ASSIGNMENT NO. 7.

Due Friday, 22 October 2021, 5:00 PM

Time remaining: 2 days 10 hours

PLS PROVIDE WHAT IS BEING ASKS:

1. Where do corporate powers reside?

-A corporation generally has three parties sharing power and control; directors, officers, and
shareholders. Directors are the managers of the corporation, and officers control the day-to-day
decisions and work more closely with the employees.

2. What is business judgment rule?

-The business judgment rule helps to guard a corporation's board of directors (B of D) against frivolous
legal allegations about the way it conducts business. A legal staple in common law countries, the rule
states that boards are presumed to act in "good faith" that is, within the fiduciary standards of loyalty,
prudence, and care directors owe to stakeholders. Absent evidence that the board has blatantly violated
some rule of conduct, the courts will not review or question its decisions.

Fiduciary standards include the "duty of care" and the "duty of loyalty." The first is an obligation to act
on an informed basis. The second requires directors to put the interests of the corporation and over
their own self-interest or the interests of others.
3. What is vote in absencia?

When so authorized in the bylaws or by a majority of the board of directors, the stockholders or
members of corporations may also vote through remote communication or in absentia: Provided, That
the votes received before the corporation finishes the tally of votes. A stockholder or member who
participates through remote communication or in absentia shall be deemed present for purposes of
quorum.

4. Discuss the function of the following:

a.) The Board of Directors

-Directors are the managers of the corporation, and officers control the day-to-day decisions and work
more closely with the employees.

b.) The Officers

-The officers control the day-to-day decisions and work more closely with the employees.

c.) The Stockholders

- The shareholders are the owners of the corporation, but they have little decision-making authority.

5. Who has the power to decide whether a Corporation can enter into a binding contract?

-Held that under Section 23, the power and the responsibility to decide whether the corporation should
enter into a contract that will bind the corporation are lodged in the board of directors, subject to the
articles of incorporation, by-laws, or relevant provisions of law. However, just as a natural person may
authorize another to do certain acts for and on his behalf, the board of directors may validly delegate
some of its functions and powers to officers, committees or agents. The authority of such individuals to
bind the corporation is generally derived from law, corporate by-laws or authorization from the board,
either expressly or impliedly by habit, custom or acquiescence in the general course of business. This
Court has held, thus:

A corporate officer or agent may represent and bind the corporation in transactions with third persons
to the extent that [the] authority to do so has been conferred upon him, and this includes powers which
have been intentionally conferred, and also such powers as, in the usual course of the particular
business, are incidental to, or may be implied from, the powers intentionally conferred, powers added
by custom and usage, as usually pertaining to the particular officer or agent, and such apparent powers
as the corporation has caused persons dealing with the officer or agent to believe that it has conferred.

6. What are the qualifications of a board of directors / trustee?

1. Not more than 15 director and may be more than fifteen trustees (Sec 13)

2. Owner of at least one share

3. The ownership (Legal not beneficial ownership, e.g. pledgor,

mortgagor) must be stand in the name of the director in the

book of the corporation.

4. Possess all the qualification and none of the disqualification.

(Sec 26)23
5. If the corporation is vested with public interest, the board

shall also elect a compliance officer.

7. What is an independent director?

According to revised Corporation code of the Philippines An independent director is a person who, apart
from shareholdings and fees received from the corporation, is independent of management and free
from any business or other relationship which could, or could reasonably be perceived to materially
interfere with the exercise of independent judgment in carrying out the responsibilities as a director.
Independent directors must be elected by the shareholders present or entitled to vote in absentia
during the election of directors. Independent directors shall be subject to rules and regulations
governing their qualifications, disqualifications, voting requirements, duration of term and term limit
maximum number of board memberships and other requirements that the Commission will prescribe to
strengthen their independence and align with international best practices. (Sec 22, R.A. 11232)

8. What are the requirements for the election of directors/trustees?

Number and Qualifications of Director (Sec 22)

1. Not more than 15 director and may be more than fifteen trustees (Sec 13)

2. Owner of at least one share

3. The ownership (Legal not beneficial ownership, e.g. pledgor, mortgagor) must be stand in the name of
the director in the book of the corporation.
4. Possess all the qualification and none of the disqualification. (Sec 26)23

