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CORPORATION CODE

Corporation Code

Corporation defined an artificial being created by operation of law having the right of succession, and the powers, attributes and properties expressly authorized by law and incident to its existence (Sec. 2)

Corporation Code

Similarities between corporation and partnership:

1. Like a corporation, a partnership has a juridical personality separate and distinct from that of each of the partners 2. Like a corporation (aggregate), a partnership is composed of two or more persons, i.e., a group of persons 3. Like a corporation, a partnership can act only through agents

Corporation Code
Corporation Created by operation of law Requires at least 5 incorporators (except corporation sole) Can exercise only the powers expressly granted and those that are incident to its existence Partnership Created by agreement of the parties Requires only 2 partners May do anything agreed by the parties except those contrary to law, morals, good customs, public order & public policy

Must do business through its BOD


Liability of members/stockholders limited to the extent of their contribution

Every partner is an agent of the partnership, hence, can act for the PH
Liability of partners, except limited partners, extend to all their property

Has right of perpetual succession (survives the death /withdrawal of stockholders/members) A stockholder has a right to transfer shares without the consent of the other stockholders
Life of a corporation is limited to 50 years Cannot be dissolved by mere agreement of the members/stockholders

No right of succession (death, insolvency, withdrawal, civil interdiction dissolves PH A partner cannot transfer his interest so as to make the transferee a partner without other partners consent
Partnership may be created for an indefinite period Partners may dissolve their partnership anytime 4 they see fit

Corporation Code Classification of corporations

Stock corporation - a corporation which has capital stock divided into shares, and is authorized to distribute profits on the basis of the shares thus held Non-stock corporation - a corporation where no part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions of the Corporation Code on dissolution

Public corporation - one formed or organized for the government of a portion of the State; its purpose is for the general good and welfare. Private corporation - one formed for some private purpose, benefit, aim or end
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Corporation Code - Classification of corporations

De jure corporation - a corporation formed with all the requirements of law


De facto corporation - a corporation defectively formed from a bona fide attempt to incorporate under existing laws, and which exercises corporate powers Requisites: 1. organized under a valid law 2. bona fide compliance with formalities of law 3. user of corporate powers 4. issuance of certificate of incorporation Example: A corporation that fails to submit its by-laws on time.
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Corporation Code - Classification of corporations

Corporation by estoppel - a group of persons which holds itself out as a corporation and enters into a contract with third persons on the strength of such appearance Corporation sole - a special form of corporation which may be formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or church for the purpose of administering and managing, as trustee, the affairs, property and temporalities of such denomination, sect or church Corporation aggregate - one with incorporators not less than five (5) nor more than fifteen (15), in stock corporations, or up to more than 15 in non-stock corporations
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Corporation Code - Classification of corporations

Eleemosynary corporation - one organized for charitable purpose


Domestic corporation - a corporation formed, organized or existing under the laws of the Philippines Foreign corporation - a corporation formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its country or state

Corporation Code Nationality of corporations

Domiciliary test - the country where the corporation was incorporated determines the nationality of a corporation Control test - if the controlling stock of a corporation is owned by citizens of a particular country, then that corporation, although organized in the Philippines, is a foreign corporation

Applied to Philippine setting: Shares belonging to corporations or partnerships at least 60% of the capital of which is owned by Filipino citizens shall be considered as of Philippine nationality.
Grandfather rule - The method by which the percentage of Filipino equity in a corporation engaged in nationalized and/or partly nationalized areas of activities, provided for under the Constitution and other nationalization laws, is computed, in cases where there are corporate shareholders. 9

Corporation Code Doctrine of separate juridical personality

A corporation is a juridical person separate and distinct from its members or stockholders. Application of doctrine: 1. Since a corporation is clothed with a personality separate and distinct from that of the persons composing it, it may not generally be held liable for the personal indebtedness of its stockholders or those of the entities connected with it. 2. Being an officer or stockholder of a corporation does not by itself make ones property also that of the corporation, and vice versa, for they are separate entities, and that the shareholders are in no legal sense the owners of corporate property which is owned by the corporation as a distinct legal person 10

Corporation Code - Doctrine of separate juridical personality

3. Mere ownership by a single stockholder, or by another corporation, of all or nearly all of the capital stock of a corporation is not of itself sufficient ground for disregarding the separate corporate personality.

4. If used to perform legitimate functions, a subsidiarys separate existence must be respected, and the liability of the parent corporation as well as the subsidiary will be confined to those arising in their respective business.
5. The property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporations board of directors.
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Corporation Code - Doctrine of separate juridical personality

6. Tax privileges enjoyed by a corporation do not extend to its stockholders. 7. A corporate defendant against whom a writ of possession has been issued, cannot use its controlling equities in the corporate plaintiff to suspend enforcement of the writ, because of their separate juridical personality, thus their separate business and proprietary interests. 8. Even when the foreclosure of the assets of the corporation was wrongful and done in bad faith, its stockholders have no standing to recover for themselves moral damages proportionate to their equity holdings.
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Corporation Code - Doctrine of separate juridical personality

9. The President cannot be held solidarily liable with the corporation for the accident caused by its truck driver and cannot be held solidarily liable for the judgment obligation arising from quasi-delict, since the fact alone of being President is not sufficient to hold him solidarily liable for the liabiliteis adjudged against the corporation and its employee.

10. The Treasurer, although he has official custody of the finances of the company, cannot be held personally liable for the judgment rendered against the corporation.

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Corporation Code - Doctrine of separate juridical personality

Liability for torts: A corporation can be held liable for torts committed by its officers for corporate purpose. Liability for crimes: Since a corporation is a mere legal fiction, it cannot be held liable for a crime committed by its officers, since it does not have the essential element of malice; in such case the responsible officers would be criminally liable.

