Professional Documents
Culture Documents
registered.
Corporation is one of the types of
business organizations. It is also the Corporations
most important in economic
development. - They may enter into joint venture,
but generally they cannot enter into
a partnership, but there are
exceptions allowed by the SEC: the
INTRODUCTION 3 exceptions must go hand in hand
Sole Proprietorship
1. The articles of incorporation
- One man form of business entity, expressly authorized the
personally answers all liabilities, but corporation to enter into
enjoys all the profits with the exclusion contracts of partnership;
of others 2. The agreement or articles of
- Limited shareholders responsibility partnership must provide that all
the partners will manage the
- Paid subscription in full, you are no partnership; and
longer liable
3. The articles of partnership must
Partnership stipulate that all the partners are
and shall be jointly and severally
- Based on mutual trust and confidence
liable for all obligations of the
Joint venture partnership.
- Can do things as the law asks or The parents of the female seduced,
allows it to do abducted, raped, or abused, referred
to in No. 3 of this article, may also
- If it does anything beyond, it shall be recover moral damages.
considered as ULTRA VIRES
The spouse, descendants,
General rule: Moral damages cannot ascendants, and brothers and
be granted to corporations sisters may bring the action
mentioned in No. 9 of this article, in
Exception: Filipinas Broadcasting the order named.
Network Inc. vs. Ago Med
Advantages:
- In cases of slander, libel and other
1. Capacity to act as a single unit
forms of defamation (should not qualify
2. Limited shareholder's liability
because the code does not qualify
3. Continuity of existence
whether natural or juridical) Art. 2219
4. Feasibility of greater undertaking
of the civil code:
5. Transferability of shares
Art. 2219. Moral damages may 6. Centralized Management
be recovered in the following and 7.Standardized method of
analogous cases: organization, management, and
finance.
(1) A criminal offense resulting in
physical injuries; - No. 2 may also be a disadvantage
(2) Quasi-delicts causing physical - No. 5 may also be a disadvantage
injuries;
Disadvantages:
(3) Seduction, abduction, rape, or
other lascivious acts; 1. Formal proceeding (such as
board of meetings) are required;
(4) Adultery or concubinage; 2. Business transactions limited to
the State unless authorized by
(5) Illegal or arbitrary detention or
foreign State;
arrest;
3. Credit is limited in view of
(6) Illegal search; shareholder's limited liability;
4. Unity of incompatible and
(7) Libel, slander or any other form of conflicting elements in view of
defamation; transferability of shares;
5. Minority shareholders have
(8) Malicious prosecution;
practically no say in the conduct of
(9) Acts mentioned in Article 309; corporate affairs;
2
6. In large scale enterprises, - primarily exist for purposes other than for
stockholders' voting rights may profit, it does not follow that they cannot
become merely fictitious and make profits as an incident to their
theoretical because of disinterested operations.
in management, wide-scale ownership
and inaccessible place of meeting; - profits obtained cannot be distributed as
7. "Double taxation" may be imposed dividends but are used merely for the
on corporate income; furtherance of their purpose or purposes.
8. Corporation are subject to many Stock (Section 51)
legal controls and restrictions.
Two (2) requisites must be complied with,
A corporation is a person, therefore
1. a capital stock divided into
protected by the due process clause
shares, and
and equal protection clause of the
Constitution 2. authorized to distribute dividends
or allotments as surplus profits to its
stockholders on the basis of the
CLASSIFICATION OF CORPORATIONS shares held by each of them.
3
basis of the shares held by each of Close corporation
them.
- There is exclusivity of shares of
Section 4 stock
- Mandatory in close
FORMATION AND ORGANIZATION
- Not mandatory in ordinary
3 stages
- Non-stock
1. Creation
- If value is not more than 100,000
2. Re-organization or quasi-
reorganization A corporation cannot use any other
name unless it has been amended
3. Dissolution/winding-up
Section 19
Purpose clause
- If confusingly similar it will not be
- Defining the scope of authority of the
allowed to be registered
corporate enterprise or undertaking.
Both confirmed and limited - Verification slip from the records
officer
4 limitations of purpose clause
- To specify and define the rights and - Can sell it with the network of the
privileges of the stockholders; corporation
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Distinction between the subscribed - YOU MUST STATE THE
and outstanding stocks? PREFERENCE BECAUSE IF NOT
THEY ARE PRESUMED TO BE
- Section 137 EQUAL
Section 137. Outstanding - It may include such other
capital stock defined. - The term preferences not inconsistent with the
"outstanding capital stock", as used in
Code. This is so because Section 6
this Code, means the total shares of
stock issued under binding of the said law allows a stock
subscription agreements to corporation to issue preferred
subscribers or stockholders, whether shares subject only to the limitations
or not fully or partially paid, except imposed therein which are:
treasury shares. (n)
a. They can be issued only with sated
- Voting and dividend rights, it refers to par value; and,
the outstanding capital stocks
b. The preferences must be stated in
- Only outstanding stocks are allowed to the articles of incorporation and in
vote and receive dividends the certificate of stock, otherwise,
each share shall be, in all respect,
- Actually the same
equal to every other share.
Treasury shares
Participating
- are also subscribed shares
- Must be stated because the
- while they remain in the treasury, no presumption is that it is participating
voting and dividend rights Cumulative
- may be reissued by the corporation - Irrespective of whether or not they
- once reissued they become where earned
outstanding stocks again Preferred
Common shares - May be denied
- carry the right to vote - Unless denied they are still entitled
Preferred shares What if hindi i-declare kahit na may
- grants the holder preference dividends rights for the previous
years? May they be denied dividend
- preference as to dividends rights because they are non holders
of non-cumulative? NOTE: YOU
- preference as to distribution of the
CANNOT COMPEL THE
remaining assets upon dissolution or
CORPORATION TO DECLARE
- both DIVIDENDS UNLESS IT EXCEEDS
100 % PAID UP CAPITAL SEC. 43
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Section 43. Power to declare - Mandatory if earned
dividends. - The board of directors of a
stock corporation may declare - Earned cumulative or dividend credit
dividends out of the unrestricted type
retained earnings which shall be
payable in cash, in property, or in Compare cumulative share from
stock to all stockholders on the basis non-cumulative, earned cumulative
of outstanding stock held by them: or dividend credit type
Provided, That any cash dividends due
on delinquent stock shall first be - Cumulative share –whether or not
applied to the unpaid balance on the earned
subscription plus costs and expenses,
while stock dividends shall be withheld - Non-cumulative earned cumulative
from the delinquent stockholder until or dividend credit type- only if
his unpaid subscription is fully paid:
earned
Provided, further, That no stock
dividend shall be issued without the Par
approval of stockholders representing
not less than two-thirds (2/3) of the - stated par value; shall not be issued
outstanding capital stock at a regular less than par
or special meeting duly called for the
purpose. (16a) No par
- Even common shares may be denied If they are reissued will they be
the right to vote of founders’ shares denied the right to vote?
issued <sec.7>
- Once reissued they shall become
Section 7. Founders' shares. - outstanding stocks again and
Founders' shares classified as such in purchasers shall be entitled to all the
the articles of incorporation may be rights and privileges as the other
given certain rights and privileges not holders have
enjoyed by the owners of other stocks,
provided that where the exclusive right Section 57 treasury shares have no
to vote and be voted for in the election voting and dividend rights. Why not?
of directors is granted, it must be for a
limited period not to exceed five (5) Section 57. Voting right for
years subject to the approval of the treasury shares. - Treasury shares
Securities and Exchange Commission. shall have no voting right as long as
The five-year period shall commence such shares remain in the Treasury.
from the date of the aforesaid approval (n)
by the Securities and Exchange
Commission. (n) - Answer: commissioner vs. manning
page 62 first par.
Do you include non-voting shares in
passing a valid corporate act? “Although authorities may
differ on the exact legal and
- Even non-voting shares are entitled to
accounting status of so-called
vote under section 6
treasury shares, they are more or
Redeemable shares less in agreement that treasury
shares are stocks issued and fully
- Discretionary/optional paid for and reacquired by the
corporation either by purchase,
- Obligatory or mandatory
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donation, forfeiture or other means. - The corporation may cancel them; in
Treasury shares are therefore issued effect there will be a reduction in the
shares but being in the treasury they outstanding capital stocks
do not have the status of outstanding
shares. Consequently, although a - The code does not require ordinary
treasury share, not having been retired corporations to provide for
by the corporation re-acquiring it, may restrictions, but it does not likewise
be re-issued or sold again, such prohibit restrictions
shares, as long as it is held by the - Example: right of first refusal
corporation as a treasury share,
participates neither in dividends, - The restriction must be contained in
because dividends cannot be declared the articles of incorporation
by the corporation to itself, nor in
- If provided in by-laws but not in the
meetings of the corporation as voting
articles of incorporation then it will
stock, for otherwise equal distribution
not be binding
of voting powers among stockholders
will be effectively lost and the directors - Restrictions and preferences are
will be able to perpetrate their control mandatorily required in close
of the corporation, though it still corporations
represents a paid for interest in the
property of the corporation. The - If it does not provide restrictions it is
foregoing essential features of a not a close corporation
treasury stocks are lacking in the
- Specified persons- close
questioned shares.
corporations
In this case, and under the
- If not one of those specified you are
terms of the trust agreement, the
not included because there is
shares of stock of Reese
exclusivity in close corporations
participated in dividends which the
trustee received and the said shares - Should also be in the by-laws not
were voted upon by the trustee in all only in the articles of incorporation
corporation meetings. They were not,
therefore, treasury shares.” No transfer clause
From and after the filing with the - Commence to exist upon issuance
Securities and Exchange Commission by the CONCERNED government
of the said articles of incorporation, corporation or agency
verified by affidavit or affirmation, and
accompanied by the documents - Prior there to it has no being
mentioned in the preceding paragraph,
such chief archbishop, bishop, priest, - The transfer of the property was not
minister, rabbi or presiding elder shall valid, it likewise did not have the
become a corporation sole and all right to transfer
temporalities, estate and properties of
the religious denomination, sect or De jure
church theretofore administered or
managed by him as such chief - Strict or substantial compliance
archbishop, bishop, priest, minister,
rabbi or presiding elder shall be held in De facto
trust by him as a corporation sole, for
the use, purpose, behalf and sole - 4 requisites must go hand in hand
benefit of his religious denomination, take out anyone of them there can
sect or church, including hospitals, be no de facto corporation
schools, colleges, orphan asylums,
parsonages and cemeteries thereof. 1. There is a valid statute under which
(n) the corporation could have been
created as a de jure corporation.
- CORPORATION SOLE- upon filing of
the verified articles of incorporation, 2. An attempt, in good faith, to form a
once filed it is vested with a judicial corporation according to the
capacity requirements of law, which goes far
enough to amount to a “colorable
General rule section 19 compliance” with the law;
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3. A user of corporate powers, the - Number 4 requirement, good faith in
transaction of business in some way claiming to be and doing business
as if it were a corporation; and, as a corporation
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- Section 21, you arrive at the same - How come Kahn was made liable?
decision
- Doctrine of incorporation
Chiang Kai Siek vs. CA
- Applies only if that person is trying to
- SC based its decision from the escape from a contract where he is
provision of the education act benefited
- It cannot immune itself by virtue of its - In this case petitioner is not trying to
non compliance with the law escape liability, but rather the one
claiming from the contract
Assuming there was no law?
Would this apply to foreign
- YES, it may still be sued as a school corporation?
for the past 32 years the school
represented itself as possessed of - YES, it may apply
juridical personality
- Georg Grotjahn vs. Isnami
rd
General rule: a 3 party transacting
with a non existent corporation shall be A foreign corporation cannot gain
estopped to deny access to our courts unless they
attain a license to engage in
Asia banking vs. standard products business in the Philippines but
applying corporation by estoppels,
- General rule: absence of fraud a
the court allowed
person who has dealt with a non
incorporated corporation shall be Municipality of Malabang case
stopped to deny from actions in which
it had benefited - No law, hence may be questioned
by any person
- Exemptions: when there is fraud the
general rule shall not apply - An unconstitutional act is not a law, t
confers no rights, it imposes no
Salvatierra vs. Garlitos duties, it affords no protections, it
crates o office, it is in legal
- As a general rule a person who has
contemplation, as inoperative as
contracted it a corporation lacking though it had never been passes
personality
Hall vs. Piccio
- Doctrine is not applicable where fraud
takes part in the transaction - No good faith
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- Cannot escape when benefited You cannot issue investment
contracts without a secondary
- General rule: you deal with a franchise, kailangan primary muna
corporation, as to estop it hindi pwede mauna secondary kasi
- Exceptions: 1. fraudulently sa section 19 it does not exist until
misrepresents the third person may file issued with a certificate of
an action directly to those members, 2. registration or incorporation
3rd party will not be estopped if he is Corporate entity
not trying to escape liability
- Corporation exist separately and
2 possible remedies independently from the stockholders
- Chiang kai siek case - Stockholders cannot bring an action,
- Albert case to bring back the properties of a
corporation
What would be the effect if the
corporation failed to commence - Corporation has no interest in the
transaction? individual properties of its members
- Automatic
You cannot pierce the veil of corporate - Fely trans and the other corporation
fiction when there are no facts is one and the same
attendant in the case
Marvel bldg. vs. David
Corporate Entity Theory
- There must be facts before the court
- The corporation is possessed with a will be justified in piercing the veil of
personality separate and distinct from corporate fiction
the individual stockholders or
members and is not affected by the - Corporation was a mere extension
personal rights, obligations or of the personality of the person
transactions of the latter
Yutivo and sons vs. Court of Tax
Instrumentality rule Appeals
La Campana Coffee Factory, Inc. vs. 2. Such control must have been used
KKM by the defendant to commit fraud or
wrong, to perpetuate the violation of
- Two corporations managed by the a statutory or other positive legal
same family, workers were made duty or dishonest and unjust act in
interchangeably contravention of plaintiff’s legal
rights; and,
Emilio Cano vs. CIR
3. The aforesaid control and breach of
- Sued in there official capacity
duty must proximately cause the
- Reverse of Soriano vs. CA (signed in injury or unjust loss complained of.
their official capacity)
- The absence of one of the elements
Tesco vs. WCC prevents “piercing the corporate
veil.” In applying the “instrumentality”
- The two corporations where located in or “alter ego” doctrine, the courts are
the same office concerned with reality and not form,
with how the corporation operated
Claparols vs. CIR
and the individual defendant’s
- Same as NAFLU and A.C. Ransom relationship to that operation.
