Course Outline in Bus. Org.

II
2nd Semester 2021
USLS College of Law

Title I – General Provisions

Sec. 1. Title of the Code

Brief history of the Code
Significant changes in the Code

Sec. 2. Corporation defined

Attributes of a corporation:
1. Corporation as an artificial being
BASECO vs. PCGG, May 27, 1987
Filipinas Broadcasting Network vs. Ago Medical And Educational Center,
January 17, 2005
Ong vs. CA, April 29, 2003

1.1 Doctrine of separate legal entity

Boyer Roxas vs. CA, July 14, 1992
Lim vs. CA, January 24, 2000
Ricardo Silverio Jr., et. al., vs. Filipino Business Consultants, August 12,
2005
Palay Inc. vs. Clave, Sept. 21, 1983
EPG Construction Com, Inc. vs. CA, June 22, 1992
Stronghold Insurance vs. Tomas Cuenca, March 6, 2013
Complex Electronics Employees Asso. Vs. NLRC, July 19, 1999
Indophile Textile Mill Workers vs. Calica, Feb. 3, 1992

1.2 Doctrine of piercing the corporate veil

DBP vs. Hydro Resources, March 13, 2013
ABS CBN vs. Hilario, July 10, 2019
Heirs of Fe Tan Uy vs. IE Bank, Feb. 13, 2013

1.3 Doctrine of reverse piercing of the corporate veil

International Academy of Management and Economics vs, Litton and
Company, Inc., December 13, 2017

2. Corporation as a creation of law

3. Corporation has right of succession
4. Corporation has powers, attributes and properties expressly granted by law

Advantages of the corporate form

Sec. 3. Classes of corporation

Classification of corporations under the Code
Stock corporations
Non-stock corporations
Other classes of corporation
MIAA vs. City of Pasay, April 2, 2009
Test to determine nationality of a corporation
Leo Querubin vs. COMELEC, Dec. 8, 2015

Sec. 4. Corporations created by special laws or charters

Governing law
Dante Liban vs. Richard Gordon, July 15, 2009 and Jan. 10, 2011

Sec. 5. Corporators and incorporators, stockholders and members

Tri-level hierarchy of authority in corporations
Sec. 6. Classification of shares
Power to classify shares
Authority to classify shares
Equality of shares; Doctrine of equality of shares
What are the classes of shares?
Preferred shares; Authority of board to fix terms and conditions of
preferred stocks
Limitations on issuance of no par shares
Consideration of no par value shares
Corporations which cannot issue no par shares
Shares without par value deemed fully paid
Capital; definition
Classes of shares
Distinction between share of stock and certificate of stock
In what instances can non-voting shares have the right to vote?

Sec. 7. Founders’ share

Nature of founders’ share
Statutory limitation on founders’ share

Sec. 8. Redeemable shares

Nature of redeemable shares
Classes of redeemable shares
Restriction on redemption of shares
Effect of redemption of shares

Sec. 9. Treasury shares

Nature of treasury shares
Treasury shares not entitled to dividends
Status of treasury shares
Treasury shares not distributable as cash or stock dividend
Treasury shares not entitled to voting rights
Resale of treasury shares

Title II

Sec. 10. Number and qualification of incorporators

Process by which a corporation comes into being
1. Creation
2. Incorporation
3. Organization
a. Promoters
b. Underwriters
c. Incorporators

Sec. 11. Corporate term

Limitations and rationale

Sec. 12. Minimum capital stock not required

Sec. 13. Contents of articles of incorporation

Forest Hills Golf and Country Club Inc. vs. Gardpro, Inc., GR No. 164686, Oct.
22, 2014

Sec. 14. Form of articles of incorporation

Sec. 15. Amendment of the articles of incorporation

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 Nature of corporate charter
Modes of amending corporate charter
Power to amend
What can and cannot be amended
Necessity of Stockholders meeting for amendment
Limitations on the power of corporations to amend AoI

Sec. 16. Grounds when AoI or amendment may be disapproved

Non-compliance with form
Purpose – unconstitutional, immoral, illegal
False treasurer’s affidavit
Non-compliance with required percentage of ownership
Grandfather rule
Control test