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Corporation Code - Doctrine of separate juridical personality

Recovery of moral damages: General rule: A corporation, being an artificial person which has no feelings, emotions or senses, and which cannot experience physical suffering or mental anguish is not entitled to moral damages. Exception: When the corporation has a good reputation that is debased, resulting in its humiliation in the business realm. Also, a corporation may recover damages under item 7 of Art. 2219 of the Civil Code which expressly authorizes the recovery of moral damages in cases of libel, slander or any other form of defamation. 15

Corporation Code Doctrine of piercing the corporate veil

Concept: Piercing the veil of corporate fiction means looking through the corporate form to the individual stockholders composing it. It also means disregarding the corporations separate personality where the business affairs of a subsidiary are so controlled by the mother corporation to the extent that it becomes an instrument or agent of its parent.0

Rationale: The rationale behind piercing a corporations identity is to remove the barrier between the corporation from the persons comprising it to thwart the fraudulent and illegal schemes of those who use the corporate personality as a shield for undertaking certain activities.
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Corporation Code Doctrine of piercing the corporate veil

Grounds for application of doctrine: When the notion of separate juridical personality is used in the following instances: 1. To defeat public convenience, as when the corporation is used as vehicle for the evasion of existing obligation 2. In fraud cases, as when the corporate entity is used to justify wrong, protect fraud, or defend a crime 3. In alter ego cases, where the corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency, conduit or adjunct of another corporation
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Corporation Code Doctrine of piercing the corporate veil

Instrumentality or alter-ego doctrine (in relation to piercing the veil of corporate fiction: When the corporation is the mere alter ego or business conduit of a person, the separate personality of the corporation may be disregarded. This is commonly referred to as the instrumentality rule or the alter ego doctrine, which the courts have applied in disregarding the separate juridical personality of a corporation.

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Corporation Code Doctrine of piercing the corporate veil

Requisites: 1. control, not merely majority or complete stock control, resulting in complete domination not only of finances but of policy and business practice in respect to a transaction so that the corporate entity as to this transaction had at the time no separate mind, will or existence of its own; 2. such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation of a statutory or other positive legal duty, or dishonest acts in contravention of plaintiffs legal rights; and 3. the aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of. Note: The absence of any one of these elements prevents piercing the corporate veil.

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Corporation Code Incorporators, Corporators, Stockholders, Members

Incorporators - those mentioned in the articles of incorporation as originally forming and composing the corporation and who are the signatories thereof

Corporators - those who compose the corporation, whether as stockholders or members


Stockholders/shareholders - owners of shares in a corporation which has capital stock Members - corporators of a corporation which has no capital stock
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Corporation Code Capital structure

Capital refers to the value of the property or assets of the corporation Capital stock (or authorized capital stock) - the amount fixed in the articles of incorporation to be subscribed and paid by the stockholders of the corporation Subscribed capital stock that portion of the capital stock subscribed whether fully paid or not Paid up capital - that percentage of the subscribed capital stock that is paid Outstanding capital stock - total shares of stock issued to subscribers or stockholders, whether or not fully or partially paid, as long as there is a binding subscription agreement, except treasury shares
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Corporation Code Capital structure

Minimum capital stock:

At the organization of a stock corporation


- at least 25% of the authorized capital stock must be subscribed, and at least 25% of the subscription must be paid up

Minimum paid-up capital: Not less than Php5,000.00 unless specifically provided by special law

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Corporation Code Shares of stock

Shares of stock in a corporation may be divided into classes or series of shares, or both, any of which classes or series of shares may have such rights, privileges or restrictions as may be stated in the articles of incorporation. Rules: - No share may be deprived of voting rights except those classified as preferred or redeemable shares There shall always be a class or series of shares which have complete voting rights Any or all of the shares or series of shares may have a par value or have no par value as maybe provided for in the articles of incorporation, except that banks, trust companies, insurance companies, public utilities, and building and loan associations shall not be permitted to issue no par value 23 shares of stock

Corporation Code Shares of stock

Kinds: 1. Founders shares 2. Common shares 3. Preferred shares

4. Redeemable shares
5. Voting shares 6. Non-voting shares 7. Par value shares 8. No-par value shares

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Corporation Code Incorporation and organization

Charter vs. Franchise:

Charter is an instrument or authority from the sovereign power bestowing the right or privilege to be and act as a corporation; while franchise is the right or privilege to be and act as a corporation.
Primary franchise vs. secondary franchise:

Primary franchise is the license to do business in the Philippines, while secondary franchise is the authority granted to engage in particular business activities.

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Corporation Code Incorporation and organization

Articles of incorporation vs. By-laws:

The articles of incorporation is the document that defines the charter of the corporation. It is the contract between the State and the corporation; between the stockholders and the State; and between the corporation and the stockholders.
By-laws govern the internal affairs of the corporation. They are rules of action adopted by a corporation for its internal government and for the regulation of conduct and prescribe the rights and duties of its stockholders or members towards itself and among themselves in reference to the management of its affairs.
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Corporation Code Incorporation and organization

Contents of the articles of incorporation: 1. 2. 3. 4. 5. 6. 7. Corporate name Purpose or purposes Term of existence Principal office Names, citizenship and residences of incorporators Number, names, citizenship and residences of directors Amount of authorized capital stock, number of shares, and in case of par value stock corporations, the par value of each share
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Corporation Code - Incorporation and organization

8. Names, residences, number of shares and amount of subscription of, and amounts paid by stockholders 9. Name of treasurer elected by the subscribers 10. If the corporation engages in a nationalized industry, a statement that no transfer of shares will be allowed if it will reduce the stock ownership of Filipinos to a percentage below the required legal minimum

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Corporation Code - Incorporation and organization

Non-amendable provisions of the articles of incorporation:


1. Names of incorporators 2. Names of incorporating directors 3. Names of original subscribers, amounts subscribed and paid-up 4. Name of treasurer 5. Date and place of adoption

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Corporation Code - Incorporation and organization

Commencement of corporate existence:

A corporation commences its corporate existence from the date the SEC issues its certificate of incorporation.
Effect of non-user of corporate charter: When the corporation does not formally organize and commence the transaction of its business or the construction of its works within two years, its corporate powers cease and the corporation shall be deemed dissolved Adoption of by-laws: Within 30 days from incorporation, the corporation must organize and adopt its by-laws.
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Corporation Code - Incorporation and organization

By-laws signify the rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. Purpose of by-laws:

To regulate the conduct and define the duties of the members towards the corporation and among themselves.

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Corporation Code - Incorporation and organization

How by-laws adopted: If filed together with the articles of incorporation: - must be approved and signed by all incorporators; and - must be filed with the SEC together with the articles of incorporation If adopted after incorporation: - must be adopted within 30 days from incorporation - must be adopted by stockholders representing majority of outstanding capital stock, or majority of the members of a non-stock corporation - must be signed by stockholders or members voting for them
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Corporation Code - Incorporation and organization Contents of by-laws: 1. Time place and manner of calling and conducting regular or special meetings of the directors or trustees 2. time and manner of calling and conducting regular or special meetings of the stockholders or members 3. Required quorum in meetings of stockholders or members and the manner of voting therein 4. form for proxies of stockholders and members and the manner of voting them 5. qualifications, duties and compensation of directors or trustees, officers and employees 6. time for holding the annual election of directors of trustees and the mode or manner of giving notice thereof 7. manner of election or appointment and the term of office of all officers other than directors or trustees 8. penalties for violation of the by-laws 9. manner of issuing stock certificates 10. other matters as may be necessary for the proper or convenient 33 transaction of its corporate business and affairs

Corporation Code - Incorporation and organization

Binding effect of by-laws upon third persons:


In order that by-law provisions can be binding upon third parties, such third-parties must have acquired knowledge of the pertinent by-laws at the time the transaction or agreement between said third party and the shareholders was entered.