26
- The signatories and acknowledgment Any corporation may be
thereof. incorporated as a close corporation,
except mining or oil companies,
- All other provisions or matters stated stock exchanges, banks, insurance
or contained in the articles are subject companies, public utilities,
to amendment. educational institutions and
corporations declared to be vested
Founder’s or signatories hindi pwede with public interest in accordance
palitan with the provisions of this Code.
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- Term of one year who will serve as 3-200k
such until there successors are elected
4-100k
and qualified
5-100k
Exception:
6-100k
- Non-stock corporation can serve for a
term of 3 years 7-50k
- Educational non-stock- term of the 8-40k
governing board can be 5 years
9-5k
May this term exceed one year?
10-5k
- Yes, they may serve in a hold over
capacity until their successors have =1MS
been duly elected and qualified
1&2 is absent, 3&4 ayaw tumakbo and
Detective and protective bureau vs. hindi nagvote 6-10, tumakbo and
Cloribel ninominate nila yung sarili nila and cast all
their shares on themselves
- In the by-laws, managing director must
be elected from among themselves Who wins? Or who gets elected?
- Must be duly elected and qualified - No vote requirement, the one who
gets the most number of votes gets
How are the directors elected? elected, section24.
1-100T/S What is cumulative voting?
2-100T/S - Process of multiplying the number of
shares to the number of director to
3-100T/S
be elected
to 10=1M/S
- Matter of right granted to
Do you include the vote of 1 & 2 to stockholders in a stock corporation
have a quorum to have a valid
1 to 5 has 200k/s and members of the
meeting?
same family- majority 800k they have 4M
- NO, quorum requirements is 401,000 votes they are guaranteed 4 seats
Holders of non-voting shares are only entitled Cumulative to allow the minority to
to vote in last par. Of section 6 have a rightful representation in the
board
1-200k
2-200k
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Is it allowed in a non-stock president and secretary or as
corporation? president and treasurer at the same
time.
- Not generally available
The directors or trustees and
- Section 89 unless the articles or by- officers to be elected shall perform
laws allow cumulative voting the duties enjoined on them by law
and the by-laws of the corporation.
Section 89. Right to vote. - Unless the articles of incorporation
The right of the members of any class or the by-laws provide for a greater
or classes to vote may be limited, majority, a majority of the number of
broadened or denied to the extent directors or trustees as fixed in the
specified in the articles of incorporation articles of incorporation shall
or the by-laws. Unless so limited, constitute a quorum for the
broadened or denied, each member, transaction of corporate business,
regardless of class, shall be entitled to and every decision of at least a
one vote. majority of the directors or trustees
present at a meeting at which there
Unless otherwise provided in is a quorum shall be valid as a
the articles of incorporation or the by- corporate act, except for the election
laws, a member may vote by proxy in of officers which shall require the
accordance with the provisions of this vote of a majority of all the members
Code. (n) of the board.
- YES. Voting requirement is majority of - Must pass first the controller and
directors present at which there where counsel
a quorum
What if the notice requirement is not
1 1 and 2 present=valid voting complied with?
requirement
Lopez Realty vs. Fotencha
2 1 and 2 voted yes
- Notice requirement must be
3 3 voted no complied with hence it should have
been with force and effect, but
4
according to the SC, it may be
5 ratified expressly if there is a
subsequent meeting called for that
Is it absolute? purpose
32
- The contract here is so onerous that it has been permitted by the directors
would throw the corporation into to manage its business.”
insolvency
In the case at bar, the
Francisco vs. GSIS practice of the corporation has been
to allow its general manager to
- GSIS cannot evade the binding effect negotiate and execute contracts in
of the telegram its copra trading activities for and in
- Only 15 months later that the NACOCO’s behalf without prior
corporation said there was a mistake board approval. If the by-laws were
to be literally followed, the board
- The silence coupled with the should give its stamp of prior
unconditional acceptance of the other approval on all corporate contracts.
subsequent remittances is binding to But that Board itself, by its acts and
the corporation through acquiescence, practically
laid aside the by-law requirement of
Board of Liquidators vs. Kalaw
prior approval.
“Settled jurisprudence has it
- Kalaw signed alone and said
that where similar acts have been
contracts were submitted to the
approved by the directors as a matter
board of directors after its
of general practice, custom and policy,
consummation and not before
the general manager may bind the
company without formal authorization Buenaseda vs. Bowen
of the board of directors. In varying
language, existence of such authority - Express ratification is made through
is established, by proof of the course a formal board action
of business, the usages and practices - Implied ratification is through:
of the company and by the knowledge silence or acquiescence,
which the board of directors has, or acceptance benefits and lastly
must be presumed to have, of acts and recognition or adoption
doings of its subordinates in and about
the affairs of the corporation. So also, - An unauthorized act may
“xx authority to act for and bind a nevertheless be binding either by
corporation may be presumed from express or implied by estoppels
acts of recognition in other instances
where the power was in fact - By virtue of silence the board had
exercised.” “xx Thus, when, in the impliedly accepted the act
usual course of business of a - By recognition or adoption
corporation, an officer has been
allowed in his official capacity to - By virtue of payment of obligations
manage its affairs, his authority to arising therefore- Lopez realty
represent the corporation may be
implied from the manner in which he
33
May directors or trustees be disqualified to requirements by-laws and articles of
act as such? incorporation
- YES, crime, etc. disqualifications in Who will fill up the vacancy created
book due to the ouster of a member of the
board of directors <section 29>
- Possess or dispossess any of the
qualifications or disqualifications , Section 29. Vacancies in
cease to hold at least one share the office of director or trustee. -
Any vacancy occurring in the board
May directors be ousted from office? of directors or trustees other than by
removal by the stockholders or
- At least 2/3 of members representing members or by expiration of term,
outstanding capital stock. Again notice may be filled by the vote of at least a
requirement must be complied with majority of the remaining directors or
trustees, if still constituting a
1-200 1-5 same family quorum; otherwise, said vacancies
must be filled by the stockholders in
2-200 a regular or special meeting called
for that purpose. A director or
3-200 trustee so elected to fill a vacancy
shall be elected only or the
4-100
unexpired term of his predecessor in
5-100 electing office.
34
same meeting where in the number is 1. there is a provision in the by-laws to
increased? that effect
- Unless the by-laws allows - NO. the phrase “as such director”
was used twice <Section 30>
- Stockholders may also grant pursuant
to a majority vote - The SC ruled that the 10% ceiling
will not likewise apply if they acted in
- Must not exceed net income of 10% a capacity other than “as such
tax of the preceding year directors”
- Acting in special capacity Government vs. El Hogar
- In, sum directors may receive - Judicial intervention is not proper
compensation when
35
- The appropriates remedy is to those Llamado vs. CA
who can make or unmake the by-laws
- The corporate entity theory cannot
Liability of corporate officers be used as a defense to escape
liability in violation of B.P. 22
- Obligations incurred by those acting
for and in behalf of the corporations - Where the check is drawn by a
are not there’s BUT there are corporation the persons who signed
exceptions even if they are acting for the check shall be liable.
and in behalf of the corporation
Uichico vs. NLRC
Tramat vs. CA
- Labor case corporate directors and
- General rule was applied in the case officers are solidarily liable with the
corporation for the termination of
- Ong acted as officers and acted within employment of corporate employee
the scope of his authority done with malice and bad faith
- Court laid down 4 instances when 3 fold duty of directors
even if acting within the scope of his
authority he is held solidarily liable - obedient
36
in good faith, its actuations are not account for profits if he attempts to
subject to judicial review acquire or acquires any interest
adverse to the corporation in respect
- They are not insurer of the property of to any matter reposed in him in
the company, they were guarantors confidence as to which equity
that the enterprise undertaken by the imposes a disability upon him to
corporation shall be successful deal in his own behalf is not subject
Montelibano vs. Bacolod Murcia to ratification by the stockholders.
Milling Co. Whereas, in section 34 if a director
acquires for himself a business
- Directors are not liable due to opportunity which should belong to
imprudence or honest error of the corporation, he is bound to
judgment account for such profits unless his
act is ratified by the stockholders
- Duty of loyalty of corporate directors
owning ore representing at least 2/3
- 31,32,33,34 of the outstanding capital stock.
Had A not attended the meeting he would 3. That the contract is fair and
not have known of the sale it is then a matter reasonable under the
reposed in him in confidence circumstances; and
- What duty did he violate? - When any of the two requisites are
absent it is voidable, but subject to
- He violated his duty of loyalty ratification by 2/3 of the outstanding
capital stock or 2/3 of the member
- The law would be impotent if the sale
were not invalidated Requisites for ratification (subject to
ratification by the stockholders
- Self-dealing director and interlocking
holding or representing at least 2/3
director
of the outstanding capital stock or
What is a self-dealing director? 2/3 of the members.)
38
- last sentence of section 32 should be Prime White Cement vs. IAC
made to apply by determining the
reasonableness and fairness of the - a director of a corporation owes a
contract position in trust
39
- Section 32 contract may become Individual or Personal
voidable, hence it may also be ratified
- Wrong done against his person as a
X Co. Y Co. stockholder
40
- By virtue of the fact that he is a - It is not the corporate interest to
stockholder, may maintain a derivative shield one from criminal prosecution
suit which is personal interest
- Depend on how, when and what - Perez is not suing in his behalf, but
reason in behalf of the corporation
- Seeking for the years 1898 all the way Western Institute vs. Salas
1907
- Assuming it was filed in the proper
- Only became a stockholder in 1903 forum would there argument that it is
a derivative suit prosper? NO. it is
- He can sue only in 1903 forward people of the Philippines vs.
because he must be a stockholder individual director, it must be stated
- The right of action is personal in in the complaint that it is being
nature. He became a stockholder only instituted as a derivative suit and for
in 1902 and in behalf of the corporation
41
- Assuming the case prospered in the is injurious to the stockholder or
U.S. would not estoppels apply as affect him specifically in some other
against him? NO for estoppels to step way.
in it must be a case by the corporation
The number of his hares is
Reyes vs. Tan immaterial since he is not suing in
his own behalf or for the protection
- Corporate director are guilty of breach or vindication of his own right, or the
of trust redress of a wrong done against
- A stockholder may institute an action him, individually, but in behalf and
to remedy a wrong done for the benefit of the corporation.
43
- NO, all of them must be members of 5. To adopt by-laws, not contrary to
the board of directors law, morals, or public policy, and to
amend or repeal the same in
- BOD cannot act by proxy it would be accordance with this Code;
abdication of powers
6. In case of stock corporations, to
Purpose clauses necessary because it issue or sell stocks to subscribers
confers and also limits the actual and to sell stocks to subscribers and
authority of the corporation to sell treasury stocks in accordance
with the provisions of this Code; and
CORPORATE POWERS AND AUTHORITY to admit members to the corporation
if it be a non-stock corporation;
Corporate authority may be classified
into three classes namely: 7. To purchase, receive, take or
grant, hold, convey, sell, lease,
1. Those expressly granted or authorized pledge, mortgage and otherwise
by law inclusive of the corporate deal with such real and personal
charter or articles of incorporation; property, including securities and
bonds of other corporations, as the
2. Those impliedly granted as are transaction of the lawful business of
the corporation may reasonably and
essential or reasonably necessary to
necessarily require, subject to the
the carrying out of the express powers; limitations prescribed by law and the
Constitution;
3. Those that are incidental to its
existence. 8. To enter into merger or
consolidation with other corporations
Section 36 to 45- POWER GRANTED
as provided in this Code;
BY LAW
9. To make reasonable donations,
Section 36. Corporate powers and including those for the public welfare
capacity. - Every corporation incorporated or for hospital, charitable, cultural,
under this Code has the power and capacity: scientific, civic, or similar purposes:
Provided, That no corporation,
1. To sue and be sued in its corporate domestic or foreign, shall give
name; donations in aid of any political party
or candidate or for purposes of
2. Of succession by its corporate name partisan political activity;
for the period of time stated in the
articles of incorporation and the 10. To establish pension, retirement,
certificate of incorporation; and other plans for the benefit of its
directors, trustees, officers and
3. To adopt and use a corporate seal; employees; and
Stock corporations are prohibited from The provisions of the next preceding
retaining surplus profits in excess of one paragraph shall apply to any contract
hundred (100%) percent of their paid-in whereby a corporation undertakes to
capital stock, except: (1) when justified by manage or operate all or substantially all of
definite corporate expansion projects or the business of another corporation,
programs approved by the board of directors; whether such contracts are called service
or (2) when the corporation is prohibited contracts, operating agreements or
under any loan agreement with any financial otherwise: Provided, however, That such
institution or creditor, whether local or foreign, service contracts or operating agreements
from declaring dividends without its/his which relate to the exploration,
consent, and such consent has not yet been development, exploitation or utilization of
secured; or (3) when it can be clearly shown natural resources may be entered into for
that such retention is necessary under special such periods as may be provided by the
circumstances obtaining in the corporation, pertinent laws or regulations. (n)
such as when there is need for special
reserve for probable contingencies. (n) Section 45. Ultra vires acts of
corporations. - No corporation under this
Section 44. Power to enter into Code shall possess or exercise any
management contract. - No corporation shall corporate powers except those conferred
conclude a management contract with by this Code or by its articles of
another corporation unless such contract incorporation and except such as are
shall have been approved by the board of necessary or incidental to the exercise of
directors and by stockholders owning at least the powers so conferred. (n)
the majority of the outstanding capital stock,
or by at least a majority of the members in the Section 36
case of a non-stock corporation, of both the
managing and the managed corporation, at a Where should the corporation be
meeting duly called for the purpose: sued?
