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My Corporation Law Reviewer

By: Guiller C. Magsumbol

Ref: From pg. 59 of Atty. Ladia’s Book in Corporation Law

CIR VS. MANNING

Are the shares involved in this case treasury shares?

=NO.

Treasury Shares are stock issued and fully paid for and reaquired by the corporation either by:
purchase, forfeiture, donation or other means. They are issued shares, but being in treasury they do not
have the status of outstanding shares.

AS long as it is held by corporation as treasury share, it participates neither in dividends (because


dividends cannot be declared by the corporation to itself) nor in the meetings of the corporation as
voting stock (why?=because if so allows, the equal distribution of voting powers among stockholders will
be effectively lost and the directors will be able to perpetuate their control of the corporation).
However, it still represents a “paid for interest” in the property of the corporation.

The foregoing essential features of treasury stock are lacking in the shares involved in this case. In this
case, the shares of stock involved participated in dividends and the shares were voted upon by the
trustee in all corporate meetings. Therefore, they were not treasury shares.

Moreso, the manifest intention of the parties in trust agreement was to treat the shares of stock
involved as an absolute outstanding shares of Reese’s estate until they were fully paid.

Such, being the nature of the said shares, their declaration as treasury stock dividend was a complete
nullity and plainly violative of public policy. A stock dividend, being payable in capital stock, cannot be
declared out of outstanding corporate stock but only from retained earnings.

FACTS:
Mantrasco has an authorized capital divided into 25k shares (24,700 of w/c are owned by Reese and
the rest by herein respondents.

Because Reese wanted that, upon his death, herein respondents will continue the management of
Mantrasco and its subsidiaries, Reese, Mantrasco and the respondents entered into a trust
agreement of Reese and Respondent’s interest in the company.

Reese died, however, the immediate transfer of his shares in the name of Mantrasco cannot be had
because of insufficient funds to cover initial payment of the shares.

Mantrasco’s stockholders then resolved that the 24,700 Reese’s share be reverted back to the capital
accounts of the company as stock dividends to be distributed to shareholders.

The entire purchase price of Reese’s interest in the Mantrasco was finally paid in full by Mantrasco.
The trust agreement was terminated and the shares were delivered to Mantrasco.

Meanwhile, the BIR examined the books of Mantrasco and found out that the subject shares which
was declared as dividends had been proportionately distributed to the respondents and the
respondents failed to declare the said stock dividends as part of their taxable income.

BIR concluded that the distribution of Reese’s share as stock dividends was in effect distribution of
the assets/property of the corp. Therefore the company was assessed by BIR for deficiency income
taxes.

As the respondents appeal to CTA, CTA absolved them from liability on the ground that their
respective 1/3 interest in Mantrasco remained the same before and after the declaration of stock
dividends and only the numbers of shares held by each one of them had changed.

It ws appealed by the BIR on the ground the respondent’s interest in Mantrasco were only0.4% prior
to declaration of stock dividends , but rose to 33 and 1/3 % each after the said declaration.

CAPITAL REQUIREMENT

Sec. 12. Minimum Capital Stock Required of Stock Corporations

Stock Corp. incorporated under this Code shall not be required to have any minimum Authorized Capital
Stock EXCEPT as otherwise specifically provided by special law, and subject to the provision of the ff.
section.

Sec. 13.Amount of C.S. to be subscribed & paid for purposes of incorp.

@ least 25% of the ACS (as stated in Art. Of Inc.) must be subscribed @ the time of incorp., and
@ least 25% of the total subscription must be paid upon subscription,
The balance to be payable on…
a date/dates fixed in the contract of subscription “without a need of call”, or
in the absence of a fixed date/dates, upon call for payment by the BOD:

Provided, however, That in no case shall be paid up capital be < 5k pesos.

Note: the minimum paid-up capital could be paid in only by 2 or more subscribers without the others
paying –in any amount of their subscriptions. For as long as the total payment does not below the
minimum paid up capital from whoever the subscribers is, that is sufficient compliance w/ Section 13 of
Code.
Although the Code requires a minimum paid-up capital of only 5K pesos , there are instances where the
SEC (by virtue of existing laws, rules and reg. or policies) requires the payment of > the amount provided
for in the Code.

INDUSTRY Min. Paid Up Capital


 Authorized Capital Stock for Mining P100 Million
 Pre-Need Plan Issuer
 Securities Borker/Dealer in Proprietary
Shares
(New/SRO-Member)
Insurance Broker P20 Million
Reinsurance Broker
 Financing Company-Main (1st class cities) P 10 million
 Investment Adviser/Manager
 Health Maintenance Org.
 Securities Broker/Dealer in Proprietary
Shares (Existing / SRO-Member)

RESTRICTIONS and PREFERENCES ON TRANSFER OF SHARES

GR: W/ regard to the transfer, sale or assignment of shares , Corps. Are not required to provide certain
“restrictions and preferences” in their Art. Of Incorp.

Also, there is nothing in the law which should prohibit the corporation from providing reasonable
restrictions (e.g. Options & the Right of 1st Refusal in the Art. Of Inc.) (merely directory; need or need
not provide restrictions on the transfers of shares)

Exception: In close corp., w/c would subject their shares to specified restrictions (as required in Sec. 96
of the Code).

To be valid and binding (against 3rd persons): (such restrictions and preferences on transfer of shares
must be stated in)

a. In the Art. Of Inc.


b. In the Stocks Cert.

