CORPORATE BOOKS AND RECORDS

May books and records be examined?

Yes

Who may examine?

Any director, trustee, stockholder or member

Can they copy them?

Yes, any of these persons may demand in writing for a copy of excerpts from the records or
minutes

Is there any defense available that could be raised? By the corporate officers to justify the
refusal?
Yes, if he proves that:
a. the person demanding has improperly used any information secured through any prior
examination of the records or minutes of such corporation or of any other corporation;
b. He was not acting in good faith or for a legitimate purpose in making his demand; or
c. The right is limited or restricted by special law or the law of its creation

Where should stock and transfer be kept?

Either in the principal office or in the office of its stock transfer agent

Are stockholders entitled to financial statements?

Yes, it is their right under Sec. 75

Why is this right of inspection granted to a stockholder?

To protect his interest as a stockholder

Is there any distinction of the right of inspection of a stockholder and that of a director?
Yes, as compared to a stockholder or member, the right of a director or trustee to inspect and
examine corporate books and records is considered absolute and unqualified and without regard
to motive.

This is because a director supervises, directs and manages corporate business and it is necessary
that he be equipped with all the information and data with regard to the affairs of the company in
order that he may manage and direct its operations intelligently and according to his best
judgment in the interest of all the stockholders he represents.

Thus, while stockholders and members are entitled to inspect and examine the books and records
as provided in sections 74 and 75 they may not gain access to highly sensitive and confidential
information. In the case of directors. “it is not denied” that they have such access. This would
include, among others, (a) marketing strategies and pricing structure; (b) budget for expansion
and diversification; (c) research and development; and (d) sources of funding, availability of
personnel, proposals of mergers or tie-ups with other firms.
May this right be exercised, other than by the stockholders themselves?
Yes, while the right is founded on stock ownership thus personal in nature it may be made by the
stockholder’s agent or representative since it may be unavailing in many instances

What if the right of the stockholder to inspect is denied? What is his remedy?
a. Mandamus;
b. Damages either against the corporation or responsible officer who refused the inspection;
or
c. Criminal complaint for violation of his right to inspect and copy excerpts of all business
transactions and minutes of meeting (violation thereof shall suffer the penalty provided
under Sec. 144)

What are the defenses of the responsible corporate officer?

1. That the person demanding has improperly used any information secured through any
prior examination of the records or minutes of such corporation or of any other
corporation;
2. That he was not acting in good faith or for a legitimate purpose in making his demand;
and
3. The right is limited or restricted by special law or the law of it creation.

May a stockholder of a holding company inspect the books and records of a subsidiary?
It depends. The right of the stockholders to examine corporate books extends to wholly-owned
subsidiary which is completely under the control and management of the parent company where
he is such a stockholder. But if the two entities (subsidiary and parent) are legally being operated
as separate and distinct entities, there is no such right of inspection on the part of the stockholder
of the parent company.

Holding/parent company : Ayala

Subsidiaries : BPI, Globe and Ayala Land

A is a stockholder of Ayala but not stockholders of the subsidiaries

Does he have a right to inspect the records of its subsidiaries?

No, because he must also be a stockholder of the subsidiaries

Requisites:
1. Subsidiary must be wholly-owned by the parent company; and
2. The inspecting stockholder must also be a stockholder of the subsidiary

Assuming you are a stockholder of PNB, and then it was privatized, may you already have
the right to inspect?
No, unless its charter has been altered or repealed, it is still subject to and governed by its own
charter (Gonzales v. PNB; Sec. 4, Corp. Code)
REMINDERS:
1. Only directors may have access to highly sensitive and confidential information, not
stockholders/members
2. The right of inspection given to a stockholder can be exercised either by himself or by
any proper representative or attorney-in-fact, and either with or without the attendance of
the stockholder. (W.G. Philpotts v. Phil. Manufacturing Co.)
3. The right may be regarded as personal, in the sense that only a stockholder may enjoy it;
but the inspection and examination may be made by another. Otherwise it would be
unavailing in many instances. (supra.)
4. A stockholder usually hires an auditor or accountant to safeguard his interest
5. The law is clear, it may be exercised during reasonable hours on any business days, the
by-laws cannot deny this right all together (Pardo v. Hercules Lumber Co.)
6. The general right given by the statute may not be lawfully abridged to the extent
attempted in this resolution. It may be admitted that the officials in charge of a
corporation may deny inspection when sought at unusual hours or under other improper
conditions; but neither the executive officers nor the board of directors have the power to
deprive a stockholder of the right altogether. (supra.)
7. The corporation, or its responsible directors and officers cannot unduly restrict this right
of inspection and may not arbitrarily set a few days of the year within which the
stockholder may make the inspection. A by-law unduly restricting the right of inspection
is undoubtedly invalid. (id.)
8. Directors of a corporation have the unqualified right to inspect the books and records of
the corporation at all reasonable hours. It is not conceive, however, that a director or
stockholder has any absolute right to secure certified copies of the minutes of the
corporation until these minutes have been written up and approved by the directors.
(Vegaruth v. Isabela Sugar Co.)
9. However, while seemingly enlarging the right of inspection, the new code has prescribed
limitations to the same. It is now expressly required as a condition for such examination
that (1) the one requesting it must not have been guilty of using improperly any
information secured through a prior examination and (2) that the person asking for such
examination must be acting in good faith and (3) for a legitimate purpose in making his
demand. (Gonzales v. PNB)

Explain:
The distinction of the extent of the right of stockholders to examine/inspect corporate books and
records as against those of the directors.

ANSWER:
As compared to a stockholder or member, the right of a director or trustee to inspect and examine
corporate books and records is considered absolute and unqualified and without regard to motive.

This is because a director supervises, directs and manages corporate business and it is necessary
that he be equipped with all the information and data with regard to the affairs of the company in
order that he may manage and direct its operations intelligently and according to his best
judgment in the interest of all the stockholders he represents.
Thus, while stockholders and members are entitled to inspect and examine the books and records
as provided in sections 74 and 75, they may not gain access to highly sensitive and confidential
information. In the case of directors. “it is not denied” that they have such access. This would
include, among others, (a) marketing strategies and pricing structure; (b) budget for expansion
and diversification; (c) research and development; and (d) sources of funding, availability of
personnel, proposals of mergers or tie-ups with other firms.