Provided, That (1) where a stockholder or
stockholders representing the same interest - principal office is important because
of both the managing and the managed it establishes the residence of the
corporations own or control more than one- corporation and determining service
third (1/3) of the total outstanding capital of summons, venue of action
stock entitled to vote of the managing
48
- it can be sued in the city or “xxx the then section 13 of
municipality where its principal office is this Rule allowed service
found upon a defendant corporation
to “be made on the president,
Principal office is also important for manager, secretary, cashier,
venue of meetings agent or any of its directors.”
Non-stock corporation may provide in The aforesaid terms were
its by-laws that the venue of meeting obviously ambiguous and
be anywhere in the Philippines susceptible of broad and
sometimes illogical
Upon whom service of summons be interpretations, especially the
made? word “agent” of the
corporation. The Filoil case,
- Section 11. Service upon domestic
involving the litigation lawyer
private juridical entity- when the
of the corporation who
defendant is a corporation, partnership
precisely appeared to
or association organized under the
challenge the validity of
laws of the Philippines with a juridical
service of summons but
personality, service may be made
whose very appearance for
upon the president, managing partner,
that purpose was seized upon
general manager, corporate secretary,
to validate the defective
treasurer, or in house counsel.
service, is an illustration of
Delta motor vs. Mangosing the need for this revised
section with limited scope and
- strict compliance is necessary specific terminology. Thus the
absurd result in the Filoil case
- should be served to those named in
necessitated the amendment
the statute
permitting service only on the
- secretary of a dep’t are not those in-house counsel of the
included in the statute corporation who is in effect an
employee of the corporation,
E.B. Villarosa vs. Benito as distinguished from an
- decision En Banc repeals all other independent practitioner.”
pronouncement o notes: additional knowledge
- section 13 Rule 14 was repealed - special appearance enter for that
- the old rules was ambiguous and particular appearance you are not
the counsel in the case
broad and at all time illogical
the particular revision under Section - would apply only if it does not
11 of Rule 14 was explained by retired involve an intra-corporate
Supreme Court Justice Florenz controversy (controversy between
Regalado, thus: and among the stockholders)
49
- upon any of the statutory officers or Gov’t vs. El Hogar
officers fixed in the by-laws any
secretary, any of the directors; any - As the lawful transaction of its
managers in the by-laws business may reasonably represent
2. Acts to protect debts owing to the What are the modes of increasing
corporation; capital stock?
2. Increasing the number of existing 2. When the capital is more than what
shares without increasing the par is necessary to procreate the
value thereof; and, business or reduction of capital
surplus; or,
3. Increasing the number of existing
shares and at the same time 3. To write down the value of its fixed
increasing the par value of the shares. assets to reflect there present actual
value in case where there is a
Why a corporation increases it decline in the value of the fixed
capital stock? assets of the corporation.
- Generate funds, business expansion, - Examples: Php 10M capital for
or payment of liabilities, purposes of grocery business, mayor didn’t want
acquiring other business. (example: to to issue license/permit because
buy cars for the officers, purpose of mayor has 3 other grocery stores,
acquiring other business, expansion, only allowed sari-sari store permit,
other valid reasons) reduce capital for sari-sari so that
How do you decrease capital stock the money will not sleep in bank
and why a corporation decreases? - Example: car rental agencies-Php
- Reduce or wipeout existing deficit 10M capital for 20 taxi’s, after some
where no creditors would thereby be time each taxi is only 250K,
effected nagmura ang taxi, to reduce capital
is to show actual assets
- When capital is more than necessary
to procreate the business or reduction Limitation imposed by law
of capital surplus - Decrease shall not in any way affect
- To write down the value of its fixed the rights of the creditors
assets to reflect those present and Philippine Trust Company vs.
actual Rivera
o NOTE: any increase or decrease of - Without the appraisal of SEC, a
capital stock requires approval of decrease in capital stocks has no
government agency like SEC it can effect
never take place unless SEC approves
the same TRUST FUND DOCTRINE:
54
- In exchange for property needed for respect to the old unissued
corporate purposes shares? No.
56
2) Where corporation has sufficient business, then it does not need the
assets in its books to cover its debts approval of the stockholders
and liabilities exclusive of capital stock
Conditions for the valid exercise
ACS 1M of this power are the following
59
Section 105. Withdrawal of dividends out of the unrestricted
stockholder or dissolution of retained earnings which shall be
corporation. - In addition and without payable in cash, in property, or in
prejudice to other rights and remedies stock to all stockholders on the basis
available to a stockholder under this of outstanding stock held by them:
Title, any stockholder of a close Provided, That any cash dividends
corporation may, for any reason, due on delinquent stock shall first be
compel the said corporation to applied to the unpaid balance on the
purchase his shares at their fair value, subscription plus costs and
which shall not be less than their par expenses, while stock dividends
or issued value, when the corporation shall be withheld from the delinquent
has sufficient assets in its books to stockholder until his unpaid
cover its debts and liabilities exclusive subscription is fully paid: Provided,
of capital stock: Provided, That any further, That no stock dividend shall
stockholder of a close corporation be issued without the approval of
may, by written petition to the stockholders representing not less
Securities and Exchange Commission, than two-thirds (2/3) of the
compel the dissolution of such outstanding capital stock at a regular
corporation whenever any of acts of or special meeting duly called for the
the directors, officers or those in purpose. (16a)
control of the corporation is illegal, or
fraudulent, or dishonest, or oppressive Stock corporations are
or unfairly prejudicial to the corporation prohibited from retaining surplus
or any stockholder, or whenever profits in excess of one hundred
corporate assets are being misapplied (100%) percent of their paid-in
or wasted. capital stock, except: (1) when
justified by definite corporate
If shares are reacquired, what expansion projects or programs
happens? approved by the board of directors;
or (2) when the corporation is
- It becomes treasury shares prohibited under any loan
agreement with any financial
- Stockholder’s consent/ approval is not institution or creditor, whether local
necessary and mere board action is or foreign, from declaring dividends
sufficient if in accordance with primary without its/his consent, and such
purpose consent has not yet been secured;
or (3) when it can be clearly shown
- The logical relation of act done and that such retention is necessary
primary purpose of corporation and under special circumstances
obtaining in the corporation, such as
between the board of directors to when there is need for special
undertake submission of acts is a reserve for probable contingencies.
sound corporate practice (n)
60
Directors to be paid to the - The corporation may increase its
stockholders. capital
SUB-1M TO 10% TO
ACS 2M 1M
How did the court decide dividends - Trust fund must be kept intact for the
in the case of Neilsen protection of creditors who have the
right to rely on such subscription and
- Stock dividends cannot be issued to a the paid-up capital for the
person who is not a stockholder in satisfaction of their claims
payment of services rendered.
- Cannot accumulate surplus
- Whether cash, property or stock, only unreasonably
stockholders may receive dividends.
Dividends are fruits of investments. - Basis is the paid-up capital
They come from the U.R.E. or surplus
profits of the corporation. - Entitled to dividends
- PTC- trust company as such, it also - It may sell and it may guarantee,
has implied powers as to make them contract not necessarily illegal, it will
more attractable in the absence of proof to the
contrary presumed within its power.
- Not ultra-vires in pursuance of its Corporations are presumed to
legitimate business contract with in its powers- CARLOS
Japanese war notes vs. SEC CASE
66
- Purpose clause may be stretched to - Empowered by SEC
cover PLDT internet. It may be within
its business. - Merely a ground, there must be
proper notice and hearing
- May it sell computers? NO! other line
of business. Its trading! - Not affect the status of the
corporation as a juridical person
BY-LAWS
- Subject the corporation to a fine, as
By-Laws may be issued by the SEC
- Not the SEC, but the HIGC - None filing would not affect the
status of the corporation, Loyola
- Must – not always imperative grand villas case
72
What happens if notice is not meeting. Presence at the
complied with? meeting waives the want of
notice. Moreover, it has been
- If the notice requirement is not ruled that the meeting of the
complied with the meeting is illegal directors without a formal call
and will not bind the corporation first being had, and notice
except when subsequently ratified or in thereof given to the members,
the case of a close corporation where did not operate to invalidate it
the act of any one director may bind or to render the proceedings
the corporation even without a meeting which were taken at it void,
under the special provision of Section for every member of the
101 of the Code. board were present, and their
Can notice be waived? <sec.53> joint action had completely
bound the corporation as if
Section 53. Regular and the meeting has been called
special meetings of directors or with due formality, and
trustees. - Regular meetings of the everyone of the directors had
board of directors or trustees of every received proper notice.
corporation shall be held monthly,
unless the by-laws provide otherwise. What is the quorum and voting
requirement in the directors
Special meetings of the board meeting?
of directors or trustees may be held at
any time upon the call of the president - Majority of the members of the
or as provided in the by-laws.
board of directors (entire
Meetings of directors or trustees membership)
of corporations may be held anywhere
Vote required to pass a valid
in or outside of the Philippines, unless
the by-laws provide otherwise. Notice corporate act?
of regular or special meetings stating
- Majority of those present at which
the date, time and place of the meeting
must be sent to every director or there is a quorum (3 present, vote of
trustee at least one (1) day prior to the 2 sufficient)
scheduled meeting, unless otherwise
provided by the by-laws. A director or - Exception, majority of all the
trustee may waive this requirement, members of the board in case of
either expressly or impliedly. (n) election of corporate officers, unless
the articles provide for a greater
- YES. Expressly and impliedly quorum or voting requirement
- SEC ruling Should the director or trustees be
physically present?
A special meeting is valid
without notice where the - General rule, must sit and act as a
directors are all present or body to have a valid corporate act
where they consent to the
73
Five man member board, a meeting May the articles of incorporation
was called today, should the deny?
physical presence or warm bodies
requires to constitute a quorum? May the by-laws validly provide
that proxy voting is not allowed?
- NO. it is not required. Teleconference
or video conference is allowed, E- - NO
commerce law Only non-stock may be denied
Membership subject to laws proxy voting (may be broaden,
limited or denied)
Stockholder not yet
Proxy voting is a matter of right
May director vote by proxy? granted by law
79
Section 65. Liability of directors corresponding liability that attach
for watered stocks. - Any director or thereunder. Thus, the Code
officer of a corporation consenting to provides:
the issuance of stocks for a
consideration less than its par or Section 72. Rights of unpaid
issued value or for a consideration in shares. - Holders of subscribed
any form other than cash, valued in
shares not fully paid which are not
excess of its fair value, or who, having
knowledge thereof, does not forthwith delinquent shall have all the rights of
express his objection in writing and file a stockholder. (n)
the same with the corporate secretary,
shall be solidarily, liable with the Is the issuance of a certificate of
stockholder concerned to the stock necessary to consider the
corporation and its creditors for the subscriber a stockholder?
difference between the fair value
received at the time of issuance of the - NO, shall be considered a
stock and the par or issued value of stockholder even without a
the same. (n) certificate of stock
What are the requisites for the - When he exercises his appraisal
issuance of a valid certificate of stock? right
83
- By endorsement and delivery of the - Mandamus may issue if petition has
stock certificate to the transferee a clear legal right
86
deprived of his title by a forged - D will have a cause of action against
transfer, and the new, because of its the corporation for the value of his
representation that the person named acquisition cost inclusive of
therein is the owner of shares in the damages, attorney’s fees and cost
corporation. But if the recognition of of suit
both stockholders would result in an
over issue of shares, then only the D sues the corporation for the value
original and true owner can be of his acquisition cost, inclusive of
recognized as a stockholder. The bona damages, attorney’s fees and cost
fide purchaser of the new certificate of suit. What may the corporation
will however have a right of damages do?
against the corporation. The - NO defense, no valid defense,
corporation, in turn, would have a right because it was represented to other
of action against the person who made parties that the certificate of stocks
false representations and in whose is valid, subsisting, etc.
favor it issued a new certificate. The
true owner of the shares which were 2nd situation, what cause of action
wrongfully transferred would of course may the corporation have?
have a right to compel the corporation Remedy?
to issue him a certificate in lieu of the
- Third party complaint against C, but
original one which was wrongfully
what if he is a purchaser for value?
cancelled.
