SHARES

No par, and par value

No minimum par value shares. But there is a minimum issue price for no par value share (which is 5 pesos)
The law does not provide for minimum par value but you can’t issue a share below minimum par value.
How to issue shares? Lodge in BOD. Up to them how much they will issue the share (whether par or no par)
QN: If you have a min par of 100, can you issue share for 50? No, if that happens that’s what you call watered
stock
 Can happen if cash
If you issue property instead of cash, -- whuuut

If you own shares of stock, as a rule, you don’t have the right to return your share as you please. That’s why
there is freedom to transfer your shares in contrary to partnership, a partner cannot transfer his share without the
consent of others.
If a share has a par value of 100, you bought it at 200 = okay since it’s above. Can you sell it at 50? YES. The
prohibition is with regard to issuance of par value shares
 Transfer of shares by the stockholders is not the concern of the corporation. Unless, there’s right of first
refusal.

While the SH does not have the plenary right to – back the corporation, can a stockholder require the
corporation buy back his shares? Or can the corporation buy back the shares?
 One of the rights of the corporation is to buy back (but there has to be a valid reason to reacquiring the
share + require the URE)
Is there any minimum amount when a corpo reacquire? None. Is there a minimum re-issue price? YES. NOTE:
The prohibition is on the original issuance of share—from unissued shares
 No prohibition for acquisition and re-issuance of shares

Par value share – the authorized capital stock - # of shares total amount
There are certain laws that require minimum capital stock (i.e. bank)

CORPORATE NAME

AMENDMENT OF ARTICLES
Section 15
Quorum – the presence of majority (required number for a body to act)
Can a quorum be more than majority or less than majority? YES. But Corporate Code, quorum is the majority
under the number of directors from by-laws.
 Law provides greater majority. You can change majority but it will always has to be greater majority (if
9, pwedeng 7 pero bawal 4)
Amendment needs quorum.
When board action is required, and these are not the usual corporate acts, it is always based on the number of
directors ficed in the by laws.

QN: If a corpo wants ot enter into a service contract with a security agency. If the number of director fixed in
bylaws is 9, 5 should be present. Para maipasa, you need 3 (majority) to pass the resolution (Since 5 lang
umaattend)
What if during the same meeting, we will amend the bylaws. What if out of 5, 3 lang bumoto. Pwede? NO. Bec
the basis of majority vote must be based on the Articles of Incorporation (so 9 yung basis)
Kelangan ba meeting to amend the AIC? The law says vote or written assent. In short, di kelangan ng meeting.
Except when extending or shortening corporate term or increase/decrease ACS. Bec there has to be a meeting
Normally, it’s just the board in order for it to be corporate act.
How about SH’s vote? Needed pag amendment of AIC. Not number of shareholders but the number of
outstanding capital stock (di kasama TS)
EX: If you have ACS (100,000 shares), out of the 100,000 shares, you issued 60k. There is unissued share of
40. So, the basis of outstanding is the 60k. Let us assume that out of 60, the corporation has TS of 10k. So, your
OS is only 50. So when you compute for 2/3 (for amendment) you don’t get 2/3 of 100, not 60, but 50.
When nonstock, refers to stockholders. Because 1 member = 1 vote. But there are some NSC that has more than
1 interests. Not necessary on the number of members, but interest (actually shares din to pero baka malito daw)

Non-use of corporate charter

Before – within 2 years from incorporation or nagstart ka na but you stop for 5 years. Pwedeng mabawi license
Ngayon – pareho ng 5 years
You have to commence business op within 5 years, otherwise revoked. If you commence, and you stop for 5
years, SEC can put you into delinquent status
Nonuse for incorporation – no proceedings. But despite that language, SEC can still have some proceedings
pero summary proceedings na lang. This has been a problem even before, kasi pag narevoke yung reg mo, tapos
gusto mo pala uling gamitin, irevive mo – mahirap ijustify pagrerevive ng corporation
Another amendment: if you’re put into DS, you are given a period of 2 years to resume operations

!!! There used to be 25-25% requirement

When you incorporate, 25% must be subscribed, 25% must be paid.
  This is now a requirement ONLY when you increase your ACS.

Board of Directors, trustees, and Officers

BOD – for stock
BOT – for nonstock
RECONNECTING

What kind of ownership is required by the law? Just legal title. You don’t have to be the beneficial owner. Who
has the right to sit in the Board? The one who have legal title

Independent directors in certain corporations

Section 22
Atleast 20% must be independent directors
If you are listed in the stock exchange, you are a public corporation (private corpo that are vested with public
interest)

The idea is there has some to be independent mind, not only sharing your expertise with the corporation but also
to give independent judgment/vote in times that there are issued involving the corporation.

WHO ARE THE CORPORATE OFFICERS?

