COBLAW2
March 14 - Tuesday
Law on Private Corporations
Public Corporations
> political subdivision, such as
provinces, cities, municipalities, and
barangays
How are these entities created?
Law
Private Corporations
> artificial being created by
operation of law, having the right of
succession and the powers, attributes,
and properties expressly authorities by
laws or incident to its existence
As if its an artificial person, which
is distinct from the people composing it
Its properties, rights, and
obligations are separate from properties
of the stockholders, etc.
Can have properties of its own
> Separate entity theory
Why is it created by law to have its
identity?
So, it could invite investors
convenient for the stockholders to
get investors
> Convenience
Right of Succession
Continuity of existence
Even if the forming members all
cease to exist
> corporation will continue to exist
Powers of a Corporation
> Express,
Implied,
Incidental Powers
1. Express Powers
Those powers expressed in the
articles of incorporation; expressly
granted and expressly given
Expressed by under the
corporation code, and its bylaws, law
Can be exercised
2. Implied Powers
Necessary for the exercise of
expressed powers
3. Incidental Powers
Inherent powers in every
corporation
Because it exists, certain powers
that are inherent just because it exists
as a corporation
Government Owned and Controlled
Corporation (GOCCs)
Middle of public and private (hybrid)
Why?
Entities that have either their own
charter  they have their own special
law which is passed by Congress OR
they are created through the Revised
Corporation Code of the Philippines
> Majorities of the share are owned
by the government
> Performing proprietary or
commercial functions
> Similar to private corporation
doing proprietary functions
Private Corporations
Can only be created through a general
law
> Revised Corporation Code of the
Philippines (RA 11232)
Why is that so? Why is there
prohibition?
The Congress cannot create a
law for purely private corporation
Because
> Constitution
Section 16, Article 12
Private corporations could only
be created through a general law
Classifications of Corporations
1. Close Corporations
Shares are limited to a certain
group
Not more than 20 stockholders
Always a restriction when it
comes to transfer of shares
That should be provided in the
articles of corporation and stock
certificates
Cannot be listed in local stock
exchange
Every time shares are
transferred, there are conditions that
should be met
2. Closely Held Corporations
Not the same with Close Corp
> At least 50% of the standing
capital stock or at least 50% of the total
voting power of all classes of shares are
owned by not more than 20 persons
3. Corporation by Estoppel
Group of persons that represent
themselves as a stockholder in a
corporation that may or may not exist
Liabilities of these people in a non-
existent?
> They will be held liable as if they
are general partners
Liabilities will extend to their
personal assets
Components of a Corporation
1. Incorporators
> Persons who formed and
composed the corporation
> Signed and acknowledged the
articles of incorporation before a notary
public
> Originally compose the
corporation
Requirements to become
Incorporators
 subscribed at least to one share
 any person can be incorporator
(natural or artificial/juridical)
A corporation, partnership could
be an incorporator
 If a natural person
Must be of Legal age
Limit of Incorporators to a regular
corporation?
At least 2, Maximum of 15 incorporators
2. Corporators
> generally, Compose the
corporations, referring to the:
Shareholders If stock corporation,
Members if nonstock corporation
3. BOD (stock) / BOT (nonstock)
> governing body of the corporation
The corporation exercised their
powers through the BOD / BOT
Since Corporation is artificial, it
cannot act on its own, it can act through
its Board
4. Corporate Officers
Officers provided in the bylaws, AOI
Elected by the shareholders
> President
 Director, must be a member of
the Board
> Treasurer
Resident of the PH
May or may not be director
> Corporate Secretary
Resident of the PH
(Residing in PH)
Citizen of the PH
(Filipino National)
> Compliance Officer
Required only with vested public
interest
 banking, insurance, petroleum
> Other Corporate Officers
Provided in the bylaws
Conditions (at the same time)
President & Treasurer – NO
President & Secretary – NO
Treasurer & Corp Sec – YES
Articles of Incorporation
> Corporation’s Basic charter
Basic Information about the
corporation can be found here
Name of corporation, address,
purpose, names of the people,
capital stock
Authorized Capital Stock
Total number of shares that are
available for issuance
Maximum of available shares for
subscriptions
100,000 shares @ 1.00 each
Subscribed Capital Stock
Order / commitment of the
incorporators
50,000 shares
Paid Up Capital Stock
25,000 shares are paid
Par Value
Minimum amount that a share
may be issued
Par Value is 5 pesos.
 Cannot be issued lower than
5 pesos
By Laws
Set of rules, that govern the
corporation in terms of dealing with its
shareholders, boards, etc
Rules that are not included in the
AOI, are in the bylaws
Stock and Transfer Book
All issuances, all exchanges, all
transfers, and retirement of shares are
recorded here
Maintained by the Corp Sec
Is there a need for Treasurer’s
Affidavit?
No need, because of the revised
corporation code
Can be found and included in the
new template of AOI provided by SEC
Cover Sheet
Basic information - Names, logo,
Limitations to its Existence
Since the corporation an artificial
being, the board must take actions
Can a corporation criminally liable?
Yes
The board/officers who
committed the crime who are directly
responsible