4th party claim against B
Authorized capital stock 1M shares
When may certificate of stocks be
All are subscribed who will the issued?
corporation recognize as rightful owner
- Section 64 provides:
A or D? if both will be recognized there
will be over issuance Section 64. Issuance of stock
certificates. - No certificate of stock
- only A citing citizens national bank vs.
shall be issued to a subscriber until
state (but if recognition of both the full amount of his subscription
stockholders would result in an over together with interest and expenses
issue of shares, then only the original (in case of delinquent shares), if any
and true owner can be recognized as a is due, has been paid. (37)
stockholder)
A certificate of stock cannot be
- by virtue of the doctrine of non- issued unless he fully paid the
negotiability of certificate of stocks amount subscribed
The true and lawful owner will never Subscription to the capital stocks of
be deprived of his rights the corporation are indivisible
Unless the delinquent - Bidder who shall “offer to pay the full
stockholder pays to the corporation, on amount of the balance on the
or before the date specified for the subscription together with accrued
sale of the delinquent stock, the interest, cost of advertisement and
balance due on his subscription, plus expenses of sale, for the smallest
accrued interest, costs of number of shares or fraction of a
advertisement and expenses of sale, share.”
or unless the board of directors
otherwise orders, said delinquent stock X Co. has 1M authorized capital
shall be sold at public auction to such stock
bidder who shall offer to pay the full
amount of the balance on the 500 thousand is already subscribed
subscription together with accrued
interest, costs of advertisement and A subscribed to 100 thousand
expenses of sale, for the smallest shares, 50 thousand is already paid
number of shares or fraction of a leaving 50 thousand unpaid
share. The stock so purchased shall
be transferred to such purchaser in the The corporation is at a loss of 250
books of the corporation and a thousand, the board decides to
certificate for such stock shall be make a call for the payment of the
issued in his favor. The remaining unpaid subscriptions, however A
shares, if any, shall be credited in could not paid, hence declared
favor of the delinquent stockholder delinquent and decides to sell his
who shall likewise be entitled to the share at a public auction
issuance of a certificate of stock
covering such shares. 55 thousand is to be paid, remaining
balance plus cost and expenses
Should there be no bidder at the
public auction who offers to pay the full BIDDERS:
amount of the balance on the
subscription together with accrued X-55K FOR 99,900 shares
interest, costs of advertisement and
92
Y-55K FOR 99,500 shares 1. To eliminate fractional shares
arising out of stock dividends;
Z-55K FOR 99,000 shares (winning
bidder) 2. To collect or compromise an
indebtedness to the corporation,
Assume there is no bidder, may the arising out of unpaid subscription, in
corporation bid? a delinquency sale, and to purchase
delinquent shares sold during said
- NO. It cannot bid because the law sale; and
says, subject to the provisions of this
CODE. Section 68 and 41 should be 3. To pay dissenting or withdrawing
reconciled. Section 68 states that: stockholders entitled to payment for
their shares under the provisions of
Should there be no bidder at the this Code. (a)
public auction who offers to pay the full
amount of the balance on the What if the shares of A were sold
subscription together with accrued without compliance of the
interest, costs of advertisement and requirements? May A question the
expenses of sale, for the smallest sale?
number of shares or fraction of a
share, the corporation may, subject to - The law prescribes two conditions
the provisions of this Code, bid for before an action to recover
the same, and the total amount due delinquent stocks irregularly sold
shall be credited as paid in full in the may be allowed. These are:
books of the corporation. Title to all the
shares of stock covered by the 1. The party seeking to maintain such
subscription shall be vested in the action first pays or tenders to the
corporation as treasury shares and party holding the stock the sum for
may be disposed of by said which the same was sold, with
corporation in accordance with the interest from the date of the sale at
provisions of this Code. (39a-46a) the legal rate; and,
2. The action shall be commenced by
- There was no unrestricted retained the filing of a complaint within six
earnings in the example given months from the date of the sale.
therefore the corporation cannot bid ,
section 41, it states that: - The reason for such is the stability of
transactions of the shares of stock
Section 41. Power to acquire
own shares. - A stock corporation shall Suppose in the example, since there
have the power to purchase or acquire are no unrestricted retained
its own shares for a legitimate earnings, hence the corporation
corporate purpose or purposes, cannot bid, is the corporation left
including but not limited to the without any recourse?
following cases: Provided, That the
corporation has unrestricted retained Section 70. Court action to recover unpaid
earnings in its books to cover the subscription. - Nothing in this Code shall
shares to be purchased or acquired: prevent the corporation from collecting by
action in a court of proper jurisdiction the
amount due on any unpaid subscription,
93
with accrued interest, costs and expenses. - Call or if there is a stipulation in
(49a) contract
- If no call and no stipulation in
Velasco vs. Poizat contract then it will not be
demandable or payable at all
- The subscriber is as much bound to
pay the amount of the share Lumanlan vs. Cura
subscribed by him as he would be to
pay any other debt, and the right of the - Trust Fund Doctrine- subscription to
company to demand payment is no the capital of a corporation
less incontestable. constitute a fund to which the
- Two available remedies: the first and creditors have a right to look for
most special remedy given by the satisfaction of their claims and that
statute consist in permitting the the assignee in insolvency can
corporation to put up the unpaid stock maintain an action upon any unpaid
and dispose of it for the account of the stock subscription in order to realize
delinquent subscriber. The other assets for the payment of its debts.
remedy is by action in court.
PNB vs. Bitulak
De Silva vs. Aboitiz and Co.
- Where it not for the promise, the
- Discretionary on the part of the board defendants would have not
of directors to do whatever is provided subscribed
in the said article relative to the
application of the part of the 70 - Trust Fund Doctrine, it is established
percent of the profit distributable in doctrine that subscriptions to the
equal parts on the payment of the capital of a corporation constitute a
shares subscribed to and fully paid fund to which creditors have a right
to look for satisfaction of their claims
Lingayen Gulf vs. Baltazar and that the assignee in insolvency
can maintain an action upon any
- Exception: pursuant to a bona fide unpaid stock subscription in order to
compromise or to set off a debt due realize assets for the payment of its
from the corporation, a release debts.
supported by consideration, will be
effectual as against dissenting - A corporation has no power to
stockholders and subsequent and release an original subscriber to its
existing creditors. A release which capital stock from the obligation of
might originally have been held invalid paying for his shares, without a
may be sustained after a considerable valuable consideration for such
lapse of time release; and as against creditors a
reduction of the capital stock can
Apocada vs. NLRC take place only in the manner and
under the conditions prescribed by
- Set-off is without any legal basis the statute or the charter or the
- It was premature articles of incorporation.
- Unpaid subscriptions will become due
and payable only upon certain Edward Keller and Co. vs. COB
instance
94
- May the stockholder be held liable for not fully paid which are not
the debts of the corporation? YES. To delinquent shall have all the rights of
the extent of their unpaid subscription a stockholder. (n)
- The rationale of the above-quoted law May corporate officers be held liable
is to avoid duplication of certificates of for the unauthorized issuance?
stock and the avoidance of fictitious
and fraudulent transfers. - YES, the code provides that:
99
LIABILITIES thereof carefully made. The protest of
any director, trustee, stockholder or
1. To pay to the corporation the balance member on any action or proposed
of his unpaid subscriptions subject to action must be recorded in full on his
the provision of section 67 to 70; demand.
2. To pay interest on his unpaid
subscription if required by the by-laws The records of all business
or by the contract of subscription in transactions of the corporation and
accordance with section 66; the minutes of any meetings shall be
3. To answer to the creditors for the open to inspection by any director,
unpaid portion of his subscription trustee, stockholder or member of
under the TRUST FUND DOCTRINE; the corporation at reasonable hours
4. To answer the “water” in his stocks as on business days and he may
provided for in section 65; demand, in writing, for a copy of
5. To be liable, as general partners, for excerpts from said records or
all debts, liabilities and damages of a minutes, at his expense.
determinable corporation as
envisioned under section 21 Any officer or agent of the
(corporation by estoppel); and, corporation who shall refuse to allow
6. To be personally liable for torts, in the any director, trustees, stockholder or
event that a stockholder in a close member of the corporation to
corporation actively participates in the examine and copy excerpts from its
management of the corporate affairs. records or minutes, in accordance
with the provisions of this Code,
CORPORATE BOOKS AND RECORDS shall be liable to such director,
trustee, stockholder or member for
What are these books and records that damages, and in addition, shall be
are required to be kept? guilty of an offense which shall be
punishable under Section 144 of this
Section 74. Books to be kept; stock transfer Code: Provided, That if such refusal
agent. - Every corporation shall keep and is made pursuant to a resolution or
carefully preserve at its principal office a order of the board of directors or
record of all business transactions and trustees, the liability under this
minutes of all meetings of stockholders or section for such action shall be
members, or of the board of directors or imposed upon the directors or
trustees, in which shall be set forth in trustees who voted for such refusal:
detail the time and place of holding the and Provided, further, That it shall
meeting, how authorized, the notice given, be a defense to any action under
whether the meeting was regular or this section that the person
special, if special its object, those present demanding to examine and copy
and absent, and every act done or ordered excerpts from the corporation's
done at the meeting. Upon the demand of records and minutes has improperly
any director, trustee, stockholder or used any information secured
member, the time when any director, through any prior examination of the
trustee, stockholder or member entered or records or minutes of such
left the meeting must be noted in the corporation or of any other
minutes; and on a similar demand, the corporation, or was not acting in
yeas and nays must be taken on any good faith or for a legitimate purpose
motion or proposition, and a record in making his demand.
100
Stock corporations must also which must be kept and carefully
keep a book to be known as the "stock preserved at its principal office;
and transfer book", in which must be 2. Minutes of all meetings of
kept a record of all stocks in the stockholders or members and of the
names of the stockholders directors or trustees setting forth in
alphabetically arranged; the detail the date, time, and place of
installments paid and unpaid on all meeting, how authorized, the notice
stock for which subscription has been given whether the same be regular
made, and the date of payment of any or special, and if special, the
installment; a statement of every purpose thereof shall be specified,
alienation, sale or transfer of stock those present and absent, and every
made, the date thereof, and by and to act done or ordered done there at
whom made; and such other entries as which ,must likewise be kept at the
the by-laws may prescribe. The stock principal office of the corporation;
and transfer book shall be kept in the and,
principal office of the corporation or in 3. Stock and transfer book showing the
the office of its stock transfer agent names of the stockholders, the
and shall be open for inspection by amount paid or unpaid on all stocks
any director or stockholder of the for which subscription has been
corporation at reasonable hours on made, a statement of every
business days. alienation, sale or transfer of stock
made, if any the date thereof, and by
No stock transfer agent or one whom and to whom made which
engaged principally in the business of must also be kept at the principal
registering transfers of stocks in behalf office of the corporation or in the
of a stock corporation shall be allowed office of its stock transfer agent.
to operate in the Philippines unless he
secures a license from the Securities These corporate books and records,
and Exchange Commission and pays inclusive of all business transactions
a fee as may be fixed by the and minutes of meetings, are
Commission, which shall be renewable subject to inspection by any of the
annually: Provided, That a stock directors, trustees, stockholders or
corporation is not precluded from members of the corporation at
performing or making transfer of its reasonable hours on business days
own stocks, in which case all the rules and a copy of excerpts of said
and regulations imposed on stock records may be demanded. In fact,
transfer agents, except the payment of in so far as financial statement is
a license fee herein provided, shall be concerned, the Code clearly
applicable. (51a and 32a; P.B. No. provides:
268.)
Section 75. Right to financial
To summarize: statements. - Within ten (10) days
from receipt of a written request of
1. Records of all business transactions any stockholder or member, the
which include, among others, journals, corporation shall furnish to him its
ledger, contracts, vouchers and most recent financial statement,
receipts, financial statements and which shall include a balance sheet
other books of accounts, income tax as of the end of the last taxable year
returns, and voting trust agreements and a profit or loss statement for
101
said taxable year, showing in this section that the person
reasonable detail its assets and demanding to examine and copy
liabilities and the result of its excerpts from the corporation's
operations. records and minutes has
improperly used any information
At the regular meeting of stockholders secured through any prior
or members, the board of directors or examination of the records or
trustees shall present to such minutes of such corporation or of
stockholders or members a financial any other corporation, or was not
report of the operations of the acting in good faith or for a
corporation for the preceding year, legitimate purpose in making his
which shall include financial demand.”
statements, duly signed and certified
by an independent certified public What is the stock and transfer?
accountant. Where should stock and transfer be
kept? Can it be kept elsewhere?
However, if the paid-up capital of the
corporation is less than P50,000.00, “Stock corporations must also
the financial statements may be keep a book to be known as the
certified under oath by the treasurer or "stock and transfer book", in which
any responsible officer of the must be kept a record of all
corporation. (n) stocks in the names of the
stockholders alphabetically
May books and records be examined? arranged; the installments paid
Who may examine? Can they copy and unpaid on all stock for which
them? In whose expense? subscription has been made, and
the date of payment of any
- Yes, according to the code: installment; a statement of every
alienation, sale or transfer of
“The records of all business stock made, the date thereof, and
transactions of the corporation and by and to whom made; and such
the minutes of any meetings shall other entries as the by-laws may
be open to inspection by any prescribe. The stock and transfer
director, trustee, stockholder or book shall be kept in the principal
member of the corporation at office of the corporation or in the
reasonable hours on business days office of its stock transfer agent
and he may demand, in writing, for and shall be open for inspection by
a copy of excerpts from said any director or stockholder of the
records or minutes, at his expense. corporation at reasonable hours on
“ business days. “
- Yes, they are entitled to a copy, the - The basis of the right of the
code provides that: stockholder to inspect the books and
records of the corporation for a
Section 75. Right to financial proper purpose is to protect his
statements. - Within ten (10) days from interest as a stockholder. Thus, it
receipt of a written request of any has been said that:
stockholder or member, the
corporation shall furnish to him its “The right of the shareholders
most recent financial statement, which to ascertain how the affairs of
shall include a balance sheet as of the his company are being
end of the last taxable year and a profit conducted by its directors and
or loss statement for said taxable year, officers is founded by his
showing in reasonable detail its assets beneficial interest through
and liabilities and the result of its ownership of shares and the
operations. necessity of self-protection.
Managers of some
At the regular meeting of corporations deliberately
stockholders or members, the board of keep the shareholders in
directors or trustees shall present to ignorance or under
such stockholders or members a misapprehension as to the
financial report of the operations of the true condition of its affairs.
corporation for the preceding year, Business prudence demands
which shall include financial that the investor keep a
statements, duly signed and certified watchful eye on the
by an independent certified public management and the
accountant. condition of the business.
Those in charge of the
However, if the paid-up capital company may be guilty of
of the corporation is less than gross incompetence or
P50,000.00, the financial statements dishonesty for years and
may be certified under oath by the escape liability if the
treasurer or any responsible officer of shareholders cannot inspect
the corporation. (n) the records and obtain
information.”
