Succession (artificial succession)

- continuation of corp’s legal status despite changes in ownership (189)

POWERS OF CORPORATION:
- expressly conferred by corp code
- implied or incidental to existence (189)
*exercises power through bod and/or authorized officers and agents
*property acquired by a corporation is their property; not stockholder/members’ (190)
Stock corporations – capital stock divided into shares and authorized to distribute to the holders
Non-stock corporations – no part of its income is distributable to any member trustees or
officers. (190)
OTHER CLASS OF CORP (192-193)
General law – allows a corporation to be formed and organized
Special law (charter) – creates government corporation (195)
Components of corporation (196)
a. corporators – stockholders or members
b. incorporators – SH or members who are signatories in articles of incorporation
c. Stockholders – owners of shares of stock
d. members – corporators of non-stock corp
e. board of directors – stock corp
board of trustees – non-stock corp
f. corporate officers:
president – director
treasurer – may or may not a director
secretary – ph citizen and resident
g. subscriber – agreed to pay for inissued shares of corporation
h. underwriter – declared best effort basis the distribution and sale of securities
i. promotor – brings about formation and organization of a corp
doctrine of equality of shares – each share shall be equal in all aspects (rights &liabs)199
WHO MAY CLASSIFY SHARES?
- incorporators, board of directors and stockholders (199)
Voting shares – with right to vote (199)
Non-voting shares – without right to vote (preferred & redeemable) 202
Common stock – entitles the holder to vote on corporate matters
- aka capital stock / ordinary shares if it’s the corporations only class of shares
Preferred stock – entitles the holder to certain preferences over the holders of common stock
Redeemable shares – may be issued when expressly stated in articles of incorporation
INSTANCES WHERE NON-VOTING SHARES HOLDER ARE ALLOWED TO VOTE (203)
Par value shares – with a fixed value in articles of incorporation
Non par value shares – with no par value
LIMITATIONS ON NO PAR VALUE SHARES (203)
Promotion/al shares – issued to promotors or those interested in corporation
Share in escrow – subject to agreement by virtue
Fractional share – less than 1 full share
Over-issued stock – issued in excess of the authorized capital stock. Null and void
Convertible share – can be converted into another class
Founders’ shares – may be given certain rights and privileges (dividend payment)
*limit period is 5 yrs from date of incorporation (205)
LIMITATIONS ON REDEEMABLE SHARES
Retained earnings – accumulated income after dividend distribution
KINDS OF REDEEMABLE SHARES (206)
A. Compulsory – corp is required to redeem shares
B. optional – not required to redeem shares
*redeemable shares are retired unless reissuance is allowed in art. Of incorp.
Trust fund doctrine – subscriptions to capital stock of a corp constitute a fund to which the
creditors have a right to look for the satisfaction of their claims (207)
Treasury shares – issued and fully paid; successfully reacquired by issuing corp
RIGHTS THAT ARE DENIED TO THE TREASURY SHARES: (208)
- voting rights & rights to dividends
Watered shares – issued for a consideration less than the par or issued price (208)
TITLE II – INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS
*any person, partnership, association, or corporation, singly or jointly with others but not more
than 15 people may organize a corp for any lawful purpose/s. 218
ONE PERSON CORPORATION – corporation with single stockholder. Natural person, trust, or
estate only. 218
Steps in creation of a corporation: 219
1. promotion – activities done by promoter for founding and organizing the business
2. incorporation – 1. Execution of art of incorporation by incorporators and other documents
2. filing of the art of incorporation with the SEC with treasurers affidavit
3. formal organization and commencement of business transaction.
Examples: adoption of bylaws and filing the same with SEC; election of board of directors or
board of trustees and officers; and payment of shares
* natural persons licensed to practice a profession is not allowed to organize as a corporation
unless provided under special law.
