February 2, 2011

If a stockholder oppose to a plan of merger or consolidation he may exercise his

appraisal right.
The appraisal right is not only available hen there is merger or consolidation but it
appears that it is an option or remedy on the part of any dissenting stockholder ho
is not agreeable ith the ma!ority
"xercised hen#
$mendment of the $%I
o &hanging rights of stockholder hich in e'ect ould reduce or adversely
a'ect their rights
(ife of the corporation ill be shorten or extended
)ale, lease, or disposition of all or substantially all of the corporate assets
*if it involves a fundamental change of the corporation
+nder hat circumstances could the stockholder exercise this option,
-e must have dissented
.uring the actual voting he must have voted against the act
/resent in the meeting hen the vote as taken
0ritten demand
1alue should be determine on the date prior to the voting
/ayment should be done only out of unrestricted retained earnings
Illustration#
%n the day hen payment as suppose to be due the 2%. said sorry sorry kau...
e have unrestricted retained earnings but e have reserve this for expansion
plans so e cannot pay you yet.
0hat should you do,
The board is not correct to refuse payment !ust because they have expansion plans.
So if there is already full compliance with all the requirements for a valid
exercise of appraisal right and that the corporation has unrestricted
retained earnings, the corporation cannot refuse to pay the dissenting
stockholder. The stockholder may go to court to compel the corporation to
allow him to exercise his appraisal right.
2efore e said that "ven if there is unrestricted earnings the corporation the board
cannot be compelled to declare dividend if among others it could establish that they
have an expansion plan, they are preparing or some contingencies, or if it is
re3uired in a load agreement. -ere so far as payment of dissenting stockholder the
only re3uirement is hen there is unrestricted retained earnings pay them.
2ecause the ob!ective is to protect interest of the minority, if e give the board the
poer to ithhold payment, ho can e protect no the minority, -ere the board
cannot refuse to pay !ust because they have expansion plans.
)ome notes in the course of ansering the above 3uestion....#.
If you are not paid ithin 40 days your right to dividends and your right to
vote hich as suspended by exercising your appraisal right is restored.
If you o'er it to someone else you ill lose your option or you are in e'ect
abandoning your appraisal right5 you can no longer demand for payment.
-o can a stockholder 3uestion the acts of the corporation, hich ould have
alloed him to exercise his appraisal right,
2y going to court.
$ dissenting stockholder has to options#
"xercise his appraisal right5 and
6udicial action 7 bad faith of the director
-e might not able to 3uestion the decision of the ma!ority and say that it is rong,
but he could 3uestion it if he could establish bad faith.
This could be illustrated in this manner#
0hen all the re3uirements of the dissenting stockholder to be paid but for some
other reason they pretend that there is some other problem and they do not ant to
pay.
%r perhaps, it is clear from the actuations of ma!ority of the stockholders that it !ust
anted to get rid of the minority. They !ust do not ant them anymore to be there,
so they agreed to shorten the term5 but then they ere !ust reconstituted after the
minority as removed.
If the minority can establish this, he can go to court and seek the annulment of the
propose act hich is made in bad faith. $nd in some cases he may also ask for
damages.
000 289811
To 0hom is management vested in a :)&, In the board of trustees.
o -o are they elected, )ection ;2.
In a cumulative voting in a :)& ho is it done,
$s a general rule, cumulative voting is not alloed. 2ecause this is
dependent on the number of stocks so it is inconsistent.
0hat is the term, 4 years provided elected annually.
o -ere, e have a 2%T hose term is for 4 years and every year they elect.
-o is this done,
"x# 4 years#
.issolution. 0hen they have to be dissolved, ho are the assets to be
distributed,
o %n distribution of assets to members# .epends on the provisons of the
articles. <ost specially, they are no longer entitled because they are for
charitable institutions, etc.
o )o hen e are preparing for dissolution, hat do e do =rst,
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2
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4 Bears 2011C201> on 201> "lect
for 4 years
2 Bears 2011C2014 on 2014 "lect
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1 Bear 2011C2012 on 2012 "lect for 4
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%n 201?, election
again
D1E, e address the concerns of the creditors. 6ust because they are :)&,
does not mean they donFt need to pay creditors.
D2E$fter paying of all liabilities and obligations, those assets held by the
corporation upon a condition of retention or continued retention by the
donee and those conditions are no longer feasible. They have to return the
property if the conditions are not met.