- Audited financial statement filed in the
SEC, 120 days from the end of the Is there any distinction of the right of
final year, or must be filed on or before inspection of a stockholder and that
April of each year of a director?
- Must be stamp received by the BIR
- Yes, as compared to a stockholder
Those in the stock exchange or member, the right of a director or
trustee to inspect and examine
- Disclosure of any matter that have to corporate books and records is
do with increasing and decreasing considered absolute and unqualified
- If not “kulong” violation of securities and without regard to motive. This is
and regulation act because a director supervises,
103
directs and manages corporate officer or agent of the corporation
business and it is necessary that he be who shall refuse to allow any
equipped with all the information and director, trustees, stockholder or
data with regard to the affairs of the member of the corporation to
company in order that he may manage examine and copy excerpts from its
and direct its operations intelligently records or minutes, in accordance
and according to his best judgment in with the provisions of this Code,
the interest of all the stockholders he shall be liable to such director,
represents. Thus, while stockholders trustee, stockholder or member for
and members are entitled to inspect damages, and in addition, shall be
and examine the books and records as guilty of an offense which shall be
provided in sections 74 and 75 they punishable under Section 144 of this
may not gain access to highly sensitive Code. The latter provision imposes a
and confidential information. In the penalty of a fine of not less than
case of directors. “it is not denied” that P1,000 but not more than P10,000
they have such access. This would or an imprisonment for not less than
include, among others, 30 days but not more than 5 years,
or both, at the discretion of the court.
a. Marketing strategies and pricing If the refusal is pursuant to a
structure; resolution or order of the board, the
b. Budget for expansion and liability shall be imposed upon the
diversification; directors or trustees who voted for
c. Research and development; such refusal.
d. Sources of funding, availability of
personnel, proposals of mergers or Defense of the responsible
tie-ups with other firms corporate officer
May this right be exercised, other than 1. That the person demanding has
by the stockholders themselves? improperly used any information
secured through any prior
- Yes, while the right is founded on examination of the records or
stock ownership thus personal in minutes of such corporation or of
nature it may be made by the any other corporation;
stockholder’s agent or representative 2. That he was not acting in good faith
since it may be unavailing in many or for a legitimate purpose in making
instances his demand;
3. The right is limited or restricted by
What if the right of the stockholder to special law or the law of it creation.
inspect is denied? What is his
remedy? W.G. Philpotts vs. Philippine
Manufacturing Co.
1. Mandamus
2. Damages either against the - The right of inspection given to a
corporation or responsible officer who stockholder can be exercised either
refused the inspection by himself or by any proper
3. Criminal complaint for violation of his representative or attorney-in-fact,
right to inspect and copy excerpts of all and either with or without the
business transactions and minutes of attendance of the stockholder
meeting. Section 74 provides that Any
104
- The right may be regarded as been written up and approved by the
personal, in the sense that only a directors.
stockholder may enjoy it; but the
inspection and examination may be May a stockholder of a holding
made by another. Otherwise it would company inspect the books and
be unavailing in many instances. records of a subsidiary?
- It will never become valid until and What property? When may this right
unless the SEC gives its stamp of be exercises?
approval
- It will be up to the constituent - Section 81 provides:
corporation to follow it up
- It will never take effect until the SEC Section 81. Instances of
gives its approval and issues the appraisal right. - Any stockholder of
articles of merger a corporation shall have the right to
dissent and demand payment of the
fair value of his shares in the
following instances:
109
1. In case any amendment to the Section 82. How right is
articles of incorporation has the effect exercised. - The appraisal right may
of changing or restricting the rights of be exercised by any stockholder
any stockholder or class of shares, or who shall have voted against the
of authorizing preferences in any proposed corporate action, by
respect superior to those of making a written demand on the
outstanding shares of any class, or of corporation within thirty (30) days
extending or shortening the term of after the date on which the vote was
corporate existence; taken for payment of the fair value of
his shares: Provided, That failure to
2. In case of sale, lease, exchange, make the demand within such period
transfer, mortgage, pledge or other shall be deemed a waiver of the
disposition of all or substantially all of appraisal right. If the proposed
the corporate property and assets as corporate action is implemented or
provided in the Code; and affected, the corporation shall pay to
such stockholder, upon surrender of
3. In case of merger or consolidation. the certificate or certificates of stock
(n) representing his shares, the fair
value thereof as of the day prior to
May it be exercised by a stockholder the date on which the vote was
who dissents to the act of a business taken, excluding any appreciation or
other than a primary purpose? depreciation in anticipation of such
corporate action.
X Co. inc
If within a period of sixty (60)
Principal office is in Quezon city, it was days from the date the corporate
changed to Paranaque action was approved by the
stockholders, the withdrawing
A objects and makes a written stockholder and the corporation
demand. May he exercise his right of cannot agree on the fair value of the
appraisal? shares, it shall be determined and
appraised by three (3) disinterested
- It is not available in all amendments of persons, one of whom shall be
the corporation named by the stockholder, another
- It must be changing or restricting the by the corporation, and the third by
rights of any stockholder the two thus chosen. The findings of
the majority of the appraisers shall
What if the principal office is changed be final, and their award shall be
from QC to TAWI-TAWI, will it change paid by the corporation within thirty
or affect the rights of A? (30) days after such award is made:
Provided, That no payment shall be
- To some it may change or restrict the made to any dissenting stockholder
rights to others it may not unless the corporation has
unrestricted retained earnings in its
How is the right exercised? books to cover such payment: and
Provided, further, That upon
- According to section 82 of the code: payment by the corporation of the
agreed or awarded price, the
110
stockholder shall forthwith transfer his value of his shares: Provided, That
shares to the corporation. (n) failure to make the demand within
such period shall be deemed a
X Co. waiver of the appraisal right. If the
proposed corporate action is
Principal Office- QC, it was changed to implemented or affected, the
Manila corporation shall pay to such
stockholder, upon surrender of
A objects and makes a written demand the certificate or certificates of
for payment of fair value of shares. stock representing his shares, the
Can he make a demand of payment of fair value thereof as of the day prior
shares? to the date on which the vote was
taken, excluding any appreciation or
True or False, no stockholder in a depreciation in anticipation of such
stock corporation can ever demand if corporate action.
the principal office is amended,
changing it from QC to Manila If within a period of sixty (60)
days from the date the corporate
- False, a stockholder in a close action was approved by the
corporation may for any reason stockholders, the withdrawing
compel the close corporation that he stockholder and the corporation
be paid the fair value of his shares cannot agree on the fair value of the
shares, it shall be determined and
Can he exercise his appraisal rights in appraised by three (3) disinterested
the first place? He hasn’t even paid his persons, one of whom shall be
subscription in full. named by the stockholder, another
by the corporation, and the third by
May a stockholder who hasn’t paid his the two thus chosen. The findings of
subscription in full exercise his the majority of the appraisers shall
appraisal rights? be final, and their award shall be
paid by the corporation within thirty
- Yes, he can exercise his appraisal (30) days after such award is made:
rights, by reconciling the provisions of Provided, That no payment shall be
section 72, section 82 and section 86 made to any dissenting stockholder
unless the corporation has
Section 72. Rights of unpaid unrestricted retained earnings in its
shares. - Holders of subscribed shares books to cover such payment: and
not fully paid which are not delinquent Provided, further, That upon
shall have all the rights of a payment by the corporation of the
stockholder. (n) agreed or awarded price, the
stockholder shall forthwith transfer
Section 82. How right is his shares to the corporation. (n)
exercised. - The appraisal right may be
exercised by any stockholder who Section 86. Notation on
shall have voted against the proposed certificates; rights of transferee. -
corporate action, by making a written Within ten (10) days after
demand on the corporation within thirty demanding payment for his shares,
(30) days after the date on which the a dissenting stockholder shall submit
vote was taken for payment of the fair the certificates of stock representing
111
his shares to the corporation for 1. The stockholder must have voted
notation thereon that such shares are against the proposed corporate
dissenting shares. His failure to do so action in any of the instances
shall, at the option of the allowed by law for the exercise of
corporation, terminate his rights the right of appraisal;
under this Title. If shares represented 2. The written demand for payment
by the certificates bearing such must be made by the dissenting
notation are transferred, and the stockholder within thirty (30) days
certificates consequently cancelled, after the date on which the vote was
the rights of the transferor as a taken thereon. Failure to make the
dissenting stockholder under this Title demand within the said period shall
shall cease and the transferee shall be deemed a waiver on the part of
have all the rights of a regular the stockholder concerned to
stockholder; and all dividend exercise his appraisal right;
distributions which would have 3. Surrender of the certificate of stock
accrued on such shares shall be paid by the dissenting stockholder for
to the transferee. (n) notation in the corporate books and
the payment by the corporation of
- Notation is not mandatory, it is even the fair market value of the said
discretionary because the code shares as of the day prior to the date
provides “at the option of the on which the vote was taken. If the
corporation” because it never issued stockholder and the corporation
one for that matter since the cannot agree on the fair market
subscriptions are not yet fully paid value thereof, the same shall be
determined in accordance with the
May the corporation be compelled to provision of paragraph 2 of section
pay the interest of A 82;
4. The fair value of the shares of the
300 T, 150T, 150T and 0 unrestricted dissenting stockholder must be paid
retained earnings by the corporation only if it has
“unrestricted retained earnings” in its
No stockholder may be able to compel books to cover such payment. If the
the corporation to pay the value of his corporation has no unrestricted
shares if the corporation has no retained earnings, the dissenting
unrestricted retained earnings stockholder may not, therefore, be
able to effectively exercise his
- False, a stockholder of a close appraisal rights;
corporation may for any reason, 5. Upon payment of the shares by the
provided only that the corporation has corporation, the dissenting
sufficient assets to cover its debts and stockholder shall transfer his shares
liabilities to the corporation.
121
business of the corporation shall be - Yes, any third person, section 98
managed by the stockholders rather provides:
than by the board of directors.
However the same must contain the Section 98. Validity of
continuing provisions required in restrictions on transfer of shares. -
paragraph 2 of section 97, that is: Restrictions on the right to transfer
shares must appear in the articles of
1. No meeting of stockholders need incorporation and in the by-laws as
be called to elect directors; well as in the certificate of stock;
2. Unless the context clearly requires otherwise, the same shall not be
otherwise, the stockholders of the binding on any purchaser thereof in
corporation shall be deemed to be good faith. Said restrictions shall not
directors; and; be more onerous than granting the
3. The stockholders of the corporation existing stockholders or the
shall be subject to all liabilities of corporation the option to purchase
directors. the shares of the transferring
stockholder with such reasonable
Liability of stockholders acting as terms, conditions or period stated
directors in a close corporation are therein. If upon the expiration of
more extensive since they are said period, the existing
personally liable for corporate torts stockholders or the corporation
unless the corporation has obtained a fails to exercise the option to
reasonable adequate liability purchase, the transferring
insurance, unlike a ordinary stock stockholder may sell his shares
corporation, wherein directors thereof to any third person.
are only liable for corporate torts only if
they have been negligent or acted o ordinary stock corporations
fraudulently in the performance of their are liable only if acted in Bad
functions. faith, fraud or negligence in
performance of duty
Restrictions
What if there are already 20
- In ordinary stock corporations, the stockholders and they want to add 2
restrictions must appear in the articles more, may it compel?
of incorporation as well as the
certificate of stocks - In ordinary stock corporations, they
- In a close corporation, the restrictions may compel by mandamus
must appear in the articles of - In close corporations, may not be
incorporation, the by-laws and the compelled to admit because it
certificate of stocks. Otherwise, the breaches the qualifying conditions
same shall not be binding on any
purchaser thereof in good faith Since they cannot be compelled,
may they admit?
What if the stockholders do not want to
exercise their right or option to - Yes, provided all the stockholders
purchase may it be sold to any consented or instead of consenting
person? they decide to amend their articles
of incorporation
122
- Will have to amend the articles of Exchange Commission, compel the
incorporation to accommodate other dissolution of such corporation
purchasers of share whenever any of acts of the
- Will cease to be a close corporation if directors, officers or those in control
it amends and becomes in excess of of the corporation is illegal, or
20 fraudulent, or dishonest, or
oppressive or unfairly prejudicial to
o Unless all the stockholders the corporation or any stockholder,
consent they “may” or whenever corporate assets are
being misapplied or wasted.
What if the other stockholders object to
register? What will be the remedy of Agreements may also be entered in
the transferee? a close corporation <sec.100>
- His remedy is rescission. The effect of - They can even agree to be partners
rescission is mutual restitution in management
- Pre-incorporation
How about the stockholder, what is his - Manner in which the business of the
recourse? corporation shall be managed
128
o Recommendation of DECS if and such other officers as may be
certificate of completion in the provided for in the by-laws. Any two
academic field (2) or more positions may be held
concurrently by the same person,
How is the governing board of an except that no one shall act as
educational institution instituted? president and secretary or as
president and treasurer at the same
- Non-stock- multiples of 5 only time.
(example: 5,10,15)
- Stock- can be anywhere between 5 to The directors or trustees and
15 officers to be elected shall perform
the duties enjoined on them by law
Can they consist of 7 or 9 members? and the by-laws of the corporation.