Sec. 17. Corporate name

What is the importance of a corporate name
De La Salle Montessori vs. De La Salle Brothers, et. al., G.R. 205548 Feb 7,
2018
Limitations on use of corporate name; Distinguishability Test
Guidelines/Restrictions for the registration of corporate name
Effect of change in corporate name
Zuellig Freight and Cargo vs. NLRC, G.R. 157900 July 22, 2013

Sec. 18. Registration, Incorporation and Commencement of corporate existence

Effects of SEC registration

Sec. 19. De Facto corporation

Nature and status of de facto corporations
Powers, rights and liabilities of de facto corporation
Requisites for existence of a de facto corporation
Collateral attack

Sec. 20. Corporation by estoppel

Nature and status of a corporation by estoppel
Liabilities
International Express Travel & Tour Services Inc. vs. CA, Henri Khan, et. al.,
GR No. 119002, Oct. 19, 2000
Suability
Macasaet vs. Francisco, GR No. 156759, June 5, 2013

Sec. 21. Effects of non-use of corporate charter

Formal organization and transaction of business
Continuous inoperation; its effects
Delinquent status

Title III

Sec. 22. Board of Directors or Trustees

Corporate body acts only through agents – Doctrine of Centralized Management
Corporate Heirarchy
Business Judgment Rule
Term of Directors./Trustees – Hold-over capacity
Qualifications of directors/trustees
Lee vs. CA, G.R. 93695 Feb. 4, 1992
Independent Directors
Election of directors/trustees

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Sec. 23. Election of Directors or Trustees
Who may vote
Time of election
Quorum for election
Manner and method of voting

Sec. 24. Corporate Officers, Quorum

Who are corporate officers; qualifications
Incompatible positions
Meeting; Quorum
Creation of Positions and Offices
March II Marketing vs. Joson, G.R. 171993 Dec. 12, 2011
Matling Industrial vs. Coros, G.R. 157802 Oct. 13, 2010
Intra-Corporate or Labor Dispute
Wesleyan University-Phils. Vs. Maglaya, G.R. 212774 Jan. 23, 2017
Doctrine of Apparent Authority
People’s Aircargo vs. CA, G.R. 117847 Oct. 7, 1998
Advance Paper Corp. vs. Arma Traders Corp., G.R. 176897 Dec. 11, 2013

Sec. 25. Report of election of directors, trustees and officers

Report requirements; Annual reports
Emergency board

Sec. 26. Disqualification of directors, trustees or officers

Grounds for disqualification
Other grounds
Gokongwei vs. SEC, G.R. L-45911 April 11, 1979

Sec. 27. Removal of directors or trustees

Power of stockholder to remove
Requisites for removal

Sec. 28. Vacancies in the office of director or trustee

Causes of vacancy
Manner of filling of vacancies in the board
1. by the stockholders
2. by the board of directors/trustees

Sec. 29. Compensation of directors

Compensation distinguished from per diem
Rulings on compensation of directors/trustees

Sec. 30. Liability of directors, trustees or officers

When personal liability attaches
Business judgment rule
Lucia Magaling vs. Peter Ong, G.R. 173333 August 13, 2008

Sec. 31. Dealings of directors, trustees or officers

Legal status of the contracts
Requirements for validity of contracts of self-dealing directors

Sec. 32. Contracts between corporations with interlocking directors

Requirements for validity of contracts of interlocking directors

Sec. 33. Disloyalty of a director

Doctrine of corporate opportunity
IENT vs. Tullett Prebon, G.R. 189158 Jan. 11, 2017

Sec. 34. Executive, Management and other Special committee

Rationale and requirements

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B. Mid-Terms

Title IV

Sec. 35. Corporate powers and capacity

Powers of corporation; definition: general and specific powers
Classification of powers
Theory of general capacity; special/specific capacity

Sec. 36. Power to extend or shorten corporate term

Extending/Shortening corporate terms

Sec. 37. Power to increase or decrease capital stock; incur, create or increase bonded
indebtedness
Increase/Decrease of capital stock; its effects; when effective
Benito vs. SEC, G.R. No. L-56655, July 25, 1983
Meaning of bond
Distinction between bonds and stocks
Meaning of bonded indebtedness