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Corporation Code - Incorporation and organization

How by-laws may be amended, repealed or new by-laws adopted: With stockholders or members approval: a. Majority vote of members of the board b. Majority of outstanding capital stock or majority of members

By Board of Directors/Trustees:
a. 2/3 of outstanding capital stock, or b. 2/3 of members

Note: delegated power may be revoked by majority of outstanding capital stock or majority of members
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Corporation Code Powers of the corporation

Express powers - those that are granted by the words of the corporate charter or the applicable laws. Thus, where a corporation is created under a general law, the express powers are found in the general incorporation law (Corporation Code), and in the articles of incorporation. Incidental powers - those that are incident to its existence and inherent to it as a legal entity Implied powers - those that can be inferred or are implicit in the wordings or conferred by necessary or fair implication of the enabling act; those that may be essential or necessary to carry out its purpose or purposes as stated in the articles of incorporation
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Corporation Code Powers of the corporation

Power to extend or shorten corporate term Requisites: 1. majority vote of the BOD 2. Ratification in a meeting by 2/3 of the outstanding capital stock or 2/3 of members (Note: this is an exception to the general requisite of vote or written assent for amendment of the A/I) Right of dissenting stockholder: - A dissenting stockholder may exercise his right of appraisal. (Note: Sec. 37 provides for exercise of the right in case of extension of corporate term; while Sec. 81 provides for exercise of the right in both extension and shortening of 37 corporate term.)

Corporation Code Powers of the corporation

Power to increase or decrease capital stock; incur, create or increase bonded indebtedness (Sec. 38) Requisites: 1) Majority vote of the board directors 2) Vote of 2/3 of outstanding capital stock 3) Certificate of increase of capital stock

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Corporation Code Powers of the corporation

Power to deny pre-emptive right Concept: Pre-emptive right is the shareholders right to subscribe to all issues or dispositions of shares of any class in proportion to his shareholding, unless such right is denied in the A/I or in an amendment thereto

Exceptions: 1) shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public 2) shares to be issued in good faith in exchange for property needed for corporate purposes 3) shares to be issued in good faith in payment of a previously contracted debt
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Corporation Code Powers of the corporation

Power to deny pre-emptive right (cont.)

Vs. restriction in transfer of shares:


The articles of incorporation may provide for a restriction in the transfer of shares, such as, for the selling stockholder to first offer the shares to the corporation and/or the other stockholders before the shares are offered to third persons.

However, a provision which absolutely restricts the sale of shares except to the corporation is invalid.

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Corporation Code Powers of the corporation

Power to sell or dispose of all or substantially all assets (Sec. 40) Requisites: 1) Vote of majority of the board of directors 2) Vote of 2/3 of the outstanding capital stock, or 2/3 of the members Test: If the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated. Failure to comply with requisites: The sale or disposition is void.

Right of dissenting stock holder: A dissenting stockholder may exercise his right of appraisal. 41 (Sec. 81)

Corporation Code Powers of the corporation

Power to acquire own shares (Sec. 41) Instances: 1. To eliminate fractional shares arising out of stock dividends; 2. To collect an indebtedness to the corporation, and to purchase delinquent shares; and 3. To pay dissenting stockholders exercising their appraisal right Requisite: Unrestricted retained earnings to cover the shares to be purchased or acquired.
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Corporation Code Powers of the corporation

Trust fund doctrine: The Trust Fund doctrine considers the subscribed capital as a trust fund for the payment of the debts of the corporation, to which the creditors may look for satisfaction. Until the liquidation of the corporation, no part of the subscribed capital may be returned or released to the stockholder (except in the redemption of redeemable shares) without violating this principle. Thus, dividends must never impair the subscribed capital; subscription commitments cannot be condoned or remitted; nor can the corporation buy its own shares using the subscribed capital as the consideration therefor. 3 instances when distribution is allowed: 1. amendment of the Articles of Incorporation to reduce the authorized capital stock 2. purchase of redeemable shares by the corporation, regardless of the existence of unrestricted retained earnings 3. dissolution and eventual liquidation of the corporation 43

Corporation Code Powers of the corporation

Power to invest in another corporation or business (secondary purpose) (Sec. 42) Requisites: 1) Vote of majority of the board of directors or trustees 2) Vote of 2/3 of the outstanding capital stock, or 2/3 of the members Note: Where the investment is reasonably necessary to accomplish the primary purpose, a board resolution is sufficient. Right of dissenting stock holder: A dissenting stockholder may exercise his right of appraisal. (Sec. 42)
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Corporation Code Powers of the corporation

Power to declare dividends (Sec. 43) Kinds 1) 2) 3) of dividends: Cash Property Stock - declared by the board plus approval of 2/3 of the outstanding capital stock

Rule: Dividends can be declared only out of the unrestricted retained earnings.

Exception: Stock dividend may be issued out of premium surplus


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Corporation Code Powers of a corporation

Rule on accumulation of surplus: Stock corporations are prohibited from retaining surplus profits in excess of one hundred (100%) percent of their paid-in capital stock, except: 1) when justified by definite corporate expansion projects or programs approved by the board of directors; or 2) when the corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its/his consent, and such consent has not yet been secured; or 3) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation, such as when there is need for special reserve for probable contingencies. 46

Corporation Code Powers of a corporation

Power to enter into management contract (Sec. 44) Requisites: 1) Vote of majority of the board of directors 2) Vote of majority of the outstanding capital stock But, vote of 2/3 of the OCS of the managed corporation is required if i) a stockholder or stockholders representing the same interest of both the managing and the managed corporations own or control more than one-third (1/3) of the total outstanding capital stock entitled to vote of the managing corporation; or ii) a majority of the members of the board of directors of the managing corporation also constitute a majority of the members of the board of directors of the managed 47 corporation

Corporation Code Powers of a corporation

Ultra vires act - an act which is not within the corporate powers conferred by the Corporation Code or articles of incorporation, or not necessary or incidental in the exercise of the powers so conferred

- one committed outside the object for which a corporation is created as defined by the law of its organization and therefore beyond the power conferred upon it by law
- an act outside or beyond the corporate powers, including those that may ostensibly be within such powers but are, by general or special laws, prohibited or declared illegal
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Corporation Code Powers of a corporation

Ultra vires act (cont.)