Unless the articles of incorporation
- Yes, if stock or the by-laws provide for a greater
majority, a majority of the number of
Can they be incorporated also as non- directors or trustees as fixed in the
stock? articles of incorporation shall
constitute a quorum for the
- Yes transaction of corporate business,
- B.P. 232 allows the organization of an and every decision of at least a
educational institution that is stock majority of the directors or trustees
corporation, only if they do not issue a present at a meeting at which there
certificate of completion in the is a quorum shall be valid as a
academic field corporate act, except for the election
of officers which shall require the
Qualifications and disqualifications of vote of a majority of all the members
the membership in the board of an of the board.
educational corporation
Directors or trustees cannot attend
- Educational corporations are governed or vote by proxy at board meetings.
by special laws and general (33a)
provisions, hence if there is no
provision in the special law, you go Section 27. Disqualification of
back to section 25 and 27 of the directors, trustees or officers. - No person
general provisions convicted by final judgment of an offense
- Stock- must be a stockholder punishable by imprisonment for a period
- Non-stock- must be a member exceeding six (6) years, or a violation of
- By-laws may provide for additional this Code committed within five (5) years
qualifications and disqualifications prior to the date of his election or
appointment, shall qualify as a director,
Section 25. Corporate officers, trustee or officer of any corporation. (n)
quorum. - Immediately after their
election, the directors of a corporation Article 14 section 4 par. 2 of the
must formally organize by the election Constitutions
of a president, who shall be a director,
a treasurer who may or may not be a Educational institutions, other
director, a secretary who shall be a than those established by religious
resident and citizen of the Philippines, groups and mission boards, shall be
129
owned solely by citizens of the - Corporation sole and religious
Philippines or corporations or societies
associations at least sixty per centum
of the capital of which is owned by What is a corporation sole?
such citizens. The Congress may,
however, require increased Filipino - Consists of one person only and his
equity participation in all educational successor in some particular station,
institutions. The control and who are incorporated by law in order
administration of educational to give them some legal capacities
institutions shall be vested in citizens and advantages, particularly that of
of the Philippines. perpetuity, which in their natural
persons they could not have had
No educational institution shall be
established exclusively for aliens and May a corporation be organized by
no group of aliens shall comprise more less than 5 natural persons?
than one-third of the enrollment in any
school. The provisions of this sub - General rule, 5 to 15 natural
section shall not apply to schools persons(except cooperatives and
established for foreign diplomatic corporations primarily organized to
personnel and their dependents and, hold equities in rural banks and may
unless otherwise provided by law, for rightfully become incorporators
other foreign temporary residents. thereof)
- Exception, corporation sole, consist
- Management is left solely to citizens of of only one person
the Philippines
- Board of Directors manages the May any person form or organize a
corporate affairs, foreigners cannot corporation sole?
therefore be elected in the board
- Exceptions are, mission boards and - No, not any person can form a
religious orders, which may have a corporation sole, section 110
governing board consisting of provides:
foreigners
Section 110. Corporation
Term of office of governing board in an sole. - For the purpose of
educational institutions administering and managing, as
trustee, the affairs, property and
- Can serve a term of 5 years. If that be temporalities of any religious
the case, 1/5 of their number shall denomination, sect or church, a
expire every year corporation sole may be formed by
the chief archbishop, bishop, priest,
Non-stock or stock, can they serve for minister, rabbi or other presiding
a 1 year term only? elder of such religious denomination,
sect or church. (154a)
- Yes, the articles of incorporation may
provide that it be 1 year only Is it required to file the articles of
incorporation in the SEC?
What are these religious corporations
spoken off? - Yes
130
What should be contained in the 5. The place where the principal
articles of incorporation? office of the corporation sole is to be
established and located, which place
- Section 111 and section 112 provides must be within the Philippines.
for the contents and procedures
The articles of incorporation
Section 111. Articles of may include any other provision not
incorporation. - In order to become a contrary to law for the regulation of
corporation sole, the chief archbishop, the affairs of the corporation. (n)
bishop, priest, minister, rabbi or
presiding elder of any religious Section 112. Submission of
denomination, sect or church must file the articles of incorporation. - The
with the Securities and Exchange articles of incorporation must be
Commission articles of incorporation verified, before filing, by affidavit or
setting forth the following: affirmation of the chief archbishop,
bishop, priest, minister, rabbi or
1. That he is the chief archbishop, presiding elder, as the case may be,
bishop, priest, minister, rabbi or and accompanied by a copy of the
presiding elder of his religious commission, certificate of election or
denomination, sect or church and that letter of appointment of such chief
he desires to become a corporation archbishop, bishop, priest, minister,
sole; rabbi or presiding elder, duly
certified to be correct by any notary
2. That the rules, regulations and public.
discipline of his religious
denomination, sect or church are not From and after the filing with
inconsistent with his becoming a the Securities and Exchange
corporation sole and do not forbid it; Commission of the said articles of
incorporation, verified by affidavit or
3. That as such chief archbishop, affirmation, and accompanied by the
bishop, priest, minister, rabbi or documents mentioned in the
presiding elder, he is charged with the preceding paragraph, such chief
administration of the temporalities and archbishop, bishop, priest, minister,
the management of the affairs, estate rabbi or presiding elder shall
and properties of his religious become a corporation sole and all
denomination, sect or church within his temporalities, estate and properties
territorial jurisdiction, describing such of the religious denomination, sect
territorial jurisdiction; or church theretofore administered
or managed by him as such chief
4. The manner in which any vacancy archbishop, bishop, priest, minister,
occurring in the office of chief rabbi or presiding elder shall be held
archbishop, bishop, priest, minister, in trust by him as a corporation sole,
rabbi of presiding elder is required to for the use, purpose, behalf and sole
be filled, according to the rules, benefit of his religious denomination,
regulations or discipline of the religious sect or church, including hospitals,
denomination, sect or church to which schools, colleges, orphan asylums,
he belongs; and parsonages and cemeteries thereof.
(n)
131
Is it required to indicate its terms of educational purposes, and may
execution? Why not? receive bequests or gifts for such
purposes. Such corporation may sell
- Not required because they are or mortgage real property held by it
supposed to exist in perpetuity by obtaining an order for that
- However, it does not mean that it shall purpose from the Court of First
continue to exist forever, it merely Instance of the province where the
means that it has the capacity of property is situated upon proof made
continuous existence during a to the satisfaction of the court that
particular period until dissolved in notice of the application for leave to
accordance with law sell or mortgage has been given by
publication or otherwise in such
When will it acquire judicial manner and for such time as said
personality? How do you compare this court may have directed, and that it
to other types of corporation? is to the interest of the corporation
that leave to sell or mortgage should
- After the filing the verified articles of be granted. The application for leave
incorporation along with the to sell or mortgage must be made by
documents required in Section 112 petition, duly verified, by the chief
with the SEC, immediately becomes archbishop, bishop, priest, minister,
endowed with corporate personality, rabbi or presiding elder acting as
this serves as an exception to the rule corporation sole, and may be
that a corporation acquires juridical opposed by any member of the
personality only upon the issuance of a religious denomination, sect or
certificate of incorporation by the said church represented by the
government agency. corporation sole: Provided, That in
- Upon filing of verified articles of cases where the rules, regulations
incorporation with the SEC, will not and discipline of the religious
require the approval of SEC denomination, sect or church,
religious society or order concerned
A corporation sole is possessed with represented by such corporation
the same power, rights and privileges, sole regulate the method of
to own, acquire and hold or convey acquiring, holding, selling and
properties like any other corporation? mortgaging real estate and personal
True or False property, such rules, regulations and
discipline shall control, and the
- False, they have the same power intervention of the courts shall not
rights and privileges, but when it be necessary. (159a)
comes to alienation and acquisition, it
must possess a court order, however Since a corporation sole is consists
when there is a regulated method, a only of one person, will the
court order may be dispensed with registration of the property in the
<sec. 113> name of the corporation sole vest
unto the head thereof the ownership
Section 113. Acquisition and of the property?
alienation of property. - Any
corporation sole may purchase and - No, it will not vest unto the head, the
hold real estate and personal property head is acting merely as a guardian
for its church, charitable, benevolent or
132
Roman Catholic Apostolic Adm. Of Section 114. Filling of
Davao, inc. vs. Land Reg. Comm, et vacancies. - The successors in
al. office of any chief archbishop,
bishop, priest, minister, rabbi or
- Act only as a guardian presiding elder in a corporation sole
- Ownership devolves upon the shall become the corporation sole
congregation or religious denomination on their accession to office and shall
- A corporation consists of one person be permitted to transact business as
only and his successors (who will such on the filing with the Securities
always be one at a time, in some and Exchange Commission of a
particular station), who are copy of their commission, certificate
incorporated by law in order to give of election, or letters of appointment,
them some legal capacities and duly certified by any notary public.
advantages, particularly that of
perpetuity, which in their natural During any vacancy in the
persons they could not have had office of chief archbishop, bishop,
- Roman Catholic Church has no priest, minister, rabbi or presiding
nationality and that the framers of the elder of any religious denomination,
Constitution, as will be hereunder sect or church incorporated as a
explained, did not have in mind the corporation sole, the person or
religious corporations sole when they persons authorized and empowered
provided that 60 percent of the capital by the rules, regulations or discipline
thereof be owned by Filipino citizens. of the religious denomination, sect
or church represented by the
Director of Lands vs. CA corporation sole to administer the
temporalities and manage the
- Alienable public land is converted into affairs, estate and properties of the
private land when the same has been corporation sole during the vacancy
openly, continuously and exclusively in shall exercise all the powers and
possession of the property as concept authority of the corporation sole
of an owner for 30 years, automatically during such vacancy. (158a)
that is
If a corporation exists in equity may
Republic of the Philippines vs. IAC it not be dissolved?
If there is vacancy who will fill up the The declaration of dissolution shall
same? What if there is none, what set forth:
must the successor do?
1. The name of the corporation;
- According to section 114:
2. The reason for dissolution and
winding up;
133
3. The authorization for the dissolution - Under common law, a religious
of the corporation by the particular society is a body of persons
religious denomination, sect or church; associated together for the purpose
of maintaining religious worship.
4. The names and addresses of the
persons who are to supervise the Is it also required to file its articles of
winding up of the affairs of the incorporation to the SEC?
corporation.
- No <sec. 116> “may”
Upon approval of such
declaration of dissolution by the What should be contained in the
Securities and Exchange Commission, articles of incorporation?
the corporation shall cease to carry on
its operations except for the purpose of - Section 116 provides:
winding up its affairs. (n)
Section 116. Religious
- While section 115 of the code provides societies. - Any religious society or
for the process and procedure for the religious order, or any diocese,
dissolution of a corporate sole, there is synod, or district organization of any
nothing in the law itself which would religious denomination, sect or
prohibit it from amending its articles of church, unless forbidden by the
incorporation constitution, rules, regulations, or
- It is believed that authorization for the discipline of the religious
dissolution by the particular religious denomination, sect or church of
denomination, sect or church, as which it is a part, or by competent
required in sub-paragraph 3 of section authority, may, upon written consent
115 would still be necessary in the and/or by an affirmative vote at a
case of amending the articles of meeting called for the purpose of at
incorporation to affect dissolution. least two-thirds (2/3) of its
membership, incorporate for the
o Expiration of a corporate term administration of its temporalities or
will not apply to a religious for the management of its affairs,
corporation properties and estate by filing with
the Securities and Exchange
May a corporation sole be dissolved by Commission, articles of
judicial decree? incorporation verified by the affidavit
of the presiding elder, secretary, or
- General rule: No, because a clerk or other member of such
corporation sole, is by its very nature religious society or religious order,
ecclesiastical and religious (doctrine of or diocese, synod, or district
separation of church and state) organization of the religious
- Exception: police power of the state, if denomination, sect or church,
its purpose is being carried out and is setting forth the following:
instead being used for illegal purpose,
it may be so dissolved 1. That the religious society or
religious order, or diocese, synod, or
What are religious societies? district organization is a religious
organization of a religious
denomination, sect or church;
134
2. That at least two-thirds (2/3) of its - Only a corporation sole may come
membership have given their written into existence without SEC approval,
consent or have voted to incorporate, section 19 will thus govern, Vested
at a duly convened meeting of the
with judicial capacity upon issuance
body;
of the certificate by the SEC
3. That the incorporation of the
o However it is not accurate
religious society or religious order, or
diocese, synod, or district organization according to atty. Ladia
desiring to incorporate is not forbidden because there are those that
by competent authority or by the can issue for example
constitution, rules, regulations or cooperatives- BUREAU OF
discipline of the religious COOPERATIVES which
denomination, sect, or church of which register, home insurance
it forms a part;
guaranty corporation- HOME
4. That the religious society or OWNERS
religious order, or diocese, synod, or
How may religious societies be
district organization desires to
dissolved?
incorporate for the administration of its
affairs, properties and estate;
- Go to the general rules governing
dissolution, because the rules under
5. The place where the principal office
special corporations do not provide
of the corporation is to be established
for such rule
and located, which place must be
within the Philippines; and
DISSOLUTION
6. The names, nationalities, and
What is dissolution?
residences of the trustees elected by
the religious society or religious order,
or the diocese, synod, or district - Extinguishment of the corporate
organization to serve for the first year franchise and the termination of
or such other period as may be corporate existence
prescribed by the laws of the religious
society or religious order, or of the 3 modes of dissolution
diocese, synod, or district organization,
the board of trustees to be not less 1. By expiration of its term;
than five (5) nor more than fifteen (15). 2. By voluntary surrender of its primary
(160a) franchise (voluntary dissolution);
3. By revocation of its corporate
Is it required to indicate its term of franchise (involuntary dissolution)
existence?
