Professional Documents
Culture Documents
ATTRIBUTES OF A CORPORATION:
1. It is an artificial being;
2. It is created by operation of law;
3. It has the right of succession; and
4. It has only the powers, attributes and properties expressly authorized by law
or incident to its existence.
Law3 Private Corporations
DISTINCTIONS BETWEEN A PARTNERSHIP AND A CORPORATION:
PARTNERSHIP CORPORATION
1. Creation
Mere agreement of the parties By law or by operation of law
2.No. of incorporators
At least 2 persons 5-15 incorporators (except corporation
sole)
3.Commencement of juridical personality
From the moment of execution of the From the date of issuance of the Cert. of
contract Inc. by the SEC
4.Powers
May exercise any power authorized Can exercise only the powers expressly
by the partners (provided it is not granted by law or implied from those
contrary to law, morals, good granted or incident to its existence
customs, public order, public policy)
5.Management
When management is not agreed Vested in the board of directors or
upon, every partner is an agent of the trustees
partnership
6.Effect of mismanagement
A partner as such can sue a partner Suit against a member of the BOD/T who
who mismanages mismanages must be in the name of the
corporation
7.Right of Succession
No right Has right of succession
8.Extent of liability to third persons
Partners are liable personally & SHs are liable only to the extent of the
subsidiarily (sometimes solidary) for shares subscribed by them (limited
rd
partnership debts to 3 persons liability feature)
9.Transferability of interest
Partner cannot transfer his interest in SH has generally the right to transfer his
the partnership so as to make the shares w/o prior consent of the other SHs
transferee a partner w/o the because corporation is not based on this
unanimous consent of all the existing principle
partners because partnership is
based on the principle of delectus
personae
10.Term of existence
3 Classes of Piercing:
1. Fraud cases – when a corporation is used as a cloak to cover fraud or to do
wrong
2. Alter ego cases – when the corporation is merely a farce since the
corporation is an alter ego, business conduit or instrumentality of a person
or another corporation
3. Equity cases – to achieve justice or equity
1. Stock Corporation – one whose capital stock is divided into shares and which
is authorized to distribute to shareholders dividends or allotments of the
surplus profits on the basis of the share held; created and operated for the
purpose of making a profit
2. Non-stock Corporation – does not issue stocks nor distribute dividends to its
members; not created for profit but for the public good and welfare
OTHER CLASSIFICATIONS:
1. As to number of persons who compose them
a.) Corporation aggregate – more than one member or corporator
b.) Corporation sole – composed of one member or corporator only and his
successors, such as a bishop
2. As to whether for religious purposes or not
a.) Ecclesiastical – organized for religious purposes
b.) Lay – organized for a purpose other than for religion
3. As to whether they are for charitable purposes or not
a.) Eleemosynary – for charitable purposes
b.) Civil – for business or profit
4. As to State or by whose laws they have been created
a.) Domestic – incorporated under the laws of the Philippines
b.) Foreign – formed, organized, or existing under any laws other than those
of the Philippines
5. As to their legal right to corporate existence
a.) De jure – existing in fact and in law
b.) De facto (Sec 20) – existing in fact but not in law; there exists a flaw in its
incorporation (Note: illustrate – case where A,B,C,D,E formed a
corporation but D and E failed to sign by omission in good faith)
Exceptions:
1.) No share may be deprived of voting rights except those classified and
issued as “preferred” or “redeemable” shares.
2.) There shall always be a class or series of shares which have complete
voting rights.
CAPITAL STRUCTURE
1. Capital stock – amount fixed in the corporate charter to be subscribed and
paid in cash, in kind or in property at the organization of the corporation or
afterwards and upon which the corporation is to conduct its operation
2. Capital – value of the actual property of the corporation whether in money or
property
3. Authorized capital stock – capital stock divided into shares of par values as
specified in the AOI
4. Subscribed capital stock – amount of the capital stock subscribed whether
fully paid or not
5. Outstanding capital stock – portion of the capital stock issued to subscribers
except treasury shares
6. Paid-up capital stock – portion of the subscribed or outstanding capital stock
that is paid
7. Unissued capital stock – portion of the capital stock that is not issued or
subscribed; does not vote and draws no dividends
8. Legal capital – amount equal to the aggregate par value and/or issued value
of the outstanding capital stock.
PURPOSES OF CORPORATION
- Must be lawful; if purpose is patently unconstitutional, illegal, immoral, or
contrary to government rules and regulations, the same is a ground for the
PRINCIPAL OFFICE
- Must be the exact complete address (SEC requirement); must be the city or
town, not merely the province
- Metro Manila can no longer be stated as principal office
- Change of address
a.) Change of city or municipality – amendment of the AOI to be filed with the
SEC
b.) If located within the same city or municipality – notice only regarding the
change of address
TERM OF OFFICE
- Hold office for one (1) year until their successors are elected and qualified
Holdover Principle – If no election is conducted or no qualified candidate is
elected, the directors or trustees shall continue to act as such in a hold-over
capacity until an election is held and a qualified candidate is so elected.
GENERAL RULE – Unless otherwise provided in the Code, all corporate powers
and prerogatives are vested directly in the Board of Directors or Trustees.