Penalty
Imposition of a Fine
Is a corporation entitled to moral
damages?
Yes, in case of Defamation
March 21, 2023
Tuesday
Piercing the Veil of Corporate Fiction
> if to perpetuate fraud, justify
wrong
It will be disregarded, be lifted,
and revoked, will be treated as
one and the same
> judicial function
Courts determine whether to
pierce
Parties cannot decide, it is the
court who determines
If you have: corporation and natural
persons
1st situation:
Corporation A and 5 stockholders
As if the shareholders did the
wrongdoings / illegal act
2nd situation
Corporation owned by another
corporation
1. Subsidiary – yung own
2. Parent – yung owner
If parent uses subsidiary (alter ego) to
do illegal acts, then they will be treated
as one and the same
Control of the parent to the subsidiary
- owns that majority, not only in financial
- complete dominance in practice
business, policy making
- to commit fraud
- proximate cause to injury another
person
Sample: Corp A is liable to 10M to its
employees, Corp A transferred Corp B
to evade settle amounts. We cannot pay
because we are insolvent
Separate of Legal Personality
> separate and distinct
Legal fiction
Artificial person
> for convenience and to serve
justice
Grandfather Rule:
> method of determining the
nationality of a corporation
> Nationalized activities
 Either majority
Sample: mining, media, retail
Requires a certain percentage of
filipino ownership, we apply the
grandfather rule
Ultimate filipino ownership
Corp A cannot claim that it is 50%
owned, but it is only 30% filipino owned
If 60% ang Father ng corp, NO need to
apply the grandfather rule
Is less than 60%, only application of
grandfather rule
Trust Fund Doctrine
> corporation holds the capital
stock = equity in trust
Subscribed capital treated as a trust
fund, cannot be reduced by the
stockholder.
Must be maintain, hindi pwede
galawin
It will be only reduced in the
event of corporate liquidation
If a going concern, cannot be
reduced, considered as equity in trust to
pay creditor
Stockholders and shares of stock
Stocks vs Shares
> They are the same
Why different terms?
Because of US and British terms
Stocks – US
Shares – UK
Unit of capital stock – stocks
How can be a shareholder in a
corporation?
> to own at least 1 stock
Ways
1. Acquire shares from exisiting
shareholders
2. subscribe to the corporation through a
subscription contract
Original Issuance
3. Purchase through Treasury shares
Issued shares, re-bought shares,
it can be re-issued
Valid Form of Consideration for the
purchase of shares?
> Cash / Legal tender
> properties, land
> labor / service
Issue:
Must be rendered na ang service,
bawal yung gagawin palang
> Prior corporate obligation (debt to
equity swap)
Corporation owes another person
money. It issued share for the
extinguishment of this obligations
> Unrestricted Retained Earnings
RE = Accumulated net income,
recorded in a shareholder’s accounting
URE = available of distribution for
its dividends
When is URE valid?
Whenever stock dividends is
shared to existing shareholders in the
forms of dividends, stocks na lang ang
ibibigay sa kanila
> Outstanding Shares
Happen when reclassified of
shares,
Being used as another form of
shares
> hindi pwede utang – so bawal
ang promissory note, loan agreements
Indivisibility of Subscription
> Sample:
Subsbcribed to ABC
1,000 shares @ 5.00 pesos = 5k
I initially paid 2,500 pesos
Can I demand for certificate of the 500
shares?
No
Stock certificate will be issued once it is
fully paid,
Hindi pwedeng tingi
Classification Shares
1. Redeemable Shares
> Shares an issuing corporation,
can take it back for a certain period, at a
certain redemption price
> it has a redemption feature
If only explicitly provided in the
AOI
Temporarily held by a certain
person
Sinking fund – used for
redemption of the redeemable shares
Once redeemed, they can be retired or
treasury shares
General rule ang retired / cancelled
Exception – ang gawing treasury shares
But when stated in AOI, na pwede
gawing treasury shares, these shares
are still active but not in the hands of the
corporation
Presence of URE is not required,
The corp must have enough assets for
its redemption
Treasury shares
> issued, paid, and reacquired again of
the issuing corporation and held by the
corporation
> considered not part of the
outstanding shares, not entitled to the
dividends
Requirements:
1. must have enough URE
2. legitimate business purpose
Sample
- eliminate fractional shares
- To pay withdrawing shares,
Par Value and No Par value
Par Value shares
> shares that have a par value
> nominal amount assigned to a
share
No par Value shares
> walang par value
> these shares exist, no designated
nominal value
Limitations of No Par Value shares
> cannot be issued less that 5
pesos
> cannot be issued preferred
shares
> cannot issue by banks
> AOI must indicate that these are
no par value shares
Watered Stock
> stocks issued below its par value,
not equivalent to its exchange cash
Without consideration at all,
issued for free
Issued a stock dividend, when
there is no URE
Luge – shortage
Generally bad for the corporation
May dapat bang managot?
Someone would be liable.
BOD and officers should be solidarily
liable for the difference what should
have been of the shares
 Still entitled to dividend even if
Solidary liability delinquent
Kahit kanino pwede ka
magdemand Cannot be source from the outsource
capital
Dividends Ma-violate ang Trust Fund rule
> referring to cash, property,
or shares of the corporation assets Dividends are taken from Unrestricted
distributed/shared to outstanding Retained Earnings,
shareholders for their participation
IF liquidating and dividends from
Who has the power to declare wasting assets corporation (mining) can
dividends? be taken from outstanding capital
> Board of Directors
If cash, BOD only
then the Boards majority
decision, will governing body of the
corporation (independent body)
If stock – BOD + 2/3 OCS
Majority Boards and the vote of
the shareholders owning at least 2/3 of
stocks