A corporation shall have PERPETUAL (in perpetuity) existence. Except if the art of incorporation
provides a specific period. 220
A corporation may apply for revival of corporate existence when they expired. 221
No minimum authorized capital stock. Unless stated in a special law. 221
CONTENTS OF ARTICLES OF INCORPORATION (222)
FORM OF ARTICLES OF INCORPORATION (223-225)
SUBSCRIPTION (stock subscription) – contract to purchase newly issued shares of stock 225
PAID- UP CAPITAL – portion of the authorized capital stock which has been subscribed and
paid 225
ARTICLES OF INCORPORATION – defines the character of the corporation. 226
3-FOLD OF NATURE OF THE ARTICLES OF INCORPORATION: 226
state & corporation; state & stockholder; stockholders inter se.
NAME OF THE CORPORATION 226
- one of its attributes, an element of its existence, and essential to its identity.
- must not be identical. Must contain “INC., CORPORATION, OR OPC”
- can change by amending the art of incorporation
ULTRA VIRES ACTS – any act beyond its powers 226
PURPOSE OF THE PRINCIPAL OF A CORPORATION 227
NUMBER OF BOD – not more than 15
NUMBER OF BO TRUSTEES – can be more than 15 (228)
AUTHORIZED CAPITAL STOCK – maximum fixed in the art of incorporation that may be
subscribed and paid by the stockholders 228
LIMITATIONS OF AMENDMENT 229
GROUNDS FOR DISAPPROVAL OF AMENDMENT 230
CERTIFICATE OF INCORPORATION – gives juridical personality to a corporation
REQUIREMENTS TO BE DE FACTO CORPORATION: 234
- existence of valid law
- attempt in good faith to incorporate
- assumption of corporate power
TWO CONFLICTING PUBLIC INTEREST IN DE FACTO CORPORATION 234
- one opposed to unauthorized assumption of corporate privileges
- other in favor of doing justice to the parties
DE FACTO DOCTRINE – exists to protect the public dealing with corporate entities not to favor
non existing corporation. 235
DOCTRINE OF ESTOPPEL – principle intended to avoid a clear case of injustice. 235
CORPORATION BY ESTOPPEL – founded on principles of equity and designed to prevent
injustice and unfairness. 236
DOCTRINE OF CORPORATION BY ESTOPPEL – may apply to alleged corporation and third
party. 236
* certificate of incorporation shall be deemed revoked the day after 5 yr period if corporation
failed to organize and commence its business. 237
Delinquent corporation shall have 2 years to resume operations and comply with the reqs of
SEC

TITLE III: BOARD OF DIRECTORS/TRUSTEES/ OFFICERS

BOARD OF DIRECTORS/TRUSTEES – elected by stockholders/members; charged with
management of corporation
OFFICERS – elected by board; carry out management functions daily
STOCKHOLDERS/MEMBERS – owners; have residual power over fundamental and major
corporate changes
ACTS OF MANAGEMENT – pertains to board
ACTS OF OWNERSHIP – pertains to stockholders/members (245)
CONTRACTS INTRA VIRES – binding upon corporation and court will not interfere unless the
contract are so unconscionable and oppressive (245)
BOD – governing body of a corporation
BOD – creation of stockholders (247)
BOD – has the authority to determine policies, enter into contracts, conduct business
A corporation exercises power through BOD and authorized officers/agents (248)
BOD – exercise all powers
- conducts business
- controls and holds all property (249)
3 LEVELS OF CONTROL: (249)
1. BOD – responsible for corporate polices and general management
2. OFFICERS – execute the policies laid down by BOD
3. STOCKHOLDERS – residual power over fundamental corporate changes
QUALIFICATION OF BOD/BOT (253)
- for stock: owns at least 1 share of capital share
For non stock: any members
2. must be capacitated
3. must be of legal age
4. other quali prescribed in by laws
INDEPENDENT DIRECTOR – independent of management and free from any business or
other relationship (254)
REQUIREMENTS FOR ELECTION OF DIRECTOR/TRUSTEE (255)
CORPORATE OFFICER – must be mentioned in bylaws to be considered (257)
REQUIREMENTS FOR CORPORATE OFFICERS (257 – 258)
QUORUM at meetings – 50%+1 (258)
DISQUALIFICATIONS OF DIRECTORS TRUSTEE OFFICERS (262)
*removal of directors trustee may be with or without case. (263)
REQUISITES FOR REMOVAL (264)
*removal can be done by the BOD (265)
FILLING OF VACANCIES IN THE OFFICE OF THE DIRECTOR/TRUSTEE (267)
REPLACEMENT DIRECTOR/TRUSTEE – serve for the unexpired term only (267)
If vacancy is due to expiration – election shall not be later than the day of expiration
If vacancy is due to removal – election can be on the same day (267)
If vacancy is due to other causes – election must be no later than 45 days from vacancy (267)
Directors/trustees shall not receive any compensation. (269)
DOCTRINE OF CORPORATE OPPORTUNITY – holds personally liable corporate directors
found guilty of gross negligence and bad faith.