Exceptions:
1. In case of an Executive Committee authorized in the by-laws;
2. Contracted manager which may be an individual, a partnership or another
corporation (Note Sec. 44 if contracted manager is another corporation);
3. Close corporations – stockholders may directly manage the business of the
corporation instead, if the AOI so provide.
Principle on delegation of board power – the Board may validly delegate
some of its functions and powers to officers, committees or agents
N.B. The power to purchase real property is vested in the board. While a
corporation may appoint agents to negotiate for the purchase of real property
needed by the corporation, the final say will have to be with the board, whose
approval will finalize the transaction. A corporation can only exercise its powers and
transact its business through its board of directors and through its officers and
agents when authorized by a board resolution or by its by-laws. (Sps. Firme vs.
Bukal Enterprises, GRN 146608, Oct. 23, 2003)
METHODS OF VOTING
A. Straight Voting – every SH may vote such number of shares for as many
persons as there are directors to be elected.
To illustrate: If A owns 10 shares of stock in a corporation and there are 5
directors to be elected, he is entitled to 50 votes which he may give to the 5
candidates he chose by giving 10 votes each. The votes are distributed
equally among the 5 candidates of his choice without preference.
B. Cumulative Voting for one candidate – a SH is allowed to concentrate his
votes and give one candidate as many votes as the number of directors to be
elected multiplied by the number of his shares shall equal.
To illustrate: In the above example, A may cast all the 50 votes in favor of any
one candidate. Suppose there are 50 shares and 40 of these shares are owned
by A while the remaining 10 shares are owned by B, C, D and E. if there are 5
directors to be elected, A is entitled to 200 votes. The highest number of votes
that A can give each of his 4 candidates is 50. So, there is one remaining slot to
complete the 5 directors. B, C, D and E can now cumulate their votes in favor
of one candidate and thus secure representation in the board.
C. Cumulative Voting by distribution – a SH may cumulate his shares by
multiplying also the number of his shares by the number of directors to be
elected and distribute the same among as many candidates as he shall see fit.
To illustrate: If A owns 10 shares, he is entitled to 50 votes if there are 5
directors to be elected. A may distribute his votes to candidates E, F and G by
giving E, 20 votes, F, 15 and G, 15. Any combination may be adopted as long
as the total number of votes cast by him does not exceed 50 votes which is the
number of shares owned by him multiplied by the number of directors to be
elected.
Note: Formula for determining the votes needed in cumulative voting:
D = [A x B] / [C + 1] + 1
E=DxC
A – Total number of outstanding shares entitled to vote
B – Number of directors desired to be elected
CORPORATE OFFICERS
1. President – must be a director and may not concurrently be the treasurer or
secretary
2. Vice-President – has the authority to act or to perform any duty of the office in
the absence of the president or if the position of president becomes vacant
3. Treasurer – may or may not be a director
4. Secretary – need not be a director unless required by the by-laws; must be a
resident and citizen of the Philippines
N.B. Any two (2) or more positions may be held concurrently by the same
person, except that no one shall act as:
a.) President and Secretary, or
b.) President and Treasurer
at the same time.
Authority of officers is generally derived from law; by-laws; or authorization
from the board, either expressly or impliedly by habit, custom or
acquiescence in the general course of business.
Consequences:
a.) Resolution, contracts and transactions of the Board cannot be overturned
or set aside by the SH or members and not even by the courts under the
principle that the business of the corporation has been left to the hands of
the Board; and
OTHER POWERS:
1. Extension or shortening of corporate term (Sec 37);
2. Power to increase or decrease capital stock/Power to incur, create or increase
bonded indebtedness (Sec 38);
3. Power to deny pre-emptive right (Sec 39);
4. Sell, dispose, lease, encumber all or substantially all or corporate assets (Sec
40);
5. Power to acquire own shares (Sec 41);
6. Invest corporate funds in another corporation or business or for any other
purpose other than the primary purpose (Sec 42);
7. Power to declare dividends out of unrestricted retained earnings (Sec 43);
8. Power to enter into management contract (Sec 44).
DERIVATIVE SUIT
- An action brought about by minority shareholders in the name of the
corporation to redress wrongs committed against the corporation, for which
the directors refuse to sue
TITLE V BY-LAWS
BY-LAWS – rules of action adopted by a corporation for its internal government and
for the regulation of conduct, and prescribe the rights and duties of its stockholders
or members towards itself and among themselves in reference to the management of
its affairs.
FUNCTIONS:
1. Supplement the AOI;
2. Provide for details not important enough to be stated in the AOI;
3. Continuing rule for the government of the corporation and the individuals
composing it;
4. Define the rights and duties of corporate officers and directors/trustees and of
stockholders/members towards the corporation and among themselves;
5. Source of authority for corporate officers and agents of the corporation.
TITLE VI – MEETINGS
MANNER OF VOTING
A SH/member may vote:
1. Directly (in person); or
2. Indirectly, through representative
a.) By means of a proxy;
b.) By a trustee under a voting trust agreement; or
c.) By executors, administrators, receivers, or other legal representatives
duly appointed by the court.