Three types of ultra-vires acts:


1. those which are outside of the express, implied or incidental powers of the corporation 2. those which are effected by corporate representatives who act without authority, even though the contract is within the express/implied/incidental powers of the corporation 3. those which are contrary to laws or public policy

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Corporation Code Powers of a corporation

Ultra vires act (cont.) Vs. illegal act Generally, ultra vires acts are merely voidable, i.e., may be enforced by performance, ratification or estoppel; while illegal acts are void and cannot be ratified

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Corporation Code Powers of a corporation

Ultra vires act (cont.)

Rules on effects of ultra vires acts:


1. A wholly executory contract/act cannot be enforced 2. A wholly executed ultra vires contract/act on both sides will not be set aside nor interfered with by the courts 3. Contract executed by one party but executory on the other allows recovery by the former 4. Title of a corporation to property cannot be questioned on the ground that it was acquired through an ultra-vires contract
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Corporation Code Powers of a corporation

Ultra vires act (cont.) Doctrine of ratification: Ratification means that the principal (corporation) voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf. The substance of the doctrine is confirmation after conduct, amounting to a substitute for a prior authority

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Corporation Code Powers of a corporation

Ultra vires act (cont.) Doctrine of estoppel (acceptance of benefits): - Even when the contract entered into in behalf of a corporation is outside the usual powers of a corporate officer, the corporations acceptance of benefits arising therefrom has made such contract binding upon the corporation. Example: A corporations posting of a surety bond in order that a post office branch would be opened within the company compound.
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Corporation Code Powers of a corporation

Ultra vires act (cont.) Doctrine of apparent authority:

- If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power so to do those acts; and thus, the corporation will, as against anyone who has in good faith dealt with or through such agent, be estopped from denying the agents authority.
- Under the doctrine of apparent authority, the principal (corporation) is liable only as to third persons who have been led reasonably to believe by the conduct of the principal that such actual authority exists, although none has been given.
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Corporation Code Rights of stockholders

Rights of stockholders:
1. Participation in management 2. Proprietary rights 3. Remedial rights

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Corporation Code Rights of stockholders

Participation in management

How done through their votes for (or written assent to) certain corporate acts; election of directors
Manner of voting: a. in person b. by proxy

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Corporation Code Rights of stockholders

Voting by proxy:

Form in writing, signed by the stockholder or member and filed before the scheduled meeting with the secretary
Validity - valid only for the meeting of which it is intended

Note: No proxy shall be valid for more than 5 years

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Corporation Code Rights of stockholders

Voting in case of joint ownership of stock:

Consent of all owners is necessary unless there is a written proxy signed by all co-owners, authorizing or some of them or any person to vote such shares Note: If shares are owned in an and/or capacity, any one of the joint owners can vote said shares or appoint a proxy therefor
Voting right for treasury shares: Treasury shares shall have no voting right as long as such stock remains in the treasury.
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Corporation Code Rights of stockholders

Voting trust: Concept - a contract entered into by a group of stockholders and a trustee wherein the stockholders, for a specified period not exceeding 5 years, transfer their stocks to a trustee and vest in him voting and other specified rights, in return for the issue by the trustee of voting trust certificates to the involved stockholders Limitations: 1. No voting trust agreement shall be entered into (1) for the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade; or (2) for purposes of fraud. 2. No voting trust agreement shall be for more than 5 years unless the trust is required as a condition in a loan agreement but the trust shall automatically expire upon 59 payment of the loan.

Corporation Code Rights of stockholders

Form of voting trusts: 1. Must be in writing and notarized, and shall specify the terms and conditions thereof 2. Certified copy of the agreement shall be filed with the SEC, otherwise said agreement shall be ineffective and unenforceable 3. Covered stock certificates shall be cancelled and new ones issued in the trustees name, indicating that they are issued pursuant to the said agreement 4. Notation in the corporate books of the transfer in trustees name 5. Trustee shall execute and deliver to transferors voting trust certificates, which shall be transferable in the same manner and with the same effect as certificates of stock
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Corporation Code Rights of stockholders

Instances when stockholders action are required: A. With majority vote B. With 2/3 vote C. By cumulative voting

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Corporation Code Rights of stockholders

Right to receive dividends: Rule: All shares of stock, whether paid or unpaid, are entitled to dividends

Exceptions:
a. Cash dividend due to delinquent stock shall be applied to the unpaid balance on the subscription plus cost and expenses b. Issuance of stock dividend due to delinquent stock shall be withheld until the delinquent stockholder fully pays his subscription
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Corporation Code Rights of stockholders

Pre-emptive right: Concept - the shareholders right to subscribe to all issues or dispositions of shares of any class in proportion to his shareholding, unless such right is denied in the A/I or in an amendment thereto Transactions covered: 1. Increase in authorized capital stock 2. Issuance of the unissued portion of the authorized capital stock 3. Disposition of treasury shares

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Corporation Code Rights of stockholders

When pre-emptive right is not available: 1. shares to be issued in compliance with laws requiring stock offerings or minimum stock ownership by the public 2. shares to be issued in good faith in exchange for property needed for corporate purposes 3. shares to be issued in good faith in payment of a previously contracted debt Vs. restriction against transfer of shares: The articles of incorporation may provide for a restriction in the transfer of shares, such as, for the selling stockholder to first offer the shares to the corporation and/or the other stockholders before the shares are offered to third persons. However, a provision which absolutely restricts the sale of shares except to the corporation is invalid. 64

Corporation Code Rights of stockholders

Right to inspect and copy corporate books: Books 1. 2. 3. 4. to be kept in the principal office: Record of all business transactions Minutes of all meetings of stockholders or members Minutes of all meetings of BOD or trustees Stock and transfer book

Conditions for exercise of the right: 1. Must be done during business hours on business days 2. For a good purpose, such as a. to investigate acts of management b. to investigate financial conditions c. to fix value of shares d. to obtain information for litigation

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Corporation Code Rights of stockholders

Right to inspect and copy corporate books (cont.): Right to obtain copies 1. upon written demand 2. at stockholders expense Right to financial statements - within 10 days from receipt of request - FS shall include balance sheet and the income statement