Sec. 38. Power to deny pre-emptive right

What is pre-emptive right; waiver
Effects to reissuance of shares
Where no pre-emptive right exists

Sec. 39. Sale or other disposition of assets

Authority of the board
Effect of sale or disposition
Appraisal right of dissenting stockholder

Sec. 40. Power to acquire own shares

Conditions under which a corporation may acquire its own shares
Effect of acquisition
Absence of unrestricted retained earnings

Sec. 41. Power to invest corporate funds in another corporation or business

Distinguish from Sec. 35

Sec. 42. Power to declare dividends

Dividends defined; Are profits dividends?
Classes of dividends
Unrestricted retained earnings
Power to declare dividend; when to declare
Who are entitled
Trust Fund Doctrine

Sec. 43. Power to enter into management contract

Limitations on the power

Sec. 44. Ultra vires acts of corporations

Concept; Types of Ultra Vires acts
Ultra vires vs. illegal acts
Ratification of ultra vires acts
Legal consequences of ultra vires acts

Title V

Sec. 45. Adoption of by-laws

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 Definition and nature of by-laws
Power to adopt by-laws
Characteristics of valid by-laws
Effect of failure to adopt by-laws

Sec. 46. Contents of by-laws

Sec. 47. Amendments to by-laws

Procedure and effectivity of amendments
Authority of the Board to amend by-laws

Title VI

Sec. 48. Kinds of meetings

Sec. 49. Regular and Special meetings of stockholders or members

Necessity
Requisites for a valid meeting

Sec. 50. Place and time of meeting

Sec. 51. Quorum in meetings

Quorum required
Instances when the law requires a specific number of votes

Sec. 52. Regular and special meeting of directors/trustees; Quorum.

Sec. 53. Who shall preside at meetings

Presiding officer

Sec. 54. Right to vote of Secured Creditors and administrators

Sec. 55. Voting in case of joint ownership of stock

Sec. 56. Voting right for treasury share

Sec. 57. Manner of Voting; Proxies

Meaning of proxy, purpose
Who may give a proxy and who may be a proxy?
Duration and revocation of proxy

Sec. 58. Voting trusts

Nature and definition of voting trusts
Purpose of Voting trust agreement
Extent of authority and duration of voting trust

Title VII STOCKS AND STOCKHOLDERS

Rights of a Stockholder
 Proprietary Rights
 Management Rights
 Remedial Rights
Derivative suit: its concept and nature
1. Individual suit
2. Class or representative suit
3. Derivative action
4. Requisites of a derivative suit

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Sec. 59. Subscription contract
Definition
Kinds of subscription
1. Pre-incorporation
2. Post-incorporation
3. Illegal subscription
Distinction between subscription and purchase of shares
Condonation of Subscription receivables from Shareholders

Sec. 60. Pre-incorporation subscription

Irrevocability of PISA

Sec. 61. Consideration for stocks

Power to issue stock; sources of corporate funding
Consideration for issuance of stock

Sec. 62. Certificate of stock and transfer of shares

Manner of issuance of certificates of stock
Nature
Modes of transfer
1. By endorsement
2. By assignment
Restriction on transfer of shares
Remedy of stockholder where corporation refuses to register transfer of stock

Sec. 63. Issuance of stock certificates

What is a stock certificate?
Lao vs. Lao, G.R. No. 170585, October 6, 2008
Doctrine of indivisibility of subscription contract
Transfer of subscription
Cancellation of stock certificates

Sec. 64. Liability of directors for watered stock

Nature of watered stock; What is a watered stock?
Effect of issuance and liability

Sec. 65. Interest on unpaid subscriptions

Liability of stockholder for interest on unpaid subscription

Sec. 66. Payment of balance of subscription

When payable
Power of the board of directors to make a “call”
Call; defined
When stock becomes delinquent
Requisites of a valid “call”
Doctrine of indivisibility of stock in relation to delinquent shares