BAD FAITH – breach of faith and willful failure to respond to plain understood obligation
GROSS NEGLIGENCE – want of even slight care, acting, or omitting to act in a situation (272)
SELF DEALING DIRECTORS/TRUSTEES/OFFICERS - contract of corpo with one or more of
its directors within the fourth civil degree of consanguinity or affinity (275)
INTERLOCKING DIRECTORS – members of BOD in a 2 corporations
REQUISITES: contract is not fraudulent; contract is fair and reasonable 279
SUBSTANTIAL INTEREST – stockholdings exceeding 20% of outstanding capital stock (279)
DOCTRINE OF CORPORATE OPPORTUNITY - acquired by director; obtaining profits to the
prejudice of corporation; he must account for the latter for all such profits by refunding the same
EXECUTIVE COMMITTEE – body created by bylaws composed of not less than 3 members of
the board (280)
TITLE IV: POWERS OF CORPORATIONS
POWERS AND CAPACITY OF A CORPORATION (289)
*every corporation has the power and capacity to have PERPETUAL EXISTENCE.
*every corporation has the power and capacity to enter into a partnership. (290)
REQUIREMENTS TO EXTEND OR SHORTEN CORPORATE TERM: (291)
- approval by majority vote of BOD & BOT
- ratification by stockholders representing 2/3 of outstanding capital and 2/3 members in case of
non-stock corp
DERIVATIVE SUIT – brought by SH on behalf of the corporation to enforce corporate rights
against corpo’s director, trustees, or any insiders (290)
* director/officers have the right to decide whether or not a corpo should sue (290)
APPRAISAL RIGHT – stockholder may choose to get out of the corporation by demanding
payment of the FMV of his shares. (291)
3 INSTANCES OF DISTRIBUTION OF CORPORATE CAPITAL: (293)
- amendment of the art of incorp to reduce the authorized capital stock
- purchase of the redeemable shares by the corporation
- dissolution and eventual liquidation of the corporation
REQUIREMENTS IN INCREASE/DECREASE OF AUTHORIZED CAPITAL STOCK (295)
BONDED INDEBTEDNESS – long-term indebtedness secured usually by real property (295)
*bonds issued by a corporation must be registered with the SEC and have the authority to
determine sufficiency of terms thereof (295)
PRE-EMPTIVE RIGHT – preferential right of SH to subscribe all issues or disposition of shares
of any class, in proportion to their shareholdings.