Shareholders cannot compel the BOD,

it’s the sole discretion of the BOD to March 28, 2021
share dividends
Exception? Directors
> The stockholder can compel IF a. Qualifications
the URE is 100% excess of paid up > legal age
capital, then the board cannot refuse to > 1 shareholder in his own right in
issue dividends his legal title
> must be a member of the corp
The board can still refuse,
1. when there is expansion and Beneficial title
2. there is loan agreement kahit 100% - mere share lang
- limited lang sa shares
Who are entitled to receive dividends?
1. stockholders of record (at the time of b. Character
declaration dividends by the board) > must not be convicted by final
judgment of an offense the penalty of
2. unpaid subscribers entitled to which is imprisonment for 6 years
dividends, Must have achieved Finality
Ma-ooffset lang yung unpaid pa
ng kanilang stocks by dividends > Must have not violated the
corporation code, 5 years before
3. Delinquent shares election
IF NAGAWA, then disqualified - minority director
Represents the minority stockholders
> Majority of the directors must be
residents of the PH, not citizens Filling Up
> yes, by whom?
c. Other Requirements provided Can be filled up by the
in the bylaws. Sample: stockholders/members
samples: College graduate
Must be director in the other company When it is proper by the stockholders to
fill up the vacancy?
Election of directors Grounds:
> shareholders nominate 1. removal of director/expiration of the
> must be meeting (regular or term of a director
special) must be included in the agenda 2. do not constitute a quorum
is election of directors 3. increase in the number of seats in the
Called for that purpose board

> notice, given to all shareholders BOD / BOT

- not removal/expiration of terms
- remaining directors constitute a
quorum
- they will choose
Sample 5 directors
D1 was removed by SH
D2 term expired
Removal of director D3 resigned
> Yes, through a meeting of > It must be filled up by SH
stockholders
- sufficient notice to shareholders D1 resigned
that the meeting one of the D2 retired
agenda is a removal of the > the BOD will choose among
director themselves for the stockholders
If stock corporation
> 2/3 of stockholders owning Term of 1 year, unless stated other wise
atleast outstanding capital stock in the bylaws