Sec. 67. Delinquency sale

Highest bidder defined
Procedure for sale

Sec. 68. When sale may be questioned

Recovery of stock unlawfully sold

Sec. 69. Court action of recover unpaid subscription

Remedies to enforce payment of unpaid subscription
1. Ordinary court action
2. Extrajudicial sale at public auction
3. Collection from cash dividends
Remedy by judicial action

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Sec. 70. Effect of delinquency

Sec. 71. Rights of unpaid shares, Non-delinquent

Sec. 72. Lost or destroyed certificates

Procedure

Title VIII

Sec. 73. Books to be kept; stock transfer agent

Sec. 74. Right to financial statements

Title IX

Sec. 75. Plan of merger or consolidation

What is a de facto merger?

Sec. 76. Stockholders’ or members’ approval

Sec. 77. Articles of merger or consolidation

Sec. 78. Effectivity of merger or consolidation

Sec. 79. Effects of merger or consolidation

Title X

Sec. 80. When the Right of Appraisal May be Exercised

Sec. 81. How right is exercised

When appraisers may be appointed; determination of fair value

Sec. 82. Effect of demand and termination of right

Sec. 83. When right to payment ceases

Sec. 84. Who bears cost of appraisal

Sec. 85. Notation on certificates

Transfer of dissenting shares

C. Finals

Title XI – NON-STOCK CORP

Sec. 87. Definition

Sec. 88. Purposes

Definition of non-stock
Concept of non-stock
Purposes of non-stock corporation

Sec. 89. Right to vote

Sec. 90. Non-transferability of membership

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Sec. 91. Termination of membership

Sec. 92. Election and terms of trustees

Sec. 93. Place of meetings

Sec. 94. Rules for distribution

Sec. 95. Plan for distribution of assets

Title XII – CLOSE CORP.

Sec. 96. Definition and applicability

Sec. 97. Articles of Incorporation

Sec. 98. Validity of restrictions on transfer of shares

Sec. 99. Effects of issuance of transfer of stock in breach of qualifying conditions

Sec. 100. Agreements by stockholders

Sec. 101. When board meeting is unnecessary and improperly held

Sec. 102. Pre-emptive right in close corporations

Sec. 103. Amendment of articles of incorporation

Sec. 104. Deadlocks

Sec. 105. Withdrawal of stockholder or dissolution of corporation

Title XIII

Sec. 106. Incorporation

Sec. 107. Pre-requisites to incorporation

Sec. 108. Board of trustees

Sec. 109. Classes of religious corporations

Sec. 110. Corporation sole

Sec. 111. Articles of Incorporation

Sec. 112. Submission of articles of incorporation

Sec. 113. Acquisition and alienation of property

Sec. 114. Filling of vacancies

Sec. 115. Dissolution

Sec. 116. Religious societies

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Title XIV

Sec. 117. Methods of Dissolution

Sec. 118. Voluntary dissolution where no creditors are affected

Requirements/conditions

Sec. 119. Voluntary dissolution where creditors are affected

Sec. 120. Dissolution by shortening corporate term

Sec. 121. Involuntary dissolution

Sec. 122. Corporate liquidation

Methods of liquidation
Distribution of assets

Title XV

Sec. 123. Definition and rights of foreign corporation

Nature and status of foreign corporations
Modes of entry of foreign corporations

Sec. 124. Application to existing foreign corporations

Application of Code to existing foreign corporation

Sec. 125. Application for a license

Application for license with the SEC

Sec. 126. Issuance of a license

Meaning of transacting/doing business in the Philippines
What are isolated transactions

Sec. 127. Who may be a resident agent

Resident agent

Sec. 128. Resident agent; service of process

Appointment of resident agent

Sec. 130. Amendments to articles of incorporation or by-laws of foreign corporations

Sec. 131. Amended license

Sec. 132. Merger or consolidation involving a foreign corporation license in the

Philippines

Sec. 133. Doing business without a license

Doing business without a license

Sec. 134. Revocation of license

Revocation of license
Grounds for Revocation

Sec. 135. Issuance of certificate of revocation

Issuance of certificate of revocation
Effect of revocation of license

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