- to enable SH to retain his proportionate control in corp. must be exercised in date stated in
bylaws (296)
* a sale or disposition may be made to cover all corporate property and assets if the corp would
be rendered incapable of continuing the business (300)
* a corporation may acquire own stocks in the presence of unrestricted retained earnings. (301)
FUNDS – any corporate property to be used in business (305)
UNRESTRICTED RETAINED EARNINGS – retained earnings not reserved by BOD (305)
DIVIDENDS – profits set aside to be paid by the directors for distribution among stockholders ar
a fixed time (306)
CASH DIVIDENDS VS STOCK DIVIDENDS (306)
CAPITAL – value of property or assets of corporation (308)
CAPITAL SUBSCRIBED – total amount of the capital that persons have agreed to take and pay
for the par value of the shares (308)
STOCK DIVIDENDS – amount the corporation transfers from its surplus profit account to its
capital account (308)
LIMITATIONS ON DIVIDENDS (309)
MANAGEMENT CONTRACT - a corporation delegates management of its affairs to another
corpo for no longer than 5 years (311)
INTERLOCKING STOCKHOLDERS – SH represents the same interest of 2 corporations and
own more than 1/3 of total outstanding capital stock (311)
INTERLOCKING DIRECTORS – majority of BOD of managing corpo also constitute a majority
of the members of the BOD of managed corpo (311)
ULTRA VIRES ACT – acting beyond corporate powers including those that may ostensibly be
within powers but are prohibited or illegal (312)
TITLE V – BYLAWS
BYLAWS – private laws enacted by corporation to regulate, govern & control its own actions,
affairs & concerns and its SH and directors and officers with relation to among themselves 318
* third persons are not bound by bylaws (319)
ADOPTION OF BYLAWS (321)
BEFORE INCORPORATION (PRE-INCORP) – bylaw must be signed and approved by all
incorporators and filed to SEC
AFTER INCORPORATION (POST-INCORP) – bylaws must be signed by SH or members
voting for them
ARTICLES OF INCORP VS BYLAWS (321)
CONTENTS OF BYLAWS (322 -323)
TITLE VI – MEETINGS
MEETINGS are called for election of directors and other business calling for the action of the
shareholders (327)
KINDS OF MEETINGS: regular or special (327)
REGULAR/SPECIAL MEETINGS – shall be held annually on a fixed date in bylaws or any date
after April 15 (327)
REQUIREMENTS FOR MEETINGS (330)
* written notice of regular meetings shall be sent to SH at least 21 days before the meeting 332
* stock and transfer books or membership books shall be closed 20 days for regular meetings
and 7 days for special meetings before the meeting 332
*right to vote of SH can be in person, through proxy, or through remote communication or in
absentia. 333
PLACE OF MEETING: in principal office of the corpo or in the city where it is located 333
OUTSTANDING CAPITAL STOCK – total shares of stock issued under binding subscription
contracts to subscribers or SH, fully or partially paid, except treasury shares 335
STOCK AND TRANSFER BOOK – records the names of SH alphabetically 336
ART OF INCORP VS STOCK AND TRANSFER BOOK 336
MEETING OF DIRECTORS/TRUSTEES: 340
1. REGULAR MEETING – monthly unless bylaw provides otherwise
2. SPECIAL MEETING – any time upon call of president
* CHAIRMAN or PRESIDENT shall preside at all meetings of the directors 337
* treasury shares shall have no voting rights 342
VOTING TRUST AGREEMENT VS PROXY 343
REQUIREMENTS FOR VALIDITY OF PROXY 344
* directors cannot attend or vote by proxy at board meetings but may act as proxies 343
PURPOSE OF PROXIES
RIGHT TO VOTE OF PROXY
REVOCATION OF PROXY 344
VOTING TRUST – created by an agreement between a group of the SH and trustee 346
3 TESTS OF VOTING TRUST AGREEMENT: 347
- vr of the stocks are separated
- vr granted ar intended to be irrevocable for a definite period
- principal purpose of the grant of vr is to acquire voting control
TITLE VII STOCKS AND STOCKHOLDERS
SHAREHOLDERS – risk takers who invest capital in business and can look to what is left after