5. If the corporation is vested with public interest, the board shall also elect a compliance officer.

9. Who are the Corporate officers, and what are their qualifications?

Qualification of Corporate officer (Sec 24) 25

1. President – Must be director

2. Secretary – Resident and citizen of the Philippines

3. Treasurer – Must be resident (Sec 24, R.A. 11232)

4. Other officers as may be provided in the by laws Apply to all: Possess all the qualification and none of
the disqualification. (Sec 26) 23

10. What is quorum at the meeting of directors or trustees?

-As a general rule, the quorum in board meetings is the majority of the number of directors or trustees.
However, under Section 25 of the Code, the articles of incorporation or by-laws of the corporation may
fix a greater number than the majority of the number of board members to constitute the quorum
necessary for the valid transaction of business.

The formula in determining the “majority of the number of directors” as quorum would be one-half plus
one of the number of directors as fixed in the articles of incorporation notwithstanding the existence of
vacancies in the board at the time.

11. What are the disqualification of directors, trustee or officers of a Corporation?

According to RA 11232 sec. 26 A person shall be disqualified from being a director, trustee or

officer of any corporation if, within five (5) years prior to the

election or appointment as such, the person was:

(a) Convicted by final judgment:

(1) Of an offense punishable by imprisonment for a period exceeding six (6) years; (2) For violating this
Code; and (3) For violating Republic Act No. 8799, otherwise

known as "The Securities Regulation Code"; (b) Found administratively liable for any offense involving
fraudulent acts; and(c) By a foreign court or equivalent foreign regulatory authority for acts, violations
or misconduct similar to those enumerated in paragraphs (a) and (b) above. The foregoing is without
prejudice to qualifications or other disqualifications, which the Commission, the primary regulatory
agency, or the Philippine Competition Commission may impose in its promotion of good corporate
governance or as a sanction in its administrative proceedings. (Sec 26, R.A. 11232) (27)

12. Who possess the power to remove a director or trustee?

The one that possess the power to remove a director are the stockholders representing or holding at
least a majority of the outstanding capital stock, or a majority of the members entitled to vote.

13. What are the requiistes for removal of corporate director or trustee?

1. Voting requirement for removal

a. Stock corporation – by a vote of the stockholders holding or representing at least two-thirds (2/3) of
the outstanding capital stock,

b. Nonstock corporation - by a vote of at least two-thirds (2/3) of the members entitled to vote
2. The removal shall take place either at a regular meeting of the corporation or at a special meeting
called for the purpose A special meeting of the stockholders or members for the purpose of removing
any director or trustee must be called by the secretary on order of the president
3. There must be previous notice to stockholders or members of the corporation of the intention to
propose such removal at the meeting.

4. There must be a Notice of the time and place of such meeting, as well as of the intention to propose
such removal, must be given by publication or by written notice

5. The Removal may be with or without cause. However, that removal without cause may not be used to
deprive minority stockholders or members of the right of representation.
6. The Commission shall, motu proprio or upon verified complaint, and after due notice and hearing,
order the removal of a director or trustee elected despite the disqualification, or whose disqualification
arose or is discovered subsequent to an election. The removal of a disqualified director shall be without
prejudice to other sanctions that the Commission may impose on the board of directors or trustees who,
with knowledge of the disqualification, failed to remove such director or trustee

14. Discuss the replacememt of Director/trustee:

a) When the vacancy is due to term expiration

When the vacancy is due to term expiration, the election shall be held no later than the day of such
expiration at a meeting called for that purpose.

b) When the vacancy arises as a results of removed by the stockholders or members

When the vacancy arises as a result of removal by the stockholders or members, the election may be
held on the same day of the meeting authorizing the removal and this fact must be so stated in the
agenda and notice of said meeting. In all other cases, the election must be held no later than forty-five
(45) days from the time the vacancy arose. A director or trustee elected to fill a vacancy shall be referred
to as replacement director or trustee and shall serve only for the unexpired term of the predecessor in
office.

c) Other cause of vancancy

when the vacancy prevents the remaining directors from constituting a quorum and emergency action is
required to prevent grave, substantial, and irreparable loss or damage to the corporation, the vacancy
may be temporarily filled from among the officers of the corporation by unanimous vote of the
remaining directors or trustees.

