1.

Yenetic Corporation wants to increase its Authorized Capital Stock (which is

currently fully subscribed and issued) to be able to increase its working
capital to undertake business expansions. The Board of Directors consults
with you as legal counsel on the proper answers to the following issues: (a)
Can Yenetic's AOI be formally amended to remove the right of appraisal on
all dissenting stockholders in all matters under the law which requires a
ratification vote of the stockholders? (b) If the increase in Authorized
Capital Stock is formally submitted to the stockholders in a meeting duly
called for the purpose, what is the vote necessary for the stockholders’
ratification, and would the dissenting stockholders have a right to exercise
their right of appraisal? (c) Once the increase in the Authorized Capital
Stock of Yenetic has been legally effected with the SEC, can the new shares
from the unissued shares be offered to a new limited group of investors
without having to offer them to the shareholders of record since no
preemptive right is provided for in the AOI and By-laws of Yenetic? (2018
BAR)
ANSWER: (a) Yenetic’s AOI cannot be amended to remove the appraisal
right of the stockholders on matters requiring their approval in cases where
the law grants them such appraisal right, like (i) In case of change in
corporate term, including extension or shortening of corporate term or
changing from perpetual existence to one with a fixed term (Sections 11, 36
and 80 of the Revised Corporation Code) (ii) In case any amendment to the
articles of incorporation has the effect of changing or restricting the rights
of any stockholder or class of shares, or of authorizing preferences in any
respect superior to those of outstanding shares of any class, or of extending
or shortening the term of corporate existence (Section 15 AND 80 of the
Revised Corporation Code) (iii) In case of sale, lease, exchange, transfer ,
mortgage, pledge or other disposition of all or substantially all of the
corporate property and assets (Section 39 and 80 of the RCC); (iv) In case of
merger or consolidation (Section 76 and 80 of the Revised Corporation
Code); (v) In case of investment of corporate funds in the secondary
purpose of the corporation or another business (Section 41 and 80 of the
RCC). Appraisal right is a statutory right (SECTION 80 OF RCC). It cannot be
denied to the stockholders in cases where the law allows such right. For all
the other matters under the Corporation Code which require ratificatory
approval of the shareholders, the AOI may be formally amended to remove
appraisal right, because the right does not exist anyway in those cases.
(b) Under Section 15 of the Revised Corporation Code, any provision or
matter stated in the articles of incorporation may be amended by a
majority vote of the board of directors or trustees and the vote or written
assent of the stockholders representing at least two-thirds (2/3) of the
outstanding capital stock, without prejudice to the appraisal right of
dissenting stockholders in accordance with the provisions of this Code. The
articles of incorporation of a nonstock corporation may be amended by the
vote or written assent of majority of the trustees and at least two- thirds
(2/3) of the members. Under Section 80 of the Revised Corporation Code,
Stockholders cannot exercise any appraisal right in case of amendment to
the articles of incorporation to increase capital stock, because this is not
one of the cases allowed by law where appraisal right may be exercised.
(c) The new shares from the unissued shares cannot be validly offered to a
new limited group of investors without having to offer to shareholders of
record, as pre-emptive rights are not explicitly denied in the AOI. Section 38
of the Revised Corporation Code provides that all stockholders of a stock
corporation shall enjoy pre-emptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective
shareholdings. There need not be an explicit grant of pre-emptive rights in
the AOI for it to be exercised.