Philippine National Bank vs. CFI
- Likewise to exist in perpetuity, the law
does not require to indicate its term of - When the period of corporate life
existence expires, the corporation ceases to
be a body corporate for purposes of
When will it acquire juridical continuing the business for which it
personality? is organized. But it shall
nevertheless be continued as a body
135
corporate for three years after the time and 3 modes of liquidation
when it would have be dissolved, for and winding up-
the purpose of prosecuting and FREQUENTLY ASKED IN
defending suits by or against it and for THE FINALS
enabling it gradually to settle and close
its affairs to dispose of and convey its What are the 3 modes of voluntary
property and to divide its assets. There dissolution?
is no need for the institution of a
proceeding for quo warranto to 1. Voluntary dissolution where no
determine the time and date of the creditors are affected; <sec.118>
dissolution of a corporation because 2. Voluntary dissolution where
the period of corporate existence is creditors are affected; <sec. 119>
provided in the articles of 3. Shortening of corporate term. <sec.
incorporation. When such period 120>
expires and without any extension
having been made pursuant to law, the Voluntary dissolution where no
corporation is dissolved automatically creditors are affected <sec.118>
insofar as the continuation of its
business is concerned. - The formal and procedural
- The rights of the lessor and the lessee requirements necessary are the
over the improvements which the latter following:
constructed on the leased premises
are governed by Article 1678 of the 1. Majority vote of the board of
Civil Code. The provision gives the directors or trustees;
lessee the right to remove the 2. Sending of notice of each
improvements if the lessor chooses stockholders or member either by
not to pay one half of the value registered mail or personal delivery
thereof. However, in the case at bar at least thirty (30) days prior to the
the law will not apply because the meeting (scheduled by the board for
parties herein have stipulated in the the purpose of submitting the board
contract their own terms and action to dissolve the corporation for
conditions concerning the approval of the stockholder or
improvements before the termination members.);
of the lease. Petitioner PNB as 3. Publication of the notice of time,
assignee of PBM succeeded to the place and subject of the meeting for
obligation of the latter under the three (3) consecutive weeks in a
contract of lease. It could not possess newspaper published in the place
rights more than what PBM had as where the principal office of said
lessee under the contract. Hence, corporation is located or in a
petitioner was duly bound to remove newspaper of general circulation in
the improvements before the the Philippines;
expiration of the period of lease. Its 4. Resolution adopted by the
failure to do so when the lease was affirmative vote of the stockholders
terminated was tantamount to a waiver owning at least 2/3 of the
of its rights and interest over the outstanding capital stock or 2/3 of
improvements on the leased premise. the members at the meeting duly
called for the purpose;
o 3 modes of dissolution, 3 5. A copy of the resolution authorizing
modes of voluntary dissolution the dissolution must be certified by a
136
majority of the board of directors or or secretary or one of its directors or
trustees and countersigned by the trustees, setting forth all claims and
corporate secretary; demands against it.
6. Issuance of a certificate of dissolution 3. Issuance of an order by the SEC
by the SEC. reciting the purpose of the petition
and fixing the date on or before
Should this be strictly complied with? which objections thereto may be
filed by any person, which date shall
- Yes, compliance with the requirements not be less than thirty days nor more
and formalities prescribed above is than sixty days after entry of the
mandatory such that failure to comply order.
therewith will have no effect on the 4. Before such date, a copy of the
legal existence of the corporation. order must be published once a
week for three (3) consecutive
Will dissolution be effective and valid weeks in a newspaper of general
by a mere resolution of the BOD and circulation published in the city or
stockholders? municipality where the principal
office is situated or in a newspaper
- No, a mere resolution by the of general circulation in the
stockholders or the BOD of a Philippines.
corporation to dissolve the same does 5. Posting of the same order for three
not affect the dissolution but that some (3) consecutive weeks in three (3)
other steps, administrative or judicial is public places in such city or
necessary. (Daguhoy Enterprises vs. municipality.
Ponce) 6. Upon five (5) days’ notice, given
- Since it is the State which grants its after the date on which the right to
right to exist, it is only through the file objections has expired, the SEC
State which can allow the termination shall hear the petition and try any
of its existence; without consent of the issue made by the objections filed.
State, it will not be dissolved. 7. Judgment dissolving the corporation
and directing of its assets as justice
Voluntary dissolution where creditors requires and the appointment of a
are affected <sec.119> receiver (if necessary in its
discretion) to collect such assets
- By virtue of a petition, when there are and pay the debts of the corporation.
creditors affected
- The following formalities would thus be o The foregoing are also
required: mandatory requirements
138
6. Failure to file required reports in of corporate franchise, and forfeiture
appropriate forms as determined by will not be allowed, except under
the Commission within the prescribed express limitation, or for plain abuse
period. of power by which the corporation
fails to fulfill the design and purpose
- Other grounds are provided for in the of its organization. But when the
corporation code itself: among them abuse or violation constitutes or
are: threatens a substantial injury to the
public or such as to amount to a
1. Violation of any provision of the Code violation of the fundamental
under section 144; conditions of its charter, or its
2. In case of deadlock in a close conduct is characterized by
corporation as provided for in section obduracy or pertinacity in contempt
105; of law, dissolution will be granted
3. In a close corporation, any acts of - Did the court dissolve the
directors, officers or those in control of corporation? No, it did not, it granted
the corporation which is illegal or the corporation 6 months to cease
fraudulent or dishonest or oppressive and desist the performance of the
or unfairly prejudicial to the corporation questioned act otherwise it will be
or any stockholder or whenever dissolved
corporate assets are being misapplied
or wasted under section 105. Government vs. El Hogar
- Collection of all corporate assets, the At any time during said three
payments of all its debts and (3) years, the corporation is
settlement of its obligations and the authorized and empowered to
ultimate distribution of the corporate convey all of its property to trustees
assets, if any of it remains, to all for the benefit of stockholders,
stockholders in accordance with their members, creditors, and other
proportionate stockholdings in the persons in interest. From and after
corporation or in accordance with their any such conveyance by the
respective contracts of subscription. corporation of its property in trust for
the benefit of its stockholders,
Preference upon liquidation members, creditors and others in
interest, all interest which the
- If there are preferred shares, the corporation had in the property
preference granted to such should be terminates, the legal interest vests in
complied with the trustees, and the beneficial
- Preferred shares may give the holder interest in the stockholders,
thereof, preference only in the members, creditors or other persons
dividends but also in the distribution of in interest.
corporate assets upon liquidation or
termination of the corporate existence. Upon the winding up of the
If such is the intent, the contract of corporate affairs, any asset
subscription must so indicate lest they distributable to any creditor or
are placed on equal footing with stockholder or member who is
common shareholders unknown or cannot be found shall
- Preference may be participating or be escheated to the city or
non-participating municipality where such assets are
located.
Dissolved corporations are granted a
period of 3 years to liquidate Except by decrease of capital
stock and as otherwise allowed by
Section 122. Corporate this Code, no corporation shall
liquidation. - Every corporation whose distribute any of its assets or
charter expires by its own limitation or property except upon lawful
is annulled by forfeiture or otherwise, dissolution and after payment of all
or whose corporate existence for other its debts and liabilities. (77a, 89a,
purposes is terminated in any other 16a)
manner, shall nevertheless be
continued as a body corporate for
142
However the 3 year period is not recognize that in cases of voluntary
absolute dissolution there is no occasion for
Liquidation may be undertaken in the appointment of a receiver except
either of the 3 ways under special circumstances and
upon proper showing
1. By the corporation itself through the - If a receiver is appointed, the 3 year
BOD period fixed by law within which to
complete the task of liquidation will
- Usual method or procedure of not likewise apply because the
liquidating a corporation and although dissolved corporation is substituted
there is no law authorizing it, neither is by the receiver who may sue or be
there anything that prohibits the BOD sued even after that period
from undertaking the same
- If this method is resorted to, the board o Mere appointment of a
will only have a period of 3 years to receiver without anything
finish its task of liquidation more does imply in the
- Claims for or against the corporate dissolution of a corporation
entity not filed within the period will
become unenforceable as there exist National Abaca other Fibers Co. vs.
no corporate entity against which they Pore
can be enforced
- Actions pending for or against the - Actions pending for or against the
corporation when the 3 year period corporation when the 3 year period
expires, are abated since after the expires, are abated since after that
period, the corporation ceases for all period, the corporation ceases for all
intents and purposes and is no longer intents and purposes and is no
capable of suing or being sued longer capable of suing or being
sued
2. By a trustee appointed by the - May be continued by the trustee
corporation provided done within the 3 year
period
- The corporation may opt to convey all - Should the corporation, therefore,
corporate assets to a trustees who will finds it difficult to finish its
take charge of liquidation liquidation, it may, at any time during
- If this method is used, the three year the three year period, convey all its
period limitation imposed by section assets and receivables to a trustee
122 will not apply provided the to prosecute and defend suits by or
designation of the trustee is made against the corporation begun
within that period before the expiration of said period
- The effect of the conveyance is to
3. By appointment of a receiver make the trustees the legal owners
of the property conveyed, subject to
- A receiver may be appointed by the the beneficial interest therein of
proper forum on petition or motu creditors and stockholders
proprio upon the dissolution of the
corporation Sumera vs. Valencia
- The appointment of a receiver is,
however, permissive rather than - Thus it was held that when a
mandatory and the law tends to corporation is dissolved and the
143
liquidation of the assets is placed in dissolution is more for the protection
the hands of receiver or assignee, the of its creditors and stockholders.
period of 3 years prescribed by law is Debtors like the petitioners herein
not applicable and the assignee may may not take advantage of the
institute all actions leading to the failure of the corporation to transfer
liquidation of the corporation even after its assets to a trustee, assuming it
the expiration of 3 years. has any to transfer which petitioner
- If the corporation carries out the has failed to show, in the first place.
liquidation of its assets through its own To sustain petitioners’ contention
officers and continues and defends the would be to allow them to enrich
actions brought by or against it, its themselves at the expense of
existence shall terminate at the end of another, which all enlightened legal
three years from the time of systems condemn.
dissolution; but if a receiver or - The counsel who prosecuted and
assignee is appointed, with or without defended the interest of the
a transfer of its properties within 3 corporation may be considered as a
years, the legal interest passes to the “trustee” at least with respect to the
assignee, the beneficial interest matter in litigation only
remaining in the members,
stockholders, creditors and other May a corporation that is already
interested persons and said assignee dissolved, transfer and assign its
may bring an action, prosecute that assets and properties to a new
which has already been commenced corporation which will continue the
for the benefit of the corporation, or business of the dissolved one?
defend the latter against any other
action already instituted or which may - Yes, provided all the stockholders
be instituted even outside of the period gave their consent (Chung Ka Bio
of three years fixed for the offices of vs. IAC)
the corporation.
Republic vs. Marsman Development
Board of Liquidators vs. Kalaw Company & Chung Ka Bio vs. IAC
- Treaties for part of the law of the land - Even if Lacoste did business in the
- Quoting the Paris Convention and the Philippines it can bring action
case of Vanity Fair Mills Inc. vs. T. because the case involves a
Eaton Co. this court further said: violation of our penal code
- Such was a violation of article 189 of
“By the same token, the the RPC, if prosecution follows after
petitioner should be given the the completion of the preliminary
same treatment in the investigation being conducted by the
Philippines as we make Special Prosecutor the information
available to our own citizens. shall be in the name of the People of
We are obliged to assure to the Philippines and no longer the
nationals of countries of the petitioner which is only an aggrieved
Union an effective protection party since a criminal offense is
against unfair competition on essentially an act against the State.
the same way that they are It is the latter which is principally the
obligated to similarly protect injured party although there is a
Filipino Citizen and firms private right violated
- The records show that the goodwill
- The ruling in the aforecited case is in and reputation of the petitioner’s
consonance with the Convention of the products bearing the trademark
Union of Paris for the protection of Lacoste date back even before 1964
Industrial Property to which the when Lacoste clothing apparels
Philippines became a party. Article 8 were forst marketed in the
thereof provides that a trade name Philippines. To allow Hemandas to
shall be protected in all the countries continue using the trademark
of the Union without the obligation of Lacoste for the simple reason that
filing or registration, whether or not it he was the first registrant in the
forms part of the trademark Supplemental Register of a
trademark used in international
Le Chemiste Lacoste vs. Fernandez commerce and not belonging to him
is to render nugatory the very
- The French company may gain access essence of the law on trademarks
to our courts, in the first place it was and trade names
not doing business in the Philippines
- The marketing of its products in the Atlantic Mutual Insurance Co. vs.
Philippines is done through an Cebu Stevedoring Co.
exclusive distributor, Rustan
Commercial Corporation. The latter is - The law denies to a foreign
an independent entity which buys and corporation the right to maintain suit
then markets not only products of the unless it has previously complied
petitioner but also many other products with a certain requirement, then
bearing equally well-known and such compliance, or the fact that the
established trademarks and trade- suing corporation is exempt there
names from, becomes a necessary
averment in the complaint
156
- These are matters peculiarly within the - In effect, intra-corporate or internal
knowledge of appellants alone, and it matters not affecting creditors or the
would be unfair to impose upon public in general are governed not
appellee the burden of asserting and by Philippine laws but the law under
proving the contrary. It is enough that which the foreign corporation was
foreign corporations are allowed by formed or organized
law to seek redress in our courts under
certain conditions: the interpretation of Section 129. Law applicable.
the law should not go so far as to - Any foreign corporation lawfully
include, in effect, an inference than doing business in the Philippines
those conditions have been met from shall be bound by all laws, rules and
the mere fact that the party suing is a regulations applicable to domestic
foreign corporation corporations of the same class,
except such only as provide for the
Olympia Business Machines Co. vs. E. creation, formation, organization or
Razon dissolution of corporations or those
which fix the relations, liabilities,
- How do you distinguish this case with responsibilities, or duties of
Atlantic? stockholders, members, or officers
- In Atlantic it dismissed the case, while of corporations to each other or to
in Olympia it did not the corporation. (73a)
What law govern foreign corporation - PNB vs. Gonzales, will this apply to
doing and transacting business in the a foreign corporation? How do you
Philippines with a license distinguish this case from a
Philippine law?
- Laws of the Republic of the Philippines - Since it concerns the rights of
save and except that would normally stockholders it is the law of New
be those matters which concern its York that should govern
formation, organization or dissolution,
or those fixing the relationship, Is the license to do business of a
liabilities, responsibilities, or duties of foreign corporation subject to
the stockholders, members or officers suspension or revocation? What are
of the foreign corporation or their the grounds?
relations to each other.