If non stock Directors will continue to hold their

2/3 of the members position
> hold over capacity
No, can be removed As long as there are no successor
With or without cause
Basta nagawa ang first three, kahit SH meetings before filing of ITR, before
walang ground April 15
One of the agenda
Exception? This director can be > income statement
removed With cause > new members of the board

Business Judgment role
> all questions with regards to
policy making are left to the sound
judgment of the directors of a
corporation
- derivative suit
Rights of a stockholder
Voting rights
Voting shares
> pertains to the specific right to
vote
1. specific right to vote
> right to vote in the election of
directors/trustees
> some only
2. general right to vote
> right to vote on all matters
affecting the affairs of a corporation
> all
All matters
> AASIIMID
Amendments of the articles of a corp
Adoption of bylaws
SLEMPO (Sales, lease..) of all or
substantially assets
Incurring, creating, increasing bonded
indebtedness
I Increase/decrease of capital stock
M Merger and Consolidation
I – investment of Corporate funds in
other corporation
D – Dissolution of the corporation
If the matter ot be resolved, voted upon,
pertains to any of these, even a holder
of non holding share, you can still vote
Section 6 of the revised code
Limitations on the Right to Vote
> Preferred shares and redeemable
shares may be deprived of the vote
> fractional shares, unless they
constitute a whole share
> treasury shares
> shares of delinquent shares,
Voting Trust agreement
> agreement between a
shareholder and a trustee, assigning his
right to vote to another person
Why would he assigned?
> valuable consideration
Limit
Not more than 5
Right to Dividends
Appraisal Right
> Right of a dissenting
shareholders to demand a fair value of
his shares
> to buy your share
In case of: can be exercised (pag ayaw
mo na, pwede ka umalis during)
1. merger or consolidation
2. extending or shortening corporate
terms
3. SLEMPO of all assets
4. Amendment of the AGI
restrictive.changing the rights of a SA
Rights to Issuance of Stock Certificate
> once the subscription is paid, he
can demand to his stock certificate
Every shareholder in the liquidation
RIGHTs to Transfer
> once is paid,
In the stock and transfer book
Once paid,
Demand his name recorded in the
record book and stock and transfer
Stock certificate
Pre emptive right
Right of a stockholder in subsequent
issuances of shares
> to preserve his shares in the
corporation
Why is there preemptive right which is
available to all shareholders?
- kasi baba ang ownership sa corp A
Inooffer muna sa mga stockholders
There are specific issuances of shares
na hindi pinapayagan ang preemptive
right:
1. if compliance of a law requiring
minimum stock ownership by the public
2. if shared issued for the acquisition of
corporate property
3. payment of previously contracted debt
4. if the right is denied in the articles of
incorporation
5. waiver of shareholder (must be
named in writing of the shareholder)
Individual action
> legal action filed by the stockholder in
his own name against the corporation
Representative Action
> legal action filed by a stockholder
in his own namne and in behalf of
stockholders (same circumstances) filed
against a corporation
Derivative Action
> legal action filed by a stockholder
not in his name, but in the name of the
corporation
> protect the rights of a corporation
> whenever the necessary person
refuse to do anything about it
Requisites, when?
1. must be a Stockholder, at the time the
action complained of, happened
2. must have exhausted all remedies
available to him, according to the AOI,
Last resort
3. must be no appraisal right available to
the stockholder
4. not a nuisance/harassment suit
Substantial basis, not to harass the
board
Relate to Business Judgment Rule
> assuming Corp A has acquired
Corp B with questionable profitability
Stockholders filed a derivative suit
> used as a defense by the board, then
derivative suit can be dismiseed
> fear of scrutiny by the
stockholders, for the board to have
confidence
> to function properly
If you’re representative of another
person – on behalf (acting for someone)

In behalf (acting for the benefit of one)

April 14, Friday

Tuesday, April 18, 2023

2:30-4pm

Law on partnerships and Private

Corporations
A902
Multiple choice + Essay

Doctrine of Corporate Opportunity

Opportunity (must be present)
> corporate is financially able to
undertake
> from its nature, is in line with the
business of the corporation and is or
practical advantage to it
> one in which the corporation has
an interest or a reasonable expectancy
> By taking opportunity for his own,
the director, trustee or officer will be
consequently places in a position
inimical to his duties to the corporation

