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Remedial Rights
1. individual suit
2. class or representative suit
3. derivative suit

Individual Suit, Representative Suit and Derivative Suit

1) where a stockholder or member is denied the right of inspection, his suit would be individual
2) where the wrong is done to a group of stockholders, a class or representative suit will be proper
3) where the acts complained of constitute a wrong to the corporation itself, the cause of action
belongs to the corporation and not to the individual stockholder or member

Derivative Suit
A suit by a shareholder to enforce a corporate cause of action

Requisites:
1. the party bringing suit should be a shareholder during the time of the act or transaction
complained of
2. the party has tried to exhaust intra-corporate remedies
3. the cause of action actually devolves on the corporation; the wrongdoing or harm having been or
being caused to the corporation and not to the particular stockholder bringing the suit

Jurisdiction of Special Commercial Courts

PD No. 902-A
Cases over which the SEC (Now the RTC acting as a special commercial court under RA No. 8799) exercises
exclusive jurisdiction:
a. devices or schemes employed by or any acts of the BOD, business associates, or officers,
amounting to fraud and misrepresentation which may be detrimental to the interest of
the public and/or stockholders, partners, etc.
b. controversies arising out of intra-corporate or partnership relations, between and among
stock-holders, members, or associates; between any or all of them and the corporation,
partnership or association of which they are stockholders, members, or associates;
between such corporation, partnership, or association and the State insofar as it concerns
their individual franchise or right to exist as such entity
c. controversies in the election or appointment of directors, trustees, officers, or managers
of such corporations, partnerships, or associations
d. petitions of corporations, partnerships, or associations to be declared in the state of
suspension of payment in cases where the corporation, partnership, or association
possesses sufficient property to cover all its debts but foresees the impossibility of
meeting them when they fall due or in cases where the corporation, partnership, or
association has no sufficient assets to cover its liabilities but is under the management of
a rehabilitation receiver or management committee

Intra-corporate Controversy
Elements to determine whether a case involves an intra-corporate controversy
1. the status or relationship of the parties
2. the nature of the question that is the subject of the controversy
a. between any or all of the parties and the corporation
b. between any or all of them and the corporation

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c. between such corporation and the state insofar as it concerns their individual franchise

Controversy Test
➢ the incident of the relationship must also be considered for the purpose of ascertaining whether
the controversy itself is intra-corporate

Removal of Corporate Officer

A corporate officer’s dismissal or removal is always a corporate act and/or an intra-corporate controversy,
over which the SEC (now the RTC) has original and exclusive jurisdiction

Venue of Derivative Suits: the RTC which has jurisdiction over the principal office of the corporation,
partnership, or association concerned

Authorized Corporate Officers to Sign the Verification and Certification Against Forum Shopping
1. chairperson of the BOD
2. president of a corporation
3. general manager or acting manager
4. personnel officer
5. an employment specialist in a labor case

Obligations of a Stockholder
1. liability to the corporation for unpaid subscription
2. liability to the corporation for the interest of unpaid subscription
3. liability to the creditor of the corporation on the unpaid subscription
4. liability for watered stock

Liability to the Corporation for Unpaid Subscription

1. demand to pay
2. date of payment
3. interest due
4. 30-day rule

Delinquency Sale
The BoD may, by resolution:
1) order of delinquency sale
2) notice and publication
3) public auction
4) stock transfer
5) remaining shares
6) no bidder scenario and the power of the corporation to acquire shares
7) treasury shares

When Sale may be Questioned

1. first pays or tenders to the party holding the stock the sum for which the same was sold, with
interest from the date of sale at the legal rate
2. no such action shall be maintained unless it is commenced by the filing of a complaint within 6
months from the date of sale

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Court Action to Recover Unpaid Subscription

Effects of Delinquency
1. no delinquent stock shall be voted for
2. neither it be entitled to vote or to representation at any stockholder’s meeting
3. nor shall the holder thereof be entitled to any of the rights of a stockholder
exception: the right to dividends in accordance with the provisions of the Code, until and
unless he pays the amount due on his subscription with accrued interest, and the cost
and expenses of advertisement, if any

Liability for Watered Stock

Requisites:
1. for a consideration less than its par or issued value or for a consideration in any form other than
cash, valued in excess of its fair value
2. who, having knowledge thereof, do not forthwith express his objection in writing and file the same
with the corporate secretary

Meetings
1. regular
a. held annually on a date fixed in the by-laws or on any date in April of every year
b. that written notice of regular meetings shall be sent to all stockholders or members of
record at least 2 weeks prior to the meeting, unless a different period is required by the
by-laws
2. special
a. at any time deemed necessary or as provided in the by-laws
b. at least one week written notice shall be sent to all stockholders or members, unless
otherwise provided in the by-laws

Notice, time, and place on Regular or Special Meeting

1. place – city or municipality where the principal office of the corporation is located
2. notice – in writing, and the time and place thereof stated

Quorum in Meetings for Stockholders or Members

➢ a majority of the OCS or a majority of the members in the case of non-stock corporation
➢ unless otherwise provided for in the code or in the by-laws

CHAPTER 7
Merger and Consolidation
Merger and Consolidation Defined
• consolidation – the union of two or more existing corporations to form a new corporation
called the consolidated corporation
• merger – a union whereby one corporation absorbs one or more existing corporations
and the absorbing corporation survives and continues the combined business

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Plan of Merger or Consolidation

1. the names of the corporations proposing to merge or consolidate, hereinafter referred to as the
constituent corporations
2. the terms of the merger or consolidation and the mode for carrying the same into effect
3. a statement of the changes, if any, in the AOI of the surviving corporation in case of merger; and
with respect to the consolidated corporation in case of consolidation, all the statements required
to be set forth in the AOI
4. such other provisions with respect to the [proposed merger or consolidation as are deemed
necessary or desirable

Stockholder's or Member's Approval

1. approval of the majority BOD/BOT
2. approval of the stockholders/members (2/3)
3. notice
4. amendment to the plan of merger or consolidation

Articles of Merger or Consolidation

A. the plan of the merger or the plan of consolidation
B. as to stock corporations, the number of shares outstanding, or in the case of non-stock
corporations, the number of members
C. as to each corporation, the number of shares or members voting for and against such plan,
respectively

Effectivity of Merger and Consolidation

➢ the merger shall only be effective upon the issuance of a certificate of merger by the SEC subject
to its prior determination that the merger is not inconsistent with the Code or existing laws

Procedure and Effectivity of Merger or Consolidation

1) the articles signed and certified shall be submitted to the SEC in quadruplicate for its approval
2) in case of merger or consolidation of banks, etc., the favorable recommendation of the
appropriate government agency shall first be obtained
3) if the SEC is satisfied, it shall issue a certificate of merger or of consolidation at which time the
merger or consolidation shall be effective
4) if the SEC has the reason to believe that the proposed merger or consolidation is contrary to or
inconsistent with the provisions of the Code or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be heard
Written notice of date, time, and place of hearing shall be given to each corporation at least 2
weeks before hearing, the SEC will then proceed as provided by the Code

Effects of Merger or Consolidation

a. becomes a single corporation
b. separate existence ceased
c. possessing all the rights and liabilities
d. no further act or deed required

Absorbed FEBTC Employees are neither Assets nor Liabilities

Merger and De Facto Merger

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➢ can be pursued by one corporation acquiring all or substantially all opf the properties of another
corporation in exchange of shares of stock of the acquiring corporation
➢ the acquiring corporation would end up with the business enterprise of the target corporation
➢ the target corporation would end up with basically its only remaining assets being the shares of
stock of the acquiring corporation

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