1. President – must be a director; 1 year term
2. Secretary – must be a citizen and resident
3. Treasurer – must be a resident
4. Other corporate officers as provided in the bylaws
Can 1 person hold more than one? YES. But President – Sec/ President – Treasurer = bawal
Normally, after the election of BOD, election of corpo officers. (Section 23)
Are directors entitled to compensation? As a rule, they are not. Now, the bylaws may fix their compensation.
But before, they are not entitled to compensation. What they are entitled is not more than 10% of exceeding tax.
They are entitled to reasonable per dimes. (Section 29)

Who are entitled to vote? Only voting shares

 Preferred may be denied voting rights
There is actually a formula for you to determine how many numbers of shares you need in order for you to get a
sit? Voting is usually cumulative.
Multiply your number of shares by the number of seats
18 shares x 5 = 90 shares. Meaning, you have 90 votes.
The other group: 82x5 = 410 votes
So, 410 votes vs 90 votes. But now, magbibilangan tayo. Out of the 500k votes, 410 votes belong to the
majority, 90 votes belong to the minority. Syempre si minority, wag kang boboto ng madaming seat. Kukuha ka
lang representative. 1/5 seat. The other has 410 votes/5 = 82 votes.
So the minority has 1 seat in the board, and the majority will have 4 seat.

Another amendment: Voting via remote communication

Before: Pag di ka makakapunta, you only have 1 option: to proxy
3 concepts:
1. Person
2. To the authority of a person
3. Document
SH will authorize another person to proxy, or by giving him a document called the proxy. The person can now
participate as proxy. But it should be authorized in the bylaws or allowed by the directors. SH can revoke a
proxy. Essentially, a proxy is a contract of agency (if it is coupled with an interest, it is irrevocable)
Ngayon: Adopting to the changes in technology

Delinquent shares
NOT ENTITLED TO VOTE. DS – suspended lahat ng rights mo except the right to receive dividends

Removal
Can a director be removed? YES, by the stockholder/member
Should there be a justifiable reason for removal? No, except those who were elected by the minority
stockholders or members. They cannot be remove without cause (kasi madedefeat yung purpose, aksi
nagcumulative nga tayo tapos sige hayaan nyo na, tanggalin na lang natin later)

Vacancy
Do we need to call for meeting or can the existing directors fill the vacancy?
There are cases when a board, If still constituting a quorum, can fill the vacancy. Otherwise, SH themselves
may elect.
EX: Tinanggal, pwede na silang magelect dun sa same meeting. Pero pag nagresign, namatay, the board can fill
the vacancy (But it’s not a fresh 3 year term, only the remaining term)

Liability of directors
The acts of a director/officers are the acts of the corporation. So, they are not personally liable. Of course, there
are cases when a director can be held personally liable. (Section 30)

Dealings of directors
Can a director/officer can enter into a contract between a corporation where he is a director/officer? Yes, but
there are certain requirements
The provision is extended to the spouse and relatives within 4th civil degree of consanguinity or affinity
What are the conditions? Section 31
If this is not met = contract is voidable upon the act of corporation. Since it is voidable, it can be ratified (2/3
vote of SH/members)
If you look at the requirements, the first 2, in short kahit absent sya, maaprubahan yung kontrata.

Interlocking directors
How about if there are contracts between corporation with interlocking directors? Section 32
Corporation A and Corporation B = same directors. Not inherently wrong
If nominal – Sec 31 does not apply.
If both substantial – Sec 31 does not apply.
Para mag-apply, nominal yung isa, substantial yung isa. Yung requirements mag-aapply dun sa corporation with
nominal interest.

Doctrine of corporate opportunity

As a director, you owe the corporation your best. Whatever opportunity that belongs to the corporation, must be
given to the corporation. (Section 33)

Executive, Management, and Other Special Committees

The concept of exec com is like a mini board. Bec at times, it’s difficult to call for directors. Because for those
matters that require urgent action, exec com’s needed.
In creating exec coms, the board can delegate its power to exec coms. There are only 5 matters that the board
cannot
1. Approval eklat
 2. Filling of vacancies
3. Amendment or repeal of by laws
4. AOR of resolution of the board
5. Distribution of cash dividends to shareholders

POWERS OF A CORPORATION
General express power of corporation
Section 35
Highlights:
1. The corporation is now expressly authorized to enter into partnership
2. You can now donate to any political corporation except foreign corporation (to political party or
candidate or to anyone for partisan activity) – dati di allowed

!!! Corporation has limited capacity. Those that are provided under the law, implied, or inherent power of the
corporation. Other than those = ultra vires act. So you have to check, does the corporation has authority to do
that

