances is present:
(1) where the purchasers expressly or impliedly agrees to assume the debts;
(2) where the selling corporation fraudulently enters into the transactions to
escape liability for those debts (colluded so that selling corp can escape
liability from creditors)
(3) where the purchasing corporation is merely a continuation of the selling
corporation, and
(4) where the transaction amounts to a consolidation or merger of the corporations.

Sale of Corporation’s all assets and business, approval of board and SH must be
In buying a new business Board and SH consent is required EXN: if it is in line
with its business already.

Effects of Merger/Consolidations Sec 80

Amendment of Corporate term: amend original AC’s term by votes of 2/3 board and SH

Voluntary Dissolution (Sec. 117) Decided by board and SH 2/3

a. When There Are No Creditors Affected (Sec. 118)
1. Resolution submit to SEC for approval
b. When There Are Creditors Affected (Secs. 119 and 122).
1. Petition to the SEC 2/3 board and SH SEC will fix the date on which objections
can be filed (for creditors or issues)
Involuntary Dissolution (Sec. 121; Sec. 6(l), P.D. 902-A)
a. Quo Warranto
Dissolution is a serious remedy granted by the courts only in extreme cases and
only to ensure that there is an avoidance of prejudice to the public. Even when the
prejudice is public in nature, the remedy is to enjoin or correct the mistake; and
only when it cannot be remedied that dissolution is imposed.

Company A reached its term for buy and sell plan. upon expiration it had 15
hectares. the board continued to look for buyers.