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Corporation Code Rights of stockholders

Right to inspect and copy corporate books (cont.): Liability for refusal to allow inspection- damages and criminal liability under Sec. 144 of the Corporation Code Defenses a. Improper use of the information obtained in the past b. Bad faith c. Use of information for an illegitimate purpose

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Corporation Code Rights of stockholders

Appraisal right:

Concept - the right of a stockholder to demand the payment of the fair value of his shares in the following cases: a) Amendment of the A/I to extend or shorten corporate term b) Amendment of A/I changing, restricting or enlarging stockholders rights c) Sale or other disposition of all or substantially all of the corporate assets d) Merger and consolidation e) Investment of corporate funds in another corporation or business
Remedy of dissenting stockholder if no appraisal right transfer his shares under Sec. 63

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Corporation Code Rights of stockholders

Appraisal right (cont.): Procedure: 1. Written demand within 30 days from date when the vote was taken 2. Submission of stock certificates (for notation) within 10 days from demand 3. Within 60 days when vote was taken, the corporation and dissenting stockholder shall agree on the fair value of the shares, otherwise the value shall be determined by 3 disinterested persons (appointed by the corporation, by the stockholder, and by the 2 appointees) 4. Payment within 30 days from determination of fair value Provided: There are unrestricted retained earnings. Provided further: If dissenting stockholder is not paid within 30 days, he is automatically restored to all his rights as a 69 stockholder

Corporation Code Rights of stockholders

Appraisal right (cont.):

Instances when right is lost: 1. Failure to make demand within 30 days 2. Failure to submit stock certificate within 10 days from demand 3. Non-existence of unrestricted retained earnings 4. Subsequent transfer of shares which have been annotated 5. When the corporation consents to the withdrawal by the dissenting stockholder 6. Abandonment of corporate act 7. Disapproval of corporate act by SEC

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Corporation Code Rights of stockholders

Appraisal right (cont.): Who bears cost of appraisal: 1. The corporation, where the value as determined by the appraisers is higher than what was offered by the corporation to the dissenting stockholder 2. The dissenting stock holder, if the value determined by the appraisers is approximately the same as the price offered by the corporation 3. The corporation, if action is filed to recover the fair value of the shares and the stockholders refusal to receive payment is justified 4. The dissenting stockholder, where an action to recover is filed and the refusal of such stockholder to receive payment is unjustified
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Corporation Code Rights of stockholders

Derivative suit: Concept: - It is a suit by a shareholder to enforce a corporate cause of action.

It is a suit brought by a stockholder, for an in behalf of the corporation and against any person be he also a stockholder, director, officer, or third person.

Purpose: - The whole purpose of the law authorizing derivative suit is to allow the stockholders/members to enforce rights which are derivative (secondary) in nature, i.e., to enforce a corporate cause of action
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Corporation Code Rights of stockholders

Derivative suit (cont.): Requisites: a) The party bringing the suit was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed; b) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to exhaust all remedies available under the A/I, B/L, laws or rules governing the corporation or partnership to obtain the relief he desires; c) No appraisal rights are available for the act or acts complained of; and d) The suit is not a mere nuisance or harassment suit. (Rule 8, Sec. 1, Interim Rules of Procedure for IntraCorporate Controversies) 73

Corporation Code Rights of stockholders

Derivative suit (cont.) Example: Where the majority of the board of directors wastes or dissipates the funds of the corporation or fraudulently disposes of its properties, or performs ultra vires acts, the court, in the exercise of its equity jurisdiction, and upon showing that intracorporate remedy is unavailing, will entertain a suit filed by the minority members of the board of directors, for and in behalf of the corporation, to prevent waste and dissipation and the commission of illegal acts and otherwise redress the injuries of the minority stockholders against the wrongdoing of the majority. The action in such a case is said to be brought derivatively in behalf of the corporation to protect the rights of the minority stockholders thereof
74

Corporation Code Rights of stockholders

Derivative suit (cont.): Individual suit, representative suit and derivative suit differentiated: Individual suit suit brought for a wrong done to a stockholder personally e.g., denial of right of inspection Representative suit suit brought for the protection of all stockholders belonging to the same group Derivative suit suit brought by a stockholder on behalf of the corporation
75

Corporation Code Rights of stockholders

Right to attend stockholders meetings 2 kinds of stockholders meetings: 1. Regular meetings - annually as fixed in the by-laws; if not fixed, any day in April as determined by the board of directors or trustees

Requirement written notice sent at least 2 weeks, unless a different period is provided in the by-laws
2. Special meetings - any time deemed necessary or as provided in the by-laws Requirement written notice at least 1 week, unless otherwise provided in the by-laws Note: Notice of any meeting may be waived, express or impliedly, by any stockholder or member

76

Corporation Code Rights of stockholers

Right to attend stockholders meetings (cont.): Place of meeting in the city or municipality where the principal office is located, preferably in the principal office itself. Any provision in the by-laws changing such place is illegal Who may call meetings officer as authorized in the by-laws; if no person authorized, SEC may issue an order to petitioning stockholder to call a meeting Quorum - majority of the outstanding capital stock or of members except in cases where greater vote for an act is required, e.g., amendment of the articles of incorporation Who presides the president unless otherwise provided in the by-laws 77

Corporation Code Rights of stockholders

Right to attend stockholders meetings (cont.): Minutes of meetings - The minutes of all meetings shall set forth in detail the time and place of holding the meeting, how authorized, the notice given, whether the meeting was regular or special, if special its object, those present and absent, and every act done or ordered done at the meeting - Upon demand, the time when any stockholder or member entered or left the meeting - The protest of any stockholder or member on any action or proposed action must be recorded in full on his demand
78

Corporation Code Board of Directors/Trustees

Seat of corporate powers: Unless otherwise provided in the Corporation Code, (1) all powers of all corporations under the Code shall be exercised, (2) all business conducted and (3) all property of such corporations controlled and held by a board of directors or trustees to be elected from among the holders of stocks, or where there is no stock, from among the members of the corporation, who shall hold office for one (1) years until their successors are elected and qualified. (Sec. 23)

79

Corporation Code Board of Directors/Trustees

Thus: In the absence of authority from the Board of Directors, no person, not even its officers, can validly bind the corporation. Where a corporate contract has been effected with the approval of the Board of Directors, a resolution adopted by the stockholders refusing to recognize the contract or repudiating it is without legal effect.