Extend or shorten corporate term

Section 36
 Requires meeting
 Even nonvoting shares can vote (you have to consider nonvoting)
Increase or decrease capital stock
Section 37
 Requires meeting
 Even nonvoting shares can vote (you have to consider nonvoting)
 Increase/decrease capital stock – for stock corpo (Note there is decrease, so pwede palang magdecrease
ng capital stock. Yes, if that is from not issued capital stock)
 Increase bonded indebtedness – nonstock and stock

!!! It’s always the board’s approval first before the ratification of the stockholders

Deny Preemptive Right

Right of SH to subscribe to all issues or dispositions of any class in respective to their shareholdings
It has to be in the AOI
Why is there a preemptive right? For you to maintain shareholdings in the corporation
Let’s say you own 20% of the corporation,100k authorized, 50,000 issued and outstanding, there are 5 SH, each
owns 10,000 shares. The corporation suddenly decide to issue 20k out of 50 unissued shares. So sino pwed
kumuha? Bago mo ialok sa iba, ialok mo muna sa existing SH (in proportion to their shareholdings)

Right to sell or dispose assets

While it provides sell = it also includes others (lease, mortgage, etc)
 is now subject to Ph Competition Act
Take note of voting requirement
(---)

Acquire Own Shares

There has to be a legit purpose
To eliminate fractional share
You own 12 shares. The Corpo declares stock dividend of 10%. For every 10 shares that you have, you will
given 1 share. But you won 12 shares, if you own 12, that 1.2. So how many shares are given to you? 1.2. Di
naman bawal fractional
In some corporation, nagdedeclare ng dividends they round it off. Pag di niround off, you have 1 share and .2 na
share.

Collect and compromise indebtedness arising from unpaid subscription and delinquency shares
If your share is declared delinquent, pwedeng magdemand ang corpo judicially or extra judicially (auction)

Pay dissenting or withdrawing stockholders

Invest corporate funds in another corporation

Are nonvoting shares entitled to vote? YES

Declare dividends
Dividends must come from URE. It can either be cash, property, or stock.
Delinquent SH are entitled to dividend. Pero di pa bibigay sayo. If cash dividend – applied to unpaid. If stock –
withheld until mabayaran mo yung unpaid subscription
Unfortunately, the law is still silent re property. But I would say that it should be similar to stock.
Note that the board has the sole prerogative to declare dividends. So kahit marami na tayong kita, you cannot
demand the board to declare dividends even if you’re a preferential shareholder.
Does it need stockholder’s approval? Only with respect to stock dividends (at least 2/3 of the outstanding
capital stock)

Kasama ba yung declaration ng stock dividends sa Section 6? No

Stock dividends – shares of the corporation (must be the stock of the declaring corporation + unissued)
Property dividends – di na ginagamit/di na kelangan ng corporation (ex. Lupa, building)

Pwede bang instead of ibenta yung TS, ideclare na lang dividend? YES. If the corpo does that, did the corpo
declare property or stock dividend? These shares are the shares of the corporation – property. Stock dividends
are from unissued shares.

Enter into Management Contracts

Of course, the managing corporation, somehow, to certain extent, is under the BOD.
See Section 43
Majority – managed. Majority – managing
 Nonvoting shares – not included
 Cannot exceed for 5 years for any 1 term

Ultra vires
Beyond the power of the corporation (Section 44)
Even if it’s within the power of the corpo, it is still ultra vires because the one who acted in behalf of the corpo
is not authorized.
Effect if ultra vires: Unenforceable contract

BYLAWS
More of internal to the corporation
Normally, nanjan yung time, place ng meeting. Both for directors and SH. Quorum requirement. Proxy.
You may submit bylaws after you incorporate. But for practical reasons, you file the bylaws with the AOI. You
can amend or adopt new bylaws.

Can you amend bylaws? YES. Who? Majority sa Board. Majority sa stockholder.
If you will amend or adopt new bylaws, do you include nonvoting shares? YES.
In bylaws, there can be a delegation to the board. You cannot do this delegation to amendment of articles

MEETINGS
Quorum (Section 51)
Majority of the outstanding capital stock – stockholders
In close corporation – majority unless there’s provision requiring greater majority

Voting in case of joint ownership of stock

There is now provision on joint ownership on shares (Section 55)

Voting Rights of treasury shares

No voting rights

Difference between proxy and voting trust

Section 57 vs Section 58
Proxy – valid only for 1 meeting; pwede succeeding meetings – valid for 5 years. Cannot be indefinite.
 If you buy shares, it will take some time before the share is transferred in your name. So kung gusto mo
makapagparticipate, hingi kang proxy (dun sa original owner ng share)
Voting trust – similar, but it’s more formal. Cannot exceed 5 years unless it’s a requirement for a loan
 You want to somehow have a sense of continuity in the management
 Legal title is transferred to you but the beneficial owner is not you