15. Is a director received a compensation? Discuss.

General rule: No compensation except for reasonable per diems

Exception: Provided for in by laws
1. Vote of the stockholders representing at least a majority of the outstanding capital stock at regular or
special meeting

2. Total yearly compensation shall not exceed 10% of the net income before income tax of the preceding
year.

16. What is Doctrine of Corporate Opportunity?

The doctrine of corporate opportunity means that if the director acquired a business opportunity that
should belong to the corporation, he must account to the corporation for all the profits he obtained
unless his act was ratified by the stockholders representing at least two-thirds of the outstanding capital
stock

17. What is a derivative suit?

Derivative suit – One brought by one or more stockholders or members in the name and on behalf of
the corporation to redress wrongs committed against it or to protect or vindicate corporate rights,
whenever the officials of the corporation refuse to sue, or are the ones to be sued or hold control of the
corporation.

18. What is appraisal right?

Any stockholder of a corporation shall have the right to dissent and demand payment of the fair value of
his shares in the following instances: (Sec 80) (81)
1. In case any amendment to the articles of incorporation has the effect of

a. Changing or restricting the rights of any stockholder or class of shares;

b. Authorizing preferences in any respect superior to those of outstanding shares of any class;
c. Extending or shortening the term of corporate existence;
2. Sale, lease, exchange, transfer, mortgage, pledge or other
disposition of all or substantially all of the corporate property and assets.
3. Merger or consolidation.
4. Investment of corporate funds in another corporation or business or for any other purpose. (Sec 42)

19. What are the requirements for increase or decrease of authorized capital stocks?

20. What is pre-emptive right?

All stockholders of a stock corporation shall enjoy preemptive right to subscribe to all issues or
disposition of shares of any class, in proportion to their respective shareholdings. This is also called the
“right of first refusal”.

Such preemptive right shall not extend to the following:

(a) shares issued in compliance with laws requiring stock offerings or minimum stock ownership by the
public; or

to shares issued in good faith with the approval of the stockholders representing 2/3 of the outstanding
capital stock, in exchange for property needed for corporate purposes or in payment of a previously
contracted debt.

21. What is trust fund doctrine?

The trust fund doctrine provides that the capital stock, property and other assets of a corporation are
regarded as equity in trust for the payment of corporate creditors (Philip Turner v. Lorenzo Shipping
Corporation, G.R. 157479, 2010). It also provides that subscriptions to the capital stock of a corporation
constitute a fund to which creditors have a right to look for the satisfaction of their claims (Boman
Environmental Development Corporation v. Court of Appeals, G.R. 77860, 1988).

22. What is retained earnings?

Retained earnings (RE) is the amount of net income left over for the business after it has paid out
dividends to its shareholders. The decision to retain the earnings or distribute them among the
shareholders is usually left to the company management.

23. What is unreatined earnigs?

24. What are the requirements for the declaration od dividends?

25. What are the limitations on dividends?

Dividends may not be paid if (1) the business is insolvent (i.e., unable to pay its debts as they become
due), (2) paying dividends would make it insolvent, or (3) payment would violate a restriction in the
articles of incorporation.

26. What is ultra vires act?

No corporation under this Code shall possess or exercise any corporate powers except those conferred
by this Code or by its articles of incorporation and except such as are necessary or incidental to the
exercise of the powers so conferred. (Sec. 44)

27. What is Corporation By-Laws?

A corporation is an artificial being created by operation of law, having the right of succession and the
powers, attributes, and properties expressly authorized by law or incidental to its existence.

28. What is the purpose of By-laws?

29. When is By-Laws become effective?

The amended or new by-laws shall only be effective upon the issuance by the Securities and Exchange
Commission of a certification that the same are not inconsistent with this Code.