80

Corporation Code Board of Directors/Trustees

Minimum qualification of directors: 1. must own at least one (1) share of stock in a stock corporation; trustees must be subsisting members in a nonstock corporation 2. majority of the directors must be residents of the Philippines 3. must not have been convicted by final judgment of an offense carrying an imprisonment exceeding 6 years, or an offense constituting a violation of the Corporation Code, within 5 years prior to his election Additional qualifications: A corporation may provide in its by-laws (or amend its bylaws to provide) additional qualifications for its directors, e.g., the disqualification of a directors of a competitor corporation from being elected as a director.
81

Corporation Code Board of Directors/Trustees

Election:

Quorum for election: Stock - majority of the outstanding capital stock Non-stock - majority of the members entitled to vote
Manner of election: a) in any form; or b) by ballot when requested by any voting stockholder or member

82

Corporation Code Board of Directors/Trustees

Election (cont.): Cumulative voting: A stockholder shall have as many votes as he has number of shares times the number of the directors that are to be elected. Cumulative voting of directors is mandatory and cannot be dispensed with in a stock corporation; no cumulative voting unless provided in the bylaws in a non-stock corporation.

83

Corporation Code Board of Directors/Trustees

Election (cont.): Removal: With or without cause by vote of 2/3 of the outstanding capital stock or 2/3 of the members entitled to vote.

Filling of vacancies:

a) if still constituting a quorum majority vote of remaining directors


b) if no quorum regular or special election called for the purpose
84

Corporation Code Board of Directors/Trustees

Compensation: 1. If not provided in the by-laws, not entitled, except for reasonable per diems 2. If not provided in the by-laws, compensation may be granted by vote of majority of the outstanding capital stock

Limit:
Total yearly compensation shall not exceed 10% of the corporations net income before tax for the preceding year.
85

Corporation Code Board of Directors/Trustees

Three-fold duties of directors:

1. Obedience - directors are bound to observe the limits of their authority


2. Diligence - directors are expected to manage the corporation with knowledge, skill, care and prudence 3. Loyalty - directors must exercise not only care and diligence, but utmost good faith in the management of corporate affairs - It covers situations involving self-dealing director, the interlocking director, the bad faith of directors and conflict of interest situations.
86

Corporation Code Board of Directors/Trustees

Liability for violation of the three-fold duties: Directors or trustees are held jointly and severally liable for all damages suffered by the corporation, its stockholders and other persons resulting from: 1) Directors or trustees willfully and knowingly voting or assenting to patently unlawful acts of the corporation (violation of duty of obedience); 2) Their gross negligence or bad faith in directing the affairs of the corporation (violation of the duty of diligence); 3) Their acquiring any personal or pecuniary interest in conflict with their duty as such directors or trustees or interests adverse to the corporation (violation of duty of loyalty). 87

Corporation Code Board of Directors/Trustees

Self-dealing directors/officers A contract of the corporation with one or more of its directors or trustees or officers is voidable, at the option of such corporation, unless: 1) The presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; 2) That the vote of such director or trustee was not necessary for the approval of the contract; 3) That the contract is fair and reasonable under the circumstances;

4) That in case of an officer, the contract with the officer has been previously authorized by the board of directors. 88 (Sec. 32)

Corporation Code Board of Directors/Trustees

Doctrine of corporate opportunity: Concept: The doctrine of corporate opportunity is a rule expressly provided for in the Corporation Code making a director account to his corporation, gains and profits from any transaction entered into by him or another competing corporation or entity where he has a substantial interest, which should have been a transaction undertaken by his corporation.

89

Corporation Code Board of Directors/Trustees

Thus: Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the corporation, thereby obtaining profits which should belong to the corporation, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of stockholders owning or representing 2/3 of the outstanding capital stock. Also: When a director, trustee or officer attempts to acquire or acquires, in violation of his duty, any interest adverse to the corporation in respect of any matter which has been reposed to him in confidence, as to which equity imposes a liability upon him to deal on his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which 90 otherwise would have accrued to the corporation

Corporation Code Board of Directors/Trustees

Underlying philosophy: - The doctrine rests on the unfairness occasioned by the director taking personal advantage of a business opportunity which properly belongs to the corporation, in breach of the fiduciary posture he is supposed to observe in relation to his corporation and its stockholders. Liability of director: Unless his act is ratified, a director shall refund to the corporation all the profits he realized on a business opportunity which: 1) the corporation is financially able to undertake; 2) from its nature, is in line with the corporations business and is of practical advantage to it; and 3) the corporation has an interest or a reasonable 91 expectancy.

Corporation Code Board of Directors/Trustees

Interlocking directorship: General rule: Contract between corporations with interlocking directors is valid so long as there is no fraud and the contract is fair and reasonable under the existing facts.

92

Corporation Code Board of Directors/Trustees

Exception: If a directors interest is substantial (at least 20%) in one corporation and nominal (less than 20%) in the other corporation, then the following must concur (in the corporation where he has nominal interest): 1) The presence of such director or trustee in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting; 2) That the vote of such director or trustee was not necessary for the approval of the contract; 3) That the contract is fair and reasonable under the circumstances Otherwise the contract is voidable at the election of the corporation (where the interlocking director has nominal equity) 93 unless ratified by 2/3 of the outstanding capital stock.

Corporation Code Board of Directors/Trustees

Executive Committee The by-laws may provided for the creation of an Executive Committee composed of not less than 3 members of the board to be appointed by the Board, to act on specific matters within the powers of the board, or as may be delegated to it by the board, or on majority vote of the board, except: a) approval of any action for which stockholders approval is also required; b) filling of vacancies in the board; c) amendment or repeal of any resolution of the board which by its terms is not so amendable or repealable d) distribution of cash dividends.
94

Corporation Code Board of Directors/Trustees

Board Meetings

Quorum - majority of the number of directors/trustees as fixed in the articles of incorporation


Venue - any place, even outside the Philippines, unless prohibited in the by-laws Vote to approve resolutions - majority of the quorum Vote to elect officers majority vote of all members of the board Meeting by teleconferencing allowed provided the guidelines set by SEC in SEC Memorandum Circular No. 15 on Nov. 30, 2001 are complied
95

Corporation Code - Officers

Election of officers by directors immediately after their election

Limitations: 1. No one shall act as president and secretary or as president and treasurer at the same time. 2. President must be a member of the board of directors 3. Secretary must be a citizen and resident of the Philippines Liability of officers:
They are liable, like directors, under Secs. 31 (violation of corporate opportunity doctrine) and 32 (self-dealing). Removal - the general right of removal of officers in a corporation is vested on the members of the Board

96

Corporation Code Capital affairs

Certificate of stock Concept: tangible evidence of ownership of stock; however, it is not the share itself evidence of the holders interest and status in the corporation, his ownership of the share represented thereby expresses the contract between the stockholder and the corporation; but it is not essential to the existence of a share

97

Corporation Code Capital affairs

Certificate of stock Nature - considered quasi-negotiable because endorsement and delivery are sufficient to effect transfer Requisites for valid transfer of shares stock: 1. Endorsement of the certificate by the owner or attorney-in-fact 2. Delivery of certificate 3. Recording of the transfer in the books of the corporation (to bind third persons)

Note: No transfer shall be recorded for shares against which the corporation holds unpaid claim
98

Corporation Code Capital affairs

Certificate of stock

Rule on issuance of certificate:


No certificate of stock shall be issued to a subscriber until the full amount of his subscription is paid.

Remedy for refusal to issue: Mandamus

99

Corporation Code Capital affairs

Certificate of stock

Stock and transfer book book which records 1. the names and addresses of all stockholders arranged alphabetically, 2. the installments paid and unpaid on all stock for which subscription has been made, and the date of payment thereof, 3. every alienation, sale or transfer of stock, the date thereof, and by whom and to whom made 4. other entries as may be prescribed by law
Responsible officer Corporate Secretary
100

Corporation Code Capital affairs

Procedure for issuance of new certificate in case of loss, theft or destruction: 1) Filing with the corporation of affidavit stating: a) circumstances of loss or destruction b) number of shares and serial number of certificate c) name of issuing corporation d) other information and evidence 2) Publication of notice of loss once a week for 3 consecutive weeks in the province or city where the principal office is located 3) If no contest is presented within 1 year from last publication, a new certificate is issued Note: A new certificate may be issued before the lapse of 1 year if registered owner files a bond 4) If contest is presented or an action is pending in court, 101 certificate is issued after finality of court decision

Corporation Code Capital affairs

Watered stocks - stocks issued for less than its par or issued value or for a consideration in any form other than cash, valued in excess of its fair value Who is liable: Any director/officer who: a) consented to the issuance, or b) has knowledge of issuance but failed to express his written objection and file the same with the Corp. Sec. Nature and extent of liability: Guilty director or officer is solidarily liable with the stockholder concerned for the difference between the fair value received at the time of issuance of the stock and the 102 par or issued value

Corporation Code Capital affairs

Unpaid subscription Liability for interest: - only if provided in the by-laws - rate of interest as fixed in the by-laws, otherwise, legal interest - interest reckoned from date of subscription Payment of balance of subscription: - upon call by the BOD, subject to provisions in the subscription contract Effect of failure to pay: - Entire unpaid subscription becomes due and payable - defaulting stockholder becomes liable for interest at the legal rate, computed from date when payment was supposed to be made
103

Corporation Code Capital affairs

Unpaid subscription Effect of non-payment within 30 days: - all stocks covered by subscription become delinquent Effect of delinquency (Sec. 71): - delinquent stock cannot vote or be voted - holder is not entitled to any of the rights of a stockholder, Except the right to dividends - delinquent stock may be sold in a delinquency sale Note: the corporation may opt to bring an action for collection of unpaid subscription (Sec. 70)
104

Corporation Code Capital affairs

Delinquency sale
Procedure: 1) Call, by resolution of the BOD 2) Notice of call to each stockholder (personally or by registered mail) 3) Notice of delinquency (personally or by registered mail) 4) Notice of delinquency sale - to delinquent subscriber - publication 5) Public auction - not less than 30 days nor more than 60 days when stocks become delinquent - highest bidder - remaining shares - if no bidders, the corporation may bid Effect: i) title to all shares shall be vested in the corporation ii) shares become treasury shares
105

Corporation Code Capital affairs

Alienation of shares

1. Restriction on transfer - must be stated in the AI/BL and stock certificate - not more onerous than granting the existing stockholders or the corporation the option to purchase - if stockholders or the corporation fails to exercise option, selling stockholder may sell to any third person 2. Sale of partially paid shares
3. Sale of portion of shares not fully paid 4. Requisites of valid transfer
106

Corporation Code Dissolution and liquidation

Modes of dissolution 1. Voluntary a. where no creditors are affected b. where creditors are affected c. by shortening corporate term 2. Involuntary

107

Corporation Code Dissolution and liquidation

Voluntary dissolution where no creditors are affected i) Majority vote of board of directors or trustees

ii) Publication of notice of meeting once a week for 3 consecutive weeks


iii) Notice of meeting to each stockholder at least 30 days prior to date of meeting iv) Affirmative vote of 2/3 of outstanding capital stock or 2/3 of members

v) Filing with SEC with copy of resolution certified by majority of directors/trustees and countersigned by the secretary vi) Issuance of certificate of dissolution
108

Corporation Code Dissolution and liquidation

Voluntary dissolution where creditors are affected i) Filing of petition for dissolution with SEC 1) Signed by majority of directors/ trustees, verified by president, secretary, or one director/ trustee 2) Setting forth all claims and demands against the corporation 3) Setting forth the fact that dissolution was approved by 2/3 of outstanding capital stock or members ii) If petition is sufficient in form and substance, SEC issues and order 1) reciting purpose of the petition 2) fixing the period when objections may be filed (not less than 30 days nor more than 60 days when order was entered) iii) Publication of order once a week for 3 consecutive weeks in a newspaper published in the municipality/city where principal office is located iv) Hearing of petition after 5 days notice v) Judgment of dissolution
109

Corporation Code Dissolution and liquidation

Voluntary dissolution by shortening corporate term

Amending the AI
Note: comply with requisites for amendment of the AI

110

Corporation Code Dissolution and liquidation

Involuntary dissolution

a) By SEC upon filing of verified petition, and after proper notice and hearing
Grounds: 1) Fraud or misrepresentation 2) Ultra-vires (mala prohibita)

3) Continuous inactivity for more than 5 years


4) Refusal to adopt or approve by-laws

111

Corporation Code Dissolution and liquidation

Effect of dissolution The corporation continues to exist to as body corporate, but only for purposes of prosecuting and defending suit by or against it and enabling it to settle and close its affairs, to dispose of and convey its property and to distribute its assets, but not for purposes of continuing the business for which it was established. (Sec. 122) Dissolution or even the expiration of the three-year liquidation period should not be a bar to a corporations enforcement of its rights as a corporation. (Paramount Insurance Corp. vs. A.C. Ordoez Corporation, GR 175109, August 8, 2008)
112

Corporation Code Dissolution and liquidation

Liquidation: - Winding up or settling with creditors - Winding up of a corporation so that assets are distributed to those entitled to receive them. - The process of reducing assets to cash, discharging liabilities and dividing surplus or loss Effects of liquidation: - The corporation cannot extend its corporate term during the 3-year liquidation period - At any time during said three (3) years, the corporation is authorized and empowered to convey all of its property to trustees for the benefit of stockholders, members, creditors, and other persons in interest. (Sec. 122)
113

Corporation Code Dissolution and liquidation

Liquidation (cont.) Who may be constituted as trustee? - The counsel who prosecuted and defended the interest of the corporation in the instant case and who in fact appeared in behalf of the corporation may be considered a trustee of the corporation at least with respect to the matter in litigation only The board of directors may be permitted to complete the corporate liquidation by continuing as trustees by legal implication

114

Corporation Code Dissolution and liquidation

Liquidation (cont.)

Effect on suits commenced before or during liquidation period:


The trustee may commence a suit which can proceed to final judgment even beyond the three-year period. No reason can be conceived why a suit already commenced by the corporation itself during its existence, not by a mere trustee who, by fiction, merely continues the legal personality of the dissolved corporation should not be accorded similar treatment allowed to proceed to final judgment and execution thereof.
115

Corporation Code Other corporations

Close corporation Requisites : The articles of incorporation must provide that: 1. Number of stockholders must not exceed 20 2. Restriction in transfer of shares Notes: a) Restriction cannot be more onerous than granting right of first refusal in favor the corporation or the stockholders b) The restriction must be stated not only in the articles of incorporation but also in the by-laws and the certificates of stock 3. Stocks cannot be listed in the stock exchange or be publicly offered When a corporation not deemed a close corporation
116

Corporation Code Other corporations

Close corporation (cont) Cannot be close corporations: 1. mining companies 2. oil companies 3. stock exchanges 4. banks 5. insurance companies 6. public utilities 7. educational institutions 8. other corporations vested with public interest Management: The articles of incorporation may provide that the business of the corporation shall be managed by the stockholders
117

Corporation Code Other corporations

Non-stock corporation Concept - One where no part of its income is distributable as dividends to its members, trustees, or officers Test: Distribution of dividends to members Number of trustees: Trustees may be more than 15. Voting: No cumulative voting unless provided in the by-laws.

Place of meetings: Members meeting may be held at any place if so provided in the by-laws. 118

Corporation Code Other corporations

Foreign corporation Concept: A foreign corporation is one formed, organized or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state Right to do business: A foreign corporation has a right to do business only after obtaining a license to transact business from the SEC.

119

Corporation Code Other corporations

Foreign corporation (cont.)

Doing 1. 2. 3. 4. 5.

business includes: Soliciting orders Entering into service contracts Opening offices Appointing representatives Participating in the management, supervision or control of any domestic business, firm, entity or corporation in the Philippines 6. Any act or acts that imply a continuity of commercial dealings or arrangements

120

Corporation Code Other corporations

Foreign corporation (cont.)

Not doing business includes:


1. Mere investment as shareholder by a foreign entity in a domestic corporation; 2. Having a nominee director to represent its interests in such corporation 3. Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account

121

Corporation Code Other corporations

Foreign corporation (cont.) Recent rulings: - An essential condition to be considered as doing business in the Philippines is the actual performance of specific commercial acts within the territory of the Philippines for the plain reason that the Philippines has no jurisdiction over commercial acts performed in foreign territories. To be doing or transacting business in the Philippines for purposes of Section 133 of the Corporation Code, the foreign corporation must actually transact business in the Philippines, that is, perform specific business transactions within the Philippine territory on a continuing basis in its own name and for its own account.
122

Corporation Code Other corporations

Foreign corporation (cont.)

Effect of doing business without license: - Foreign corporation shall not be permitted to maintain or intervene in any action, suit or proceeding in any court or administrative agency of the Philippines.
It may be sued or proceeded against before Philippine courts under Philippine laws. (Sec. 133) The failure to obtain a license does not affect the validity of contracts entered into by a foreign corporation; it merely removes its legal standing to sue in local tribunals.

123

Corporation Code Other corporations

Foreign corporation (cont.)

Right to sue of unlicensed foreign corporation not doing business in the Phil.:
An unlicensed foreign corporation not doing business in the Philippines can sue before Philippine courts. But: The fact a foreign corporation is not doing business in the Philippines must be disclosed if it desires to sue in the Philippine courts under the isolated transactions rule.

124

Corporation Code Merger and consolidation

Merger a union whereby one or more existing corporations are absorbed by another corporation which survives and continues the combined business

Effect of merger:
One of the constituent corporations remains as an existing juridical person, whereas the other corporation shall cease to exist.

125

Corporation Code Merger and consolidation

Consolidation - the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not necessarily, of the stockholders of the original corporations. Effect of consolidation: Consolidation is the union of two or more existing corporations to form a new corporation called the consolidated corporation. It is a combination by agreement between two or more corporations by which their rights, franchises, and property are united and become those of a single, new corporation, composed generally, although not 126 necessarily, of the stockholders of the original corporations.

Corporation Code Merger and consolidation

Common effect of both merger and consolidation:

There is no liquidation of the assets of the dissolved corporations, and the surviving or consolidated corporation acquires all their properties, rights and franchises and their stockholders usually become its stockholders.

127

Corporation Code Merger and consolidation Procedure: 1. Plan of merger or consolidation drawn by the BOD, setting forth: a) names of constituent corporations b) terms of the merger or consolidation c) statement of changes, if any, in the A/I of the surviving corporation; for consolidation, all statements required to be set forth in the A/I d) other provisions 2. Approval by majority vote of each BOD concerned 3. Approval by 2/3 of outstanding capital (or 2/3 of members) of constituent corporations after a 2-week notice 4. Exercise of appraisal right by dissenting stockholders 5. Execution of Articles of Merger (or Consolidation), setting forth: a) plan of merger or consolidation; b) number of shares outstanding, or number of members c) no of shares (or number of members) voting for and against the plan 6. Filing of Articles of Merger (or Consolidation) with SEC 7. Issuance of Certificate of Merger or Certificate of Incorporation (OR SEC may set a hearing if it is not satisfied that the merger or consolidation is legal)
128