> Law does not allow the director to take

such opportunity

Consequence in case he seizes the

opportunity; must account for all the
profits and give it to the corporation

Exception
> act is ratified by a vote of the
stockholders owning or representing at
2/3 of the Outstanding Capital Stock

Sample: Commercial Building ni Director

- inalok sa company

Interlocking Directorship
> happens when one or some or all
of the directros in one corporation is are
director in another corporation and the
interest of the interlocking directors in
both corporations are substantia
(exceeds 20% of the CS)
> perfectly valid!
Exception:
If the contract is fraudulent or is not fair
and reasonable
2. There could be interlocking directors
even if the interest in one corporation is
nominal. Contracts entered into by such
corporations are valid provided:
a. presence
b. vote
c. contract is fair and reason
under the circumstance
> if the first two requisites are
absent, the contract can be ratified by
the SHs owning 2/3 of the OCS or 2/3
Self dealing Director
> director who is personal capacity
enters in a transaction to a corporation
whom he is a director
Stauts of the contract?
VOIDABLE, it its valid until it is annulled,
unless
1. presence
2. vote
3. fair and reasonable under the
circumstances
If the requirements are not met,
Corporate Meetings
Sections 48 to 53
Of the RCC
SEC MC no. 6-2020
SEC Notice
March 13, 2023 on the alternative
modes of notice of meeting
A. Meetings og Stockholder/members
1. regular – annual
2. special – as necessary
Written notice – 21 days unless a
different period is required under the
bylaws
Sent through the means of
communication provided in the bylaws
which shall state the time, place and
purpose of meeting (email is allowed or
other similar manner stated in the by
laws) – email, if stated in the bylaws
If not, resolution for electronic means
Accompanied by a agenda, proxy
other information and documents
required sec 50 of the rcc
B. Meetings of the Board of Directors or
Board of Trsutees
1. regular
Atleast once in a month unless
otherwise provided in the bylaws
2. special
As necessary, called by the
president
Notice of atleast 2 days unless a longer
period required in the bylaws
Email, messaging service sucj other
manner as may be provided in the by
laws
Place of meeting for stockholders
> principal office of the corporation as
provided in the AOI
> if not practicable, in the city or
municipality where the principal office of
the corporation is located
Place of meeting BOD/ BOT
> anywhere unless the bylaws require a
specific place
Merger and Consolidation
Merger
> one where a corporation absorbs
another corporation and remains in
existence while the other is dissolved
A merge with B = its either A or B
Consolidation
> one where a new corporation is
created and the consolidating
corporations are extinguished
A consolidates with B = AB (entirely
new)
Effects
1. shall become a single corporation
2. separate existence of the constitutent
corporation shall cease to exist, except
that of the surviving corporation or the
consolidated corporations
3. surviving corporation or the
consolidated corporation shall possess
all
Procedure for Merger or consolidation
> draft a plan of merger or consolidation
Approved by a majority vote of each
BOD _ SHs owning 2.3 of the OCS
Corporate Dissolution
> separate personality ceases to exist
Modes
1. voluntary dissolution
2. voluntary dissolution, creditors are
affected – verified petition in the SEC –
hearing
3. involuntary dissolution (grounds)
Failure to organize or commence
business within 2 years from
incorporation
continuous inoperation for 5
years
failure to file by-laws within 2
years from incorporation
continutation of business is not
feasible as declared by the conservator
or rehabilitation center
fraud in procuring the certificate
of incorporation
failure to file the required reports
general info sheet (GIS)
audited financial
statements
Other modes
> shortening the term
> expiration of the term
Effects of Dissolution
> transfer of legal title of corporate
assets to the stockholders
> corporation ceases as a body
corporate to continue business for which
it was established
> continues to exist but only for the
purpose of liquidation – 3 years
> Shareholders may reincorporate by
filing a new AOI and by Laws
One Person Corporation (OPC)
 Single stockholder
Allowed for natural persons, trust or an
estate
Prohibited on the following: banks and
quasi banks, pre need, trust, insurance,
public and publicly listed companies,
non charted GOCCs
> separate personality

Requires
AOI
Nominee and alternate nominee
If something happens to the sole,
the nominee will take over

Single stockholder – lone director and

president

There could be officers,

> treasurer, corp sec, at it may deem
necessary within 15 days

Single stockholder cannot be corp sec,

but can be a treasurer.
Gives a two year bond