In case of Close Corp, it will be valid if:

a. In the Art. Of Inc.


b. In the Stocks Cert.
c. In the by-Laws
Note: (it is not only permissive, but mandatory for close corp. Sec. 96 provide, among others in the Art.
Of Incorp. That all of its shares of stocks of any class, shall be subjected to one or more specified
restrictions and transfers of shares allowed by the Code)

NO TRANSFER CLAUSE:

= it guarantees full compliance with the Nationalization Law

Every Stock corp shall provide the “no transfer clause” in the Art. Of Inc.

=It bars the corp. from registering transfers of shares of stock if it is violative of the Nationality
requirements imposed by the Code.

Only for nationalized. But SEC still requires for other corporations as a matter of policy.

No Transfer Clause
“ No transfer of stock or interest , w/c will reduce the ownership of Filipino Citizens to < the required %
of the capital stock as provided by existing laws, shall be allowed or permitted to be recorded in the
books of corp, and
This restriction shall be indicated in all of the stock certificates to be issued by corporation.

TREASURER:

Sec. 15 requires the corp. to indicate the name of the treasurer of the corp. who has been elected as
such until his successor has been elected & qualified in accordance w/the corporate by-laws and

who is authorized to receive for and in the name of the corp. all subscriptions, contributions or
donations paid or given by the subscribers or members.

Treasurer’s Affidavit= part and parcel of the Art. Of Inc.

EXECUTION CLAUSE

= part of the Art. Of Inc. where Inc. signed the Doc. & when the same was executed

Signature of Incorporators (as witnessed by 2 disinterested persons)= important as the Art. Of Inc.
serves as a contract between the signatories thereof, by and among themselves with Corp., and the
Corp. w/ the State.

Contract :

a. Between Incorporators
b. W/ Corp.
c. Corp. w/ State

ACKNOWLEDGEMENT

= a notarial acknowledgement; part of the Art. Of Inc. where Incorp., signatories thereof, acknowledge
before a notary public that they have executed and signed the same in their own free, voluntary act and
deed.

GROUNDS FOR DISAPPROVAL

(After filing the AofI and its supporting docs., SEC will examine and process them to determine
compliance w/ reqs as enumerated.

Only substantial (not strict) compliance is required .

If docs. Submitted are not in conformity w/ said reqs. = SEC may refuse registration of the proposed
Corp. after giving incorporators a Reasonable Time within w/c to correct or modify the objectionable
portions.

Grounds for Such Rejection or Disapproval:

a. Art. Of Inc. (or amendment thereto)=not substantially in accordance w/ the form prescribed.
b. Purpose/s of the corp. =patently unconstitutional, illegal, immoral or contrary to govt. rules and
reg.
c. Treas. Affidavit (concerning the amount of CS Subscribed and/or paid)= False
d. % of ownership of the capital stock to be owned by citizens of PHils. Has not been complied w/
as required by existing laws or Constitution.

No Art. Of Inc. (or amendment thereto) of banks, banking and quasi-banking institutions, building & loan
associations, trust co. & other financial intermediaries, insurance co., public utilities, educ. Institutions,
and other corp. governed by special laws shall be accepted /approved by SEC unless accompanied by a
favorable recommendation of the appropriate govt. agency to the effect that such art. Or amendment is
in accordance w/ law.

Grounds for rejection (as mentioned above) are not exclusive. There may be other reasons for such
rejection or approval (e.g. Corp. name is not legally permissible; minimum capital requirement for the
undertaking is not sufficient)

COMMENCEMENT OF CORP. EXISTENCE


(Sec. 19. A private corp (formed and organized under this Code), commences to have corporate
existence and juridical personality and is deemed incorporated from the date the sEC issues a Cert. of
Incorporation under its official seal ); thereupon the incorporators, stockholder/members and their
successors shall constitute a body politic and corporate under the name stated in the Art. Of Inc. for
the period of time mentioned therein, unless said period is extended or the corp. is sooner dissolved
in accordance with law.

CAGAYAN FISHING DEVELOPMENT VS. SANDIKO

Is the subsequent sale of the properties to Sandiko valid?

= No. The sale made by Tabora to the plaintiff company was effected @ the time the said company
was not yet incorporated.

A duly organized coporation has the power to purchase and hold such real property as permitted by
corporation’s purpose; and for this purpose may enter into such contract as may be necessary.

But before a corporation may be legally organized, law requires the filing of Art. Of Inc.

In this case, it cannot be denied that the plaintiff was not incorporated when it entered into contract
of sale. It was not even a de facto corporation at that time.

Not being in legal existence then, it did not possess juridical personality to enter into a contract.

Corporations are creatures of law, and can only come into existence in the manner prescribed by law.

There is no corporation, nor does it possess franchise or faculties for it to exercise unitl it acquires a
complete existence.

In this case, if the company could not and did not acquire the 4 parcels of land here involved, it
follows that it did not have the resultant right to dispose the same to the defendant.

FACTS:
TAbora is the registered owner of 4 parcels of land.
He executed a Deed of Sale where he sold those parcels of land to Cagayan Fishing Devt. Co. (said
to be under the process of Incorp. At that time). , w/ the condition that the title fo said lands shall
not be transferred to the name of the plaintiff co. until the latter shall have fully and completely
paid TAbora’s indebtedness to PNB.

Plaintiff co filed its Art. Of Inc. With Bureau of Commerce and Industry and a year later, the BOD of
the company adopted a resolution authorizing it’s president to sell the subject land to Teodoro
Sandiko.