- Section 134 provides:
157
Section 134. Revocation of and in behalf of any foreign
license. - Without prejudice to other corporation or entity not duly
grounds provided by special laws, the licensed to do business in the
license of a foreign corporation to Philippines; or
transact business in the Philippines
may be revoked or suspended by the 9. Any other ground as would render
Securities and Exchange Commission it unfit to transact business in the
upon any of the following grounds: Philippines. (n)
1. Failure to file its annual report or SEC does not have the sole
pay any fees as required by this Code; authority to suspend or revoke the
license of a foreign corporation
2. Failure to appoint and maintain a doing business in the Philippines,
resident agent in the Philippines as other government agencies like the
required by this Title; Central Bank , the Insurance
Commission may also do so within
3. Failure, after change of its resident their respective dominion, despite
agent or of his address, to submit to the provision of section 134
the Securities and Exchange If the SEC believes that revocation
Commission a statement of such is warranted, section 135 provides
change as required by this Title; that:
161
- Their liability was almost wiped out of payments, such petition are
they became stockholders instead of beyond the competence of the SEC
creditors
What happens if there is a
- After 5 years those who converted sold suspension order?
it back to the corporation, thereby
Explain the key phrase “quality is
making profits
equity”
Amendment is for the economic
- All creditors stand on equal footing,
development of the country
secure or unsecure, holding or lien
What if walang amendment, e mas or without a lien, no creditor may
maraming liabilities kesa assets enforce his lien while rehabilitation is
going (Alemar case)
Suspension order- all actions for
claims against the corporation are - No preference shall be given
accordingly suspended at whatever
stage the proceedings maybe RCBC vs. IAC
- Save and except in the case of a close - Acquired upon publication without
corporation in case of deadlock furnishing the creditors a copy of the
management committee is allowed to petition and attachments thereof
take over right away
- A creditor may now file the
Jacinto case suspension proceedings; provides
that creditors owns at least 25%
- 2nd par of page 676
Intra-corporate- rule 1 section 6
- 2 requisites where present
Service of summons- rule 2 section
- Wala ng mapautang, there was a 5
paralyzation
- Summons may be made to anyone
Sy Chim
In case of intra-corporate dispute,
- Did not appoint a management elections, fraud, etc; if they are
committee governed by interim rules of
procedure on intra-corporate
- In the absence of a strong showing of
controversies
an imminent danger of dissipation, loss
163
Venue Investment contracts
164
-SEC. 2. Declaration of State Policy. – The f) Proprietary or non proprietary
State shall establish a socially conscious, free membership certificates
market that regulates itself, encourage the incorporations; and
widest participation of ownership in g) Shares of stock, bonds, debentures,
enterprises, enhance the democratization of notes, evidences of indebtedness,
wealth, promote the development of the asset-backed securities;
capital market, protect investors, ensure full
and fair disclosure about securities, minimize GR: Securities shall not be sold or offered
if not totally eliminate insider trading and for sale or distribution within the PH,
other fraudulent or manipulative devices and without a registration statement filed with
practices which create distortions in the free and approved by SEC. Prior to such sale,
market. information on the securities, in such form
and with such substance as the
BROKER - person who buys and sells Commission may prescribe, shall be made
securities for the account of others. available to each prospective purchaser.
(Sec 8)
DEALER - person who buys and sells
securities for his/her own account in the EXCEPT: Exempt Securities under Sec 9
ordinary course of business. a) Any security issued or
guaranteed by the Government of
NOTE: No person shall engage the PH, or by any political
in the business of buying or selling subdivision or agency thereof, or by
securities in the Philippines as a any person controlled or supervised
broker or dealer, or act as a by, and acting as an instrumentality
salesman, or an associated person of said Government.
of any broker or dealer unless b) Any security issued or
registered as such with the guaranteed by the government of
Commission. (Sec 28) any country with diplomatic relations
with the PH, or by any state,
SECURITES - shares, participation or province or political subdivision
interests in a corporation or in a commercial thereof on the basis of reciprocity:
enterprise or profit-making venture and Provided, that the SEC may require
evidenced by a certificate, contract, compliance with the form and
instrument, whether written or electronic in content of disclosures the
character. It includes: Commission may prescribe.
CODE: COFDIPS c) Certificates issued by a
a) Certificates of assignments, receiver or by a trustee in
certificates of participation, trust bankruptcy duly approved by the
certificates, voting trust certificates or proper adjudicatory body.
similar instruments; d) Any security or its derivatives
b) Other instruments as may in the future the sale or transfer of which, by law,
be determined by the Commission; is under the supervision and
c) Fractional undivided interests in oil, regulation of the Office of the
gas or other mineral rights; Insurance Commission, Housing and
d) Derivatives like option and warrants; Land Use Regulatory Board, or the
e) Investment contracts, certificates of Bureau of Internal Revenue.
interest or participation in a profit e) Any security issued by a bank
sharing agreement, certificates of except its own shares of stock.
deposit for a future subscription;
165
AND Exempt Transactions under Sec 10 holder of the security surrendered in
a) A judicial sale, or sale by an exchange to make such conversion:
executor, administrator, guardian or Provided, That the security so
receiver or trustee in insolvency or surrendered has been registered
bankruptcy. under this Code or was, when sold,
b) By or for the account of a exempt from the provisions of this
pledge holder, or mortgagee or any Code, and that the security issued
other similar lien holder selling or and delivered in exchange, if sold at
offering for sale or delivery in the the conversion price, would at the
ordinary course of business and not for time of such conversion fall within
the purpose of avoiding the provisions the class of securities entitled to
of this Code, to liquidate a bona fide registration under this Code. Upon
debt, a security pledged in good faith such conversion the par value of the
as security for such debt. security surrendered in such
c) An isolated transaction in which exchange shall be deemed the price
any security is sold, offered for sale, at which the securities issued and
subscription or delivery by the owner delivered in such exchange are sold.
thereof, or by his representative for the h) Broker’s transactions,
owner’s account, such sale or offer for executed upon customer’s orders,
sale, subscription or delivery not being on any registered Exchange or other
made in the course of repeated and trading market.
successive transactions of a like i) Subscriptions for shares of
character by such owner, or on his the capital stock of a corporation
account by such representative and prior to the incorporation thereof or
such owner or representative not being in pursuance of an increase in its
the underwriter of such security. authorized capital stock under the
d) Distribution by a corporation, Corporation Code, when no expense
actively engaged in the business is incurred, or no commission,
authorized by its AOI, of securities to compensation or remuneration is
its stockholders or other security paid or given in connection with the
holders as a stock dividend or other sale or disposition of such securities,
distribution out of surplus. and only when the purpose for
e) Sale of capital stock of a soliciting, giving or taking of such
corporation to its own stockholders subscriptions is to comply with the
exclusively, where no commission or requirements of such law as to the
other remuneration is paid or given percentage of the capital stock of a
directly or indirectly in connection with corporation which should be
the sale of such capital stock. subscribed before it can be
f) Issuance of bonds or notes registered and duly incorporated, or
secured by mortgage upon real estate its authorized capital increased.
or tangible personal property, where j) The exchange of securities by
the entire mortgage together with all the issuer with its existing security
the bonds or notes secured thereby holders exclusively, where no
are sold to a single purchaser at a commission or other remuneration is
single sale. paid or given directly or indirectly for
g) Issue and delivery of any soliciting such exchange.
security in exchange for any other k) The sale of securities by an
security of the same issuer pursuant to issuer to fewer than twenty (20)
a right of conversion entitling the
166
persons in the Philippines during any ownership of more than 50% of the
twelve-month period. equity shares of a public company.
l) The sale of securities to any
number of the following qualified PROXY SOLICITATION
buyers: (i) Bank; (ii) Registered
investment house; (iii)insurance NOTE: A broker or dealer who holds or
company; (iv) Pension fund or acquires the proxy for at least ten per
retirement plan maintained by the centum (10%) or such percentage as the
Government of the Philippines or any Commission may prescribe of the
political subdivision thereof or outstanding share of the issuer, shall
managed by a bank or other persons submit a report identifying the beneficial
authorized by the Bangko Sentral to owner within ten (10) days after such
engage in trust functions; (v) acquisition, for its own account or
investment company or; (vi) Such customer, to the issuer of the security, to
other person as the Commission may the Exchange where the security is traded
by rule determine as qualified buyers, and to the Commission. (Sec 20.5)
on the basis of such factors as
financial sophistication, net worth, FRAUDULENT TRANSACTIONS AND
knowledge, and experience in financial OTHER MARKET MANIPULATIONS
and business matters, or amount of
assets under management. 1. Wash Sale (Sec 24.1(a)(i)) – any
transaction in a security which involves no
PROTECTION OF SHAREHOLDERS change in the beneficial ownership thereof.
INTEREST 2. Matched Order (Sec 24.1(a)(ii)) –
order or orders for the purchase or sale of
1. Tender Offers (Sec 19) security with the knowledge that a
2. Proxy solicitation (Sec 20) simultaneous order or orders of
3. Internal record keeping and substantially the same size, time and price
accounting (Sec 22) for the sale or purchase of such security
has, or will be entered by or for the same or
TENDER OFFER – A publicly announced different parties.
intention acting alone or in concert with others
to acquire equity securities of a company. Note: Wash sale and matched
(2002 Bar Exams) orders become illegal when they are
used as a means to create false
Instances when Tender Offer is Required appearance of active trading in the
1. When the person intends to security concerned.
acquire 15% or more of the equity
share of a public company pursuant to 3. Marking the close – placing the
an agreement made between or purchase order, at or near the close of the
among the person and one or more trading period. The price that was closed
sellers; will then be the price that will be posted on
2. When the person intends to the following trading day.
acquire 30% or more of the equity 4. Painting the tape – involves a
share of a public company within a series of transactions that are reported
period of 12 months; publicly to give the impression of an activity
3. When the person intends to in a security.
acquire shares that would result in an 5. Squeezing the float – the part of an
outstanding security intentionally held by
167
dealers or other persons with a view of manipulative market operations of any one
reselling them later for profit. or more persons conducted for the purpose
6. Hype and dump – Act employed by a of raising or depressing the price of the
person or group of persons of purchasing the security and thus inducing the purchase of
outstanding capital stock of a dormant public such security.
shell company for a nominal amount and 9. Making False or Misleading
merge it with their privately held company. Statements with respect to any material
They would then gain control of the majority fact which he knew or had reasonable
stocks of the merged entity. Stock certificates ground to believe was so false or
are often re-issued in the name of the merged misleading for the purpose of inducing the
entity to relatives and associates who act as purchase or sale of such security.
nominees of the person or persons employing 10. Pegging or Fixing Or Stabilizing
the device. They would then look for a the price of security effected either alone or
broker-dealer who would be willing to make a with others through any series of
“hype” of the securities. The broker-dealer transactions for the purchase or sale
then generates volume and advance bid thereof, if done for such purpose.
price. When the market reaches a high price, 11. Short sale – selling of security
they would “dump” their shareholdings and which the vendor does not own unless
bail out. done in accordance with the rules and
7. Boiler Room Operations – involves regulations of the SEC.
an intensive selling campaign through 12. Insider Trading – the act of an
numerous salesmen by telephone or through insider to buy or sell security of the issuer
direct mail offerings for securities of either a while in possession of material information
certain type or from a specific issuer. with respect to such security that is not
Investors are induced to purchase through generally made known to the public unless
hard-sell based on unfounded predictions and (a) The insider proves that the information
mailing of misleading market letters. was not gained from such relationship; or
(b) If the other party selling to or buying
Note: Marking the close, Painting the from the insider (or his agent) is identified,
tape, Squeezing the float, Hype and the insider proves: (i) that he disclosed the
dump, Boiler Room Operations information to the other party, or (ii) that he
become unlawful if it is effected to had reason to believe that the other party
either raise the price or induce the otherwise is also in possession of the
purchase of a security or of a information.
controlling, controlled, or commonly
controlled company by others or to Note: When is information
depress the price to induce the sale of “material non-public”? - if: (a) It
a security, whether of the same or of a has not been generally disclosed to
different class, of the same issuer or of the public and would likely affect the
a controlling, controlled company or market price of the security after
common controlled company by others being disseminated to the public and
or to create active trading to induce the the lapse of a reasonable time for
purchase through said devices or the market to absorb the information;
schemes. or (b) would be considered by a
reasonable person important under
8. Circulating or Disseminating the circumstances in determining his
Information – circulating an information that course of action whether to buy, sell
any of the security listed in the exchange will or hold a security.
or is likely to rise or fall because of
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Note: Who is an “insider”? - “Insider” stated price on any given time during the
means: (a) the issuer; (b) a director or stated period.
officer (or person performing similar Call – a transferrable option to buy a
functions) of, or a person controlling specified number of share at a stated price
the issuer; (c) a person whose Straddle – a combination of put and
relationship or former relationship to call.
the issuer gives or gave him access to
material information about the issuer or SETTLEMENT OFFERS
the security that is not generally At any time, during an investigation
available to the public; (d) a or proceeding under this Code, parties
government employee, or director, or being investigated and/or charged may
officer of an exchange, clearing propose in writing an offer of settlement
agency and/or self-regulatory with the Commission. The Commission
organization who has access to may only agree to a settlement offer based
material information about an issuer or on its findings that such settlement is in the
a security that is not generally public interest. Any agreement to settle
available to the public; or (e) a person shall have no legal effect until publicly
who learns such information by a disclosed. Such decision may be made
communication from any of the without a determination of guilt on the part
foregoing insiders. of the person making the offer.
OPTION TRADING
Put – a transferrable option or offer to
deliver a given number of shares of stock at a
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