The right to vote by proxy may be exercised in any of the following instances:
1. Election of the board of directors or trustees;
2. Voting in case of joint ownership of stock;
3. Voting by trustee under voting trust agreement;
4. Pledge or mortgage of shares;
5. As provided for in its by-laws
Nota Bene (Note well): Stockholders or members may attend and vote in their
meetings by proxy (Sec. 58); BUT directors cannot do so. Directors must always act
in person (Sec. 25).
EXTENT OF AUTHORITY
1. General proxy – confers a general discretionary power to attend and vote at
annual meetings
2. Limited proxy – restricts the authority to vote to specified matters only and
may direct the manner in which the vote shall be cast
STOCK OPTIONS
- A privilege granted to a party to subscribe to a certain portion of the unissued
capital stock of a corporation within a certain period and under the terms and
conditions of the grant exercisable by the grantee at any time within the
period granted
UNDERWRITING AGREEMENT
- An agreement between a corporation and a third person, termed the
“underwriter”, by which the latter agrees, for a certain compensation, to
purchase a stipulated amount of stocks or bonds, specified in the
underwriting agreement, if such securities are not purchased by those to
whom they are first offered.
SHARES OF STOCK
- Interest or right which owner has in the management of the corporation, and
its surplus profits, and, on dissolution, in all of its assets remaining after the
payment of its debt.
CERTIFICATE OF STOCK
- Paper representation or tangible evidence of the stock itself and of the various
interests therein
Note: The plan may still be amended before the same is filed with the SEC, however,
any amendment thereto must be approved by the majority vote of the board
members or trustees of the constituent corporations and affirmed by the vote of 2/3
of the OCS or members.
RULES ON CONVERSION
1. Stock to non-stock corporation – may be made by mere amendment of the
AOI
- The effect of this is that after the conversion, the SHs now become the
members of the non-stock corporation and thus will no longer have any
pecuniary interest in the corporation. Neither are they entitled to any share in
the profit that may be obtained out of the operations or activities of the non-
stock corporation. Hence, there is in fact no distribution by the stock
corporation, by conversion, it its assets to its stockholders.
2. Non-stock to stock corporation – cannot be converted by mere amendment
of its AOI because the conversion would change the corporate nature from
non-profit to monetary gain
- What the corporation should do is to dissolve itself and its members may
decide to organize a stock corporation.
Non-compliance with any of the requirements shall not make the corporation a
close corporation within the meaning of the Corporation Code.
CHARACTERISTICS:
1. SHs may act as directors without need of election and therefore are liable as
directors;
2. SHs who are involved in the management of the corporation are liable in the
same manner as directors are;
3. Quorum may be greater than mere majority;
4. Transfer of stocks to others, which would increase the number of SHs to more
than the maximum are invalid;
Note: Under Sec. 99, good faith is not a defense because there is a conclusive
presumption of knowledge of the restriction.
EFFECTS:
1. Transfer of legal tile to corporate property to the SHs who become co-owners
thereof;
2. Continuation of corporate business merely as an association without juridical
personality;
3. Conveyance by the SHs of their respective shareholdings toward the creation
of a new corporation to continue the business of the old;
4. Reincorporation of the dissolved corporation by re-filing new articles of
incorporation and by-laws;
5. The corporation continues as a body corporate for 3 years for purposes of
winding up; and
6. Cessation of corporate existence for all purposes upon the expiration of the
winding up period of 3 years.
Liquidation – the process by which all the assets of the corporation are converted
into liquid assets (cash) in order to facilitate the payment of obligations to creditors,
and the remaining balance, if any, is to be distributed to the SHs or members.
N.B.: A dissolved corporation continues to be a body corporate for 3 years from the
time it is dissolved for the purpose of liquidation or winding up its corporate affairs.
The termination of the life of a juridical entity does not by itself cause the extinction
or diminution of the rights and liabilities of such entity nor those of its owners and
creditors alike. (Sec. 145)
METHODS:
1. By the corporation itself through its board of directors/trustees;
2. By a trustee to whom the corporate assets have been conveyed; and
3. By a management committee or rehabilitation receiver appointed by the SEC.
Note:
a.) The 3-year period of liquidation does not apply to methods 2 and 3 as long as
the trustee or the receiver is appointed within the said period.
b.) But the word “trustee” as used in the corporation statute must be understood
in its general concept which could include the counsel to whom was entrusted
the prosecution of the suit filed by the corporation.
c.) The board of directors may also be permitted to complete the corporate
liquidation by continuing as “trustees” by legal implication.
d.) The question as to the right of priority of a claimant against the assets of a
corporation that is being dissolved and liquidated becomes of importance
only when the assets of the corporation are not sufficient to pay all claims.
LIQUIDATION REHABILITATION
Nature
Connotes a winding up or settling with Connotes a reopening or
creditors and debtors reorganization
Continuity of corporate life
Winding up process so that assets may Contemplates a continuance of
- Formed, organized or existing under any law other than those of the
Philippines and whose laws allow Filipino citizens and corporation to do
business in its own country or state. (This definition espouses the
incorporation test and the reciprocity rule and is significant for licensing
purposes.)
REFERENCES: