TITLE VII- STOCKS AND STOCKHOLDERS
matter and nature of the action
41. What is the distinction between shareholdings and
membership in terms of transfer?
● Shareholdings
o May generally transfer their shares
o upon the death of a S, executor or
administrator duly appointed by the court
is vested with the legal title to the stock
and entitled to vote it
● Membership
o Personal and non-transferable
-unless by-laws or AoI provide otherwise
o Whether dead members can vote depends
on the AoI or by-laws
42. Define derivative suit
● an action brought by minority S in the name of
the corp to redress wrongs committed against it,
for which the directors refuse to sue
● remedy designed by equity
● principal defense of the minority S against
abuses by the majority
● effective remedy of the minority against the
abuses of the management
o suing S- nominal party
o corp- party of interest
43. Requisites of complaint for derivative suit
✔ The party bringing the suit should be a
shareholder
o as of the time of the act or transaction
complained of
o number of shares not being material
✔ he has tried to exhaust intra-corporate
remedies
o made a demand on the BOD for the
appropriate relief but they failed or
refused to heed his plea
✔ the cause of action actually devolves on the corp
o the wrongdoing or harm having been, or
being caused to the corp and not to the
particular S bringing the suit
44. Requirements for derivative suit
✔ the minority S who is suing for and on behalf of
the corp must allege in his complaint before the
proper forum
o that he is suing on a derivative cause of
action on behalf of the corp and all other
S similarly situated who wish to join
o necessary to vest jurisdiction upon the
tribunal in line with the rule that it is the
allegations in the complaint that vests
jurisdiction upon the court or quasi-
judicial body concerned over the subject
45. Is the right to file derivative suit expressly granted
in the Corporation Code?
✔ No, it is impliedly recognized when the law
makes corp D or O liable for damages suffered by
the corp and ts S for violation of their fiduciary
duties
46. What are the classes of suits that may be filed by the
stockholders or members?
✔ Derivative Suit
o cause of action belongs to the corp (not to
the S) where the acts complained of
constitute a wrong to the corp itself
o though each S is necessarily affected
because the value of his interest therein
would be impaired, it is not sufficient to
give him an individual cause of action since:
o corp is a person distinct and separate from
him, can and should itself sue the
wrongdoer
o there is difficulty of determining the
amount of damages that should be paid to
each individual S
✔ Individual Suit
o Where a S or M is denied the right of
inspection
o The wrong is done to him personally and
not to the other S of the corp
✔ Class/ Representative Suit
o Where the wrong is done to a group of S
o Preferred S’ rights are violated
47. Reasons for not allowing direct individual suit
✔ To allow S to sue separately would conflict with
the separate corporate entity principle
o Universally recognized doctrine that a S
in a corp has no legal title legal or
equitable to the corp property
o Both of these are in the corp itself fort
he benefit of the S
✔ Prior rights of the creditors may be prejudiced
o If S will claim damages for themselves, it
will result in the appropriation by, and
the distribution among them of corp
assets before dissolution
✔ Will conflict with the duty of the management
to sue for the protection of all concerned
✔ Would produce wasteful multiplicity of suits
✔ Would involve confusion in ascertaining the
effect of partial recovery by an individual on the
damages recoverable by the corp for the same
act
48. Define subscription contract ✔ Shares of stock in another corp and/
✔ Other generally accepted form of consideration
● Any contract for the acquisition of unissued
stock in an existing corp or a corp still to be 53. What is the limit of the amount of consideration?
formed
● No limitations
● Notwithstanding the fact that the parties refer to
it as a purchase or some other contract 54. Requisites for consideration of property
● Necessarily involves the corp as one of the
✔ Must be subject to a fair valuation equal to the
contracting parties since the subject matter of
par or issued value of the stock issued
the transaction is property owned by the corp-
✔ Property is actually received by the corp
its shares of stock
✔ (for intangible property) valuation shall initially
49. What is the nature of subscription contract? be determined by the incorporators or BOD
subject to the approval by the SEC
✔ Consensual
✔ Indivisible 55. What are the rights of stockholders whose shares
are not delinquent?
50. Kinds of subscription. Rules and exception
✔ Management rights
✔ Pre-incorporation
o Attend and vote in person or by proxy at
o Rule:
a S’s meeting
▪ Irrevocable for a period of at least 6
o Elect and remove D
months from the date of
o Approve certain acts
subscription
o Adopt (new) and amend or repeal the
Exception:
by-laws
▪ all of the other subscribers consent
o Compel the calling of the meetings
to the revocation
o Enter into a voting trust agreement
▪ The corp fails to incorporate within
o Have the corp voluntarily dissolved
the same period or within a longer
✔ Propriety Rights
period stipulated in the contract of
o Transfer stock in the corp book
subscription
o Receive dividends when declared
o Rule: no pre-inc subscription may be
o Issuance of cert of stock
revoked after the submission of the AoI
o Participate in the distribution of corp
to the SEC
assets upon dissolution
✔ Post-incorporation
o Pre-emption in the issue of shares
51. How may one become a stockholder? ✔ Remedial Rights
o Inspect corp books
● (subscriber) upon the perfection of the
o Recover stock unlawfully sold for
subscription contract, even though he has not
delinquent payment of subscription
paid for his shares
o Be furnished with the most recent FS
52. What may be the consideration for the issuance of o Bring suits
shares? o Demand payment in the exercise of
appraisal right
*stocks shall not be issued less than par or issued price
56. Shares of Stock vs. Certificate of Stock
✔ Actual cash paid to the corp
✔ Property, tangible or intangible Shares Certificate
o Necessary or convenient for its use and Unit of interest in a corp Evidence of the holder’s
lawful purposes ownership and his right as
o Fair valuation equal to the par or issued aS
value of stock Intangible personal Tangible pp
✔ Labor performed or services rendered property
✔ Previously incurred indebtedness of the corp May be issued by the corp Issued only if subscription
✔ Amounts transferred from unrestricted retained even if subscription is not is fully paid
earnings to stated capital fully paid
✔ Outstanding shares exchanged for stocks
o In the event of reclassification or
conversion
57. Can treasury shares be sold below its par?
● No
58. Are unpaid subscription entitled to vote in
stockholders’ meeting?
● Yes, and they shall have all the rights of a
stockholder
59. Can unpaid subscription earn dividends?
● Yes
60. Is a subscription contract revocable?
● Yes
o Upon notice given by the subscriber if a
condition upon which it is based has not
been performed
o A subscriber may be prevented from
claiming revocation in situations where it
would be contrary to the interests of justice
61. Are shares of stocks personal property?
● Yes
62. Are shares of stock transferrable?
● Yes
63. When shall a transfer of share or shares be valid as
against the corporation?
● When the transfer is recorded in the books of the
corp showing the
o Names of the parties to the transaction
o Date of transfer
o Number of certificate(s)
o Number of shares transferred
64. When are shares not transferrable in the books of
the corporation?
● Shares of stock which the corp holds any unpaid
claim
65. What is the importance of the stock and transfer
book?
● It is the basis for ascertaining the persons
entitled to the rights and subject to the liabilities
of a stockholder
66. What are the requisites for the issuance of
Certificate of Stock?
✔ Cert must be signed by the president or vp,
countersigned by secretary or assistant sec,
sealed with the seal of the corp
o Typewritten statement is not valid
✔ Delivery of cert is an essential element of its
issuance
oNo issuance of stock cert where it is
never detached from the stock books
✔ Par value or full subscription (as to no-par) must
first be fully paid
✔ Original cert must be surrendered
o Where the person requesting the
issuance of cert is a transferee from a
stockholder
67. Meaning of unpaid claim
● Any unpaid claim arising from unpaid
subscription and
● Not to any indebtedness which a subscriber or
stockholder may owe the corp arising from any
other transaction
68. Requisites for the transfer of stock
✔ There must be delivery of stock certificate
✔ The cert must be endorsed by the owner or his
attorney-in-fact or other persons legally
authorized to make the transfer
✔ To be valid against third parties, the transfer
must be recorded in the books of the corp
69. Transfer of shares by means of succession, when is
this binding to the corporation?
● When the transfer is registered in the books of
the corp
o This will make the transferee-heir a
stockholder entitled to recognition as
such both by the corp and 3rd parties
70. May a certificate of stock be issued on a partially
paid subscription?
● No, it will only be issued upon the full amount
of the subscription, together with the interest
and expenses(if any is due), has been paid
71. Who shall be liable to the corporation for watered
stock?
● A director or officer who:
o Consents to the issuance of stocks for a
consideration less than its par or issued
value
o Consents to the issuance of stocks for a
consideration other than cash, valued in
excess of its fair value
o Having knowledge of the insufficient
consideration, does not file a written
objection with the corp secretary
72. Does unpaid subscription earn interest?
● Yes, if required by the subscription contract
73. How much interest is payable on unpaid
subscription?
✔ Interest shall be computed from the date of
subscription
✔ At the rate of interest fixed in the subscription
contract
✔ If no rate is fixed, prevailing legal rate shall apply
74. When shall the balance of subscription be due?
● On the date specified in the subscription
contract or
● On the date stated in the call made by the
board
o Failure to pay on that date shall render
the entire balance due and payable
o Shall make the S liable for interest at the
legal rate on such balance (unless diff.
interest rate is provided in the contract)
75. Within what time shall the balance of subscription
be due?
● Within 30 days from the said date
o If not, all stocks covered by the
subscription shall become delinquent
o And shall be subject to sale, unless the
BOD orders otherwise
76. Who may order the sale of delinquent stock?
● BOD, by resolution
77. What are the modes of payment of unpaid
subscription?
● Voluntary Payment
✔ Date specified in the subscription contract
✔ Date stated in the call made by the board
● Involuntary Payment
✔ Extra Judicial
o Delinquency sale
▪ BOD may, by resolution, order
the sale of delinquent stock
o Application of dividends
▪ Cash dividends due on
delinquent stock shall first be
applied to the unpaid balance
plus costs and expenses
▪ Stock div shall be withheld until
unpaid subscription is fully paid
✔ Judicial action
▪ Corp can collect by action in a
court of proper jurisdiction the
amount due on any unpaid
subscription
▪ With accrued interests, costs and
expenses
78. Within what period shall the sale be held?
● 30 – 60 days from the date the stocks become
delinquent
79. How can delinquent stock be sold?
● Public auction
● To bidder who shall offer to pay the full amount
of balance on subscription plus accrued interest,
costs of advertisement and expenses of sale, for
the smallest number/fraction of shares
80. Can such sale be stopped?
● No action to recover delinquent stock sold can
be sustained upon the ground of irregularity or
defect in the notice of sale, or in the sale itself
81. Who is considered the highest bidder in such sale?
● bidder who shall offer to pay the full amount of
balance on subscription plus accrued interest,
costs of advertisement and expenses of sale, for
the smallest number/fraction of shares
82. Suppose, there is only one bidder who responded to
the bid, may the corporation accept the bid?
● YES, as long as the balance is paid plus other
costs
83. How shall delinquent stock be disposed if there is no
bidder in the auction sale?
● The corporation may bid for the same
● Total amount due will be credited as fully paid in
corporation books
84. What conditions must be present before any action
to recover delinquent stock can be sustained?
● Recovery is not due to irregularity or defect in
the notice of sale
85. What are the effects when stocks become
delinquent?
● Delinquent stock will NOT be
o voted for
o entitled to vote
o represented in any SH meeting
● holder shall NOT be entitled to any of a SH’s
rights except the right to dividends
● only until holder pays balance plus other costs
86. What are the rights of holders of shares which are
unpaid but not declared delinquent?
● All the rights of a SH
87. What is the procedure for the issuance of new
certificate of stock in lieu of the lost one?

a. Owner of certificate of stock/ legal

representative shall file w/ the corp an affidavit
in triplicate setting TITLE VIII
b. After verification of affidavit and other info, the
corporation shall publish a notice in a newspaper CORPORATE BOOKS & RECORDS
of general circulation in the place of the corp’s
1. What are the books and records to be kept by the
principal office
corporation under the code?
o Do this once a week for 3 consecutive
weeks at the expense of the registered ● AoI and bylaws and their amendments
owner of the lost certificate ● Current ownership structure and voting rights
o Notice shall state the: o Lists of SH/M
i. Name of corp o Group structures
ii. Name of registered owner o Intra-group relations
iii. Number of shares represented o Ownership data
by the certificate o Beneficial ownership
iv. And that after 1 year from the ● Names and addresses of all the members of
date of the last publication, if no BOD/T and executive officers
contest has been presented to ● Record of all business transactions
the corp about the certificate, ● Records of resolutions of BOD/T and of SH/M
the right to make such contest
● Copies of the latest reportorial requirements
shall be barred and the
submitted to the Commission
corporation shall cancel the
● Minutes of all meetings of SH/M or of BOD/T
certificate in its books
o Time and place
o In lieu of lost certificate, the corp shall o How it was authorized
issue a new certificate of stock o Notice given
o Agenda
No contest 1 year after Contest has been o Regular or special
last publication presented
o Object (if special)
● the corporation will ● issue of new
o Attendance
issue a new certificate in lieu of
o Every act done or ordered done in the
certificate of stock, lost one is
unless the owner suspended until the meeting
files a bond or court renders a final o If demanded by D/T or SH/M:
other security as decision regarding ▪ time of entrance and exit of
may be required. the certificate SH/M must be noted
● This is valid for ▪ yeas and nays on any motion or
year. proposition, and a record
● A new certificate thereof must be made
may be issued ● protest of a D, T, SH/M on any action or
before expiration of proposed action must be recorded in full
1 year period upon their demand

2. Where must these books be kept? General rule and

exception.
● General rule: principal office
● Exception: stock and transfer book may be kept
in principal office or in office of its stock and
transfer agent, if any

3. Who is the custodian of the books, minutes and

official records of the corp?

● Corporate Secretary
4. Can the SH/M examine these books? 10. Who is a stock and transfer agent?

● YES, at reasonable hours on business days ● Engaged principally in the business of registering
transfer of stocks in behalf of a S-Corp
● Allowed to operate in the Phil upon securing;
5. What are the incidents to the right of SH to inspect
o License from SEC
the corporate B&R?
o Payment of a fee to be fixed by SEC,
● Proper and lawful in character renewable annually
● Not inimical (hostile) to the interest of the corp
● Legitimate purpose
11. May a third party such who is not a SH/M of record,
● Should be germane (relevant) to the interest of
or is a competitor, D, O, controlling SH or one who
SH, where the purpose is:
represents the interest of a competitor inspect or
o Find out the actual financial condition of
demand reproduction of corporate records?
the corp
o How investment is being used ● NO, requesting party shall have no right to
inspect or demand reproduction of corporate
records
6. What are the duties of the inspecting or reproducing
party?
12. May a stockholder examine the books of records of
● shall remain bound by confidentiality rules
a wholly-owned subsidiary of the corporation in which
under prevailing laws:
he is a stockholder?
o Rules on trade secrets/processes
▪ RA 8293 – Intellectual Property ● YES, It has been held that where a corporation
Code of Ph owns approximately no property except the
o RA 10173 - Data Privacy Act of 2012 shares of stock of subsidiary corporations which
o RA 8799 – Securities Regulation Code are merely agents or instrumentalities of the
o Rules of Court holding company, the legal fiction of distinct
corporate entities may be disregarded and the
books, papers and documents of all the
7. What is the basis of SH’s right of inspection?
corporations may be required to be produced
● Based upon their ownership of the assets and for examination
property of the corporation ● A writ of mandamus, may be granted, as the
● Predicated upon the necessity of self-protection records of the subsidiary were, to all in contents
and purposes, the records of the parent even
though subsidiary was not named as a party
8. Is it absolute?
● It is a proof of sufficient control or dominion by
● NOT ABSOLUTE, when the SH: the parent showing the relation of principal or
o Acting in bad faith agent or something similar thereto
o Not for a legitimate purpose
*Writ of mandamus: court order issued by a judge at
o Demand is purely speculative or merely
a petitioner’s request compelling someone to
to satisfy curiosity
execute a duty that they are legally obligated to
complete.
9. When may the right to inspection be not availed of?
Limitations.
13. May a stockholder or member ask for a financial
● Person demanding the right has not improperly
statement from the corporation?
used any information obtained through any
previous examinations of the books & records of ● YES, at regular meeting of SH/M, the D/T shall
the corp present a financial report of the operations of
● Demand is made in good faith or for a legitimate the corp for the preceding year
purpose
● Person demanding the right is not a competitor,
14. How soon shall the corporation furnish the
director, officer, controlling stockholder or one
demanding stockholder with a copy of the financial
who represents the interests of a competitor
statement?
 ● Within 10 days from receipt of the written
request of the SH/M
15.What are the requirements in the preparation of the
financial statements?
● form and substance of the financial reporting
required by the Commission
● duly signed and certified in
● accordance with this Code, and the rules the
Commission may prescribe.
● total assets or total liabilities - less than
P600,000.00, or such other amount as may be
determined appropriate by the Department of
Finance, the financial statements may be
certified under oath by the treasurer and
● the president
Title IX - MERGER AND CONSOLIDATION
1. Define merger.
A merger is a union whereby one or more existing
corporations are absorbed by another corporation that
survives and continues the combined business.
2. Define consolidation.
A consolidation is the union of two or more existing
entities to form a new entity called the consolidated
corporation.
3. Distinguish consolidation and merger from
reorganization.
● Reorganization can also mean a change in the
structure or ownership of a company through a
merger or consolidation, spinoff acquisition,
transfer, recapitalization, or change in identity or
management structure.
● The “Type A” reorganizations can be classified as
either mergers or consolidations.
● A merger is the union of two or more
corporations, with one of the corporations
retaining its corporate existence and absorbing
the others. The other corporations cease to exist
by operation of law.
● A consolidation occurs when a new corporation
is created to take the place of two or more
corporations.
4. Will the acquiring corporation be liable for the debts
of the acquired corporation? Rules
a corporation that purchases the assets of another will
not be liable for the debts of the selling corporation,
provided the former acted in good faith and paid
adequate consideration for such assets, except when any
ofthe following circumstances is present:
(1) where the purchaser expressly or impliedly agrees to
assume the debts,
(2) where the transaction amounts to a consolidation or
merger of the corporations,
(3) where the purchasing corporation is merely a
continuation of the selling corporation, and
(4) where the transaction is fraudulently entered into in
order to escape liability for those debts.
5. What happens after the merger or consolidation?
● one of the corporations survives and continues
the combined business, while the rest are
dissolved and all their rights, properties, and
liabilities are acquired by the surviving
corporation
● surviving corporation automatically acquires all
their rights, privileges, and powers, as well as
their liabilities.
6. How are the corporations', parties' or a merger or
consolidation called?
● Surviving
● consolidated corporation
● Constituents
7. What is the requirement for a valid merger or
consolidation?
● the approval by the SEC of the articles of merger
or consolidation
● articles must likewise be duly approved by a
majority of the respective SH of the constituent
corporations
8. What are the steps to accomplish a merger or
consolidation?
(1) The board of each corporation draws up a plan of
merger or consolidation.
Plan must include any amendment, if necessary
-articles of incorporation of the surviving corporation
-consolidation, all the statements required in the AOI of
a corporation
(2) Submission of plan to SH or M of each corporation for
approval.
● meeting must be called and at least 21 days'
notice must be sent to all SH or M, personally or
by registered mail.
 ● summary of the plan must be attached to
thenotice.
● Vote of 2/3 of the members or of stockholders
representing 2/3 of the OCS will be needed.
● Appraisal rights, when proper, must be
respected.
(3) Execution of the formal agreement- articles ofmerger
or consolidation, by the corporate officers of each
constituent corporation.
● take the place of the AOI of the consolidated
corporation, or
● amend the AOI of the surviving corporation.
(4) Submission of said articles to the SEC for approval.
(5) If upon investigation, the Commission has reason to
believe that the proposed merger or consolidation is
contrary to or inconsistent with the provisions of this
Code or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be heard.
shall be deemed transferred to and
vested in such surviving or consolidated
corporation without further act or deed
● surviving or consolidated corporation
- responsible for all the L and O of each
constituent corporation
- had itself incurred such liabilities or obligations;
and any pending claim, action or proceeding
brought by or against any constituent
corporation may be prosecuted by or against the
surviving
or consolidated corporation.
-The rights of creditors or liens upon the
property of such constituent corporations shall
not be impaired by the merger or consolidation.

(6) Issuance of certificate of merger or consolidation.

9. When will the merger become effective?

● Issuance of a certificate of merger by SEC

10. When will the consolidation become effective?

● Issuance of a certificate of consolidation by SEC

11. What are the effects of merger or consolidation?

● The constituent become a single corporation

merger- surviving corporation designated in the
plan of merger

consolidation- shall be the consolidated

corporation designated in the plan of
consolidation

● Separate existence of the constituent - shall

cease, except that of the surviving or the
consolidated corporation;
● Surviving or the consolidated corporation -
possess all the rights, privileges, immunities, and
powers and shall be subject to all the duties and
liabilities of a corporation organized under this
Code;
● The surviving or the consolidated - possess all
the
○ rights, privileges, immunities and
franchises of each constituent
corporation
○ All real or personal property, all
receivables due on whatever account,
including subscriptions to shares and
other choses in action
○ every other interest of, belonging to, or
due to each constituent corporation,