30. What are the contents of By-Laws?

Private corporation may provide the following in its bylaws:

(a) The time, place and manner of calling and conducting regular or special meetings of the directors or
trustees;

(b) The time and manner of calling and conducting regular or special meetings and mode of notifying the
stockholders or members thereof;

(c) The required quorum in meetings of stockholders or members and the manner of voting therein;

(d) The modes by which a stockholder, member, director, or trustee may attend meetings and cast their
votes;
(e) The form for proxies of stockholders and members and the manner of voting them;
(f) The directors' or trustees' qualifications, duties and responsibilities, the guidelines for setting the
compensation of directors or trustees and officers, and the maximum number of other board
representations that an independent director or trustee may have which shall, in no case, be more than
the number prescribed by the Commission;

(g) The time for holding the annual election of directors or trustees and the mode or manner of giving
notice thereof;
(h) The manner of election or appointment and the term of office of all officers other than directors or
trustees;
(i) The penalties for violation of the bylaws;
(j) In the case of stock corporations, the manner of issuing stock certificates; and (k) Such other matters
as may be necessary for the proper or convenient transaction of its corporate affairs for the promotion
of good governance and anti-graft and corruption measures. An arbitration agreement may be provided
in the bylaws.

31. What are Modes of Dossulotion of a Corporation?

Methods of Dissolution. – A corporation formed or organized under the provisions of this Code may be
dissolved voluntarily or involuntarily. ( Voluntary Dissolution Where No Creditors are Affected, Voluntary
Dissolution Where Creditors are Affected, Dissolution by Shortening Corporate Term, Withdrawal of
Request and Petition for Dissolution, Involuntary Dissolution, etc.)

32. What is the procedures in a voluntary dissoultion whre creditors are affected?

Voluntary dissolution where creditors are affected (Sec135)(119)

1. Petition shall be signed by a majority of the corporation's board of directors or trustees, verified by its
president or secretary or one of its directors or trustees, and shall set forth all claims and demands
against it, and that its dissolution was resolved upon by the affirmative vote of the stockholders
representing at least two-thirds (2/3) of the outstanding capital stock or at least two-thirds (2/3) of the
members at a meeting of its stockholders or members called for that purpose.

Content of the petition The petition shall likewise state:

a. the reason for the dissolution;
b. the form, manner, and time when the notices were given; and

c. the date, place, and time of the meeting in which the vote was made.

33. What are the grounds for involuntary dissulotion?

The grounds for dissolution of the corporation:

a. Non-use of corporate charter within five (5) years from the date of its incorporation

a. Continuous inoperation of a corporation for a period of at least five (5) consecutive years

b. Upon receipt of a lawful court order dissolving the corporation;

c. Upon finding by final judgment that the corporation procured its incorporation through fraud;

d. Upon finding by final judgment that the corporation:

(a) Was created for the purpose of committing, concealing or aiding the commission of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices;
(b) Committed or aided in the commission of securities
violations, smuggling, tax evasion, money laundering, or graft and corrupt practices, and its stockholders
knew of the same;
(c) Repeatedly and knowingly tolerated the commission of graft and corrupt practices or other
fraudulent or illegal acts by its directors, trustees, officers, or employees.

34. What is the general rule for corporate liquidation?

In general. Section 331 contains rules governing the extent to which gain or loss is recognized to a
shareholder receiving a distribution in complete or partial liquidation of a corporation. Under section
331(a)(1), it is provided that amounts distributed in complete liquidation of a corporation shall be
treated as in full payment in exchange for the stock. Under section 331(a)(2), it is provided that amounts
distributed in partial liquidation of a corporation shall be treated as in full or part payment in exchange
for the stock. For this purpose, the term partial liquidation shall have the meaning ascribed in section
346. If section 331 is applicable to the distribution of property by a corporation, section 301 (relating to
the effects on a shareholder of distributions of property) has no application other than to a distribution
in complete liquidation to which section 316(b)(2)(B) applies.
35. What is the exception to the general rule of corporate liquidation?

The express to the general rule are provide for section 93&94 of this code, upon winding up of corporate
affairs, any assets distributed to any creditor or stockholders or members who is unknown or cannot be
found shall be escheated in favor of national government.

Except by decrease on Capita stock and as otherwise allowed by this code no corporation shall distribute
any of its assets or property except upon lawful dissolution and after payment of all it's debts and
liabilities.