corporate debts and liabs are paid 356
- SH may generally transfer their shares 356
DERIVATIVE SUIT – brought by minority SH in the name of corpo to redress wrongs committed
against it for which the directors refuse to sue 356
REQUISITES FOR DERIVATIVE SUIT: 356
- party bringing suit should be a SH
- exhaust intra-corporate remedies
- wrong doing or harm have been caused to the corporation and not to the particular stockholder
bringing the suit
DERIVATIVE VS INDIVIDUAL VS CLASS SUIT 360
- suits by SH or members of a corporation based on wrongful or fraudulent acts of directors
SUBSCRIPTION CONTRACT – acquisition of unissued stock in an existing corporation
- involves the corporation as one of the contracting parties
- consensual and indivisible contract 362
KINDS OF SUBSCRIPTION 362
1. PRE-INCORPORATION SUBS – subscription of corporation to be formed
2. POST-INCORPORATION SUBS – subscription entered after acquisition of unissued stock
* stocks shall not be issued for a consideration of less than the par or issued price 364
* transaction must be in good faith and no fraud is perpetrated
SHARES OF STOCK VS CERTIFICATE OF STOCK 365
UNPAID CLAIM – unpaid claim arising from unpaid subscription 367
MODE OF TRANSFER OF STOCKS REQUIREMENTS 367
- delivery of stock certificate
- certificate must be endorsed
- transfer must be recorded in the books of corpo
TRANSFER – property of a person is vested to other 368
TRANSFER OF SHARES – one may be divested of & another acquire ownership of stock 368
CERTIFICATE OF STOCK – continuing affirmation or representation that the stock described is
valid and genuine and is at least prima facie that was legally issued in absence of evidence 369
* stock issued without authority and in violation of law is VOID 369
FIDUCIARY CHARACTER OF POSITION – basis of solidary liability 371
PAYMENT OF UNAPID SUBSCRIPTION 373
I. VOLUNTARY PAYMENT – payment on the date specified in the contract of subscription or on
the date stated in the call
II. INVOLUNTARY PAYMENT
1. EXTRA-JUDICIAL
a. DELIQUENCY SALE – may be ordered by BOD
b. APPLICATION OF DIVIDENDS – cash dividends – applied first to unpaid balance
stock dividends – withheld from delinquent SH
2. JUDICIAL ACTION – by action in a court of proper jurisdiction
HIGHEST BIDDER – bidder who offers to pay full amount of subscription balance + interest +
cost + expenses for smallest number of share 373
RIGHTS OF STOCKHOLDERS 376 – 377
LIABILITIES OF STOCKHOLDERS – 377
TITLE VIII CORPORATE BOOKS AND RECORDS
BOOKS AND RECORDS TO BE KEPT 386-387
CORPORATE SECRETARY – proper custodian of books, minutes, and official records
- duty to record and prepare minutes of the meeting
- his signature gives the minutes probative value and credibility 386
STOCK TRANSFER AGENT – engaged in business of registering transfers of stocks in behalf
of a stock corporation 387
TITLE IX MERGER AND CONSOLIDATION
MERGER – union where one or more corporations are absorbed by another corporation which
survives and continues the business 391
CONSOLIDATION – union of 2 or more entities to form a new entity called consolidated
corporation 392
EXPRESS PROVISION OF LAW – authorizes merging of corporations 392
ARTICLES OF MERGER OR CONSOLIDATION – required and must be approved by SEC for a
valid merger or consolidation 393
STEPS TO ACCOMPLISH MERGER OR CONSOLIDATION 396
1. draws up plan
2. submission of plan
3. execution of formal agreement
4. submission of articles of merger
5. hearing
6. issuance of certificate of merger
TITLE X APPRAISAL RIGHT
APPRAISAL RIGHT – a stockholder who voted against proposed corporate action, may choose
to get out of the corporation by demanding payment of fair value of his shares 403
FOUR INSTANCES OF APPRAISAL RIGHT 403
1. amendment to the art of incorporation
2. sale, lease, exchange transfer, mortgage, pledge, or other disposition of corporate assets
3. merger or consolidation
4. investment of corporate funds
VALUATION DATE – day prior to date which the vote was taken 405