6ust like the mabolo church. The open space has become a very
expensive area. )ince they have a big space fronting the mean road,
so <abolo &hurch put up a commercial space, so e could rent it out
and the rentals could be used for church activities. $nd perhaps
improve the maintenance of the church. )o the donor arned them if
you ill use it in violation of the ishes of their great>x grandfather,
they ill take back the property. )o the church abandoned the pro!ect.
-eirs of donor ants to get back the lands of the school.
If the purpose for hich the donor intended ceases, then it should
be returned to the donor.
D4E$ssets received sub!ect to limitations.
Give this to the same institutions having the same purpose.
CLOS CO!"O!#T$O%S
&lose corporations are#
o In other ords, there are 4 kinds of close corporations#
Its stockoholders is not more than 20 incorporators
)tocks are not o'ered to the public.
0ith restrictions on its transfer
%thers ould say that close corporations are partnership. 2ecause they have
some features very similar to a partnership. 0hat are these features,
1.EThey oe to one another the same duty of utmost good faith and diligence
that partners oe one another.
o In other ords, that particular feature hich they cannot !ust transfer their
)%) ithout o'ering it to the other stockholders is very similar to a
partnership. 0hy,
2ecause in a partnership, the relationship is based solely on trust
and con=dence. -ere, similar because e do not ant any stranger to
come in. The reason hy, before any one sells shares, e must =rst
o'er among ourselves. )o it is similar because no one can become
partner unless everyone consents.
2.E)econd, in partnership, in the absence of any determination on ho ill
manage, all partners ill act as partners. 0hile in a &losed &orporation, the
stockholders themselves can manage.
0ith these 2 characteristics , there is reason to say that a close
corporation is very similar to a partnership.
Heasons hy instead of a partnership it chooses to be incorporated,
o Tax shelter. (esser tax liability, partners themselves do not ant to be
sub!ected to the individual tax rates in partnership but they prefer the 40
percent tax rate of a corporation.
o &ontinuity of the business upon their death. In partnership, death of a
partner dissolves the partnership. .eath of a stockholder, does not dissolve
the partnership.
o $chieve limited liability. %ne feature in of corporation is that the
stockholders are liable only up to their investment or shares in the
corporation it does not extend to their personal properties.
&ontinue ith special corporations.
000 February 11, 2011
&(%)" &%H/%H$TI%:
There is only 1 type of close corporation
There are 4 re3uirements to be considered as a close corporation#
1. $ll of its issued stock of all classes, exclusive of treasury shares,
shall be held of record by not more than a speci=ed number of persons,
not exceeding 20
2. $ll of the issued stock shall not be listed in the stock exchange or
o'ered to the public, and
4. $ll of the issued stock shall be sub!ect to one or more speci=ed
restrictions on transfer
:umber of directors,
o :ot less than ?
:umber of stockholders,
o :ot more than 20
0hat is this restriction,
o The right to transfer is sub!ect to the approval of all the stockholders
o The shares should =rst be o'ered to the corporation or the existing
stockholders
0e thought that as not alloed because it restricts the onership of the
stockholder,
o It is alloed as long as it does not prohibit the right to transfer
.oes it not prohibit,
o :o, it merely regulates
-o,
o The &orporation &ode provides that the restrictions shall not be more
onerous than granting the existing stockholders or the corporation the
right to purchase the shares of the transferring stockholder ith such
reasonable terms, conditions or period stated therein
IThese shares shall only be o'ered to the existing stockholders.J
o That could be a prohibition on the right to transfer and is void
To hom may management be vested,
o %n the board of directors
In a closed corporation, to hom may management be vested,
o Generally, on the board of directors
o If the articles of incorporation so provides, may be vested on the
stockholders themselves
In hich case, ho many directors should there be,
o $s many as there are stockholders, but not exceeding 20
-o may they be identi=ed, Is there a need for election,
o There is no need to elect the board. If that is hat the articles provide,
there is no point electing members of the board because the only
purpose of electing the board is to vest in that board the right to
manage. )ince the articles of incorporation already declared that
management is vested among the stockholders, then there is no more
need to elect. This is one peculiarity, e said.
Going back to restrictions, ho should the restriction be established,
o <ust appear in the articles of incorporation, the byClas and in the
certi=cate of stock
ITransfers ithout the consent of the directors ill not be valid.J
o The restriction is void. It is no longer a regulation but an absolute
restriction on the right to transfer. "ven if that restriction is indicated in
the certi=cate, it is not valid.
0hat happens to the transferee then,
o The transfer is valid
0hat happens to the conclusive presumption,
o This is no longer an issue of hether or not the conclusive presumption
ill apply. The restriction clearly violates the right of onership on the
part of the transferor 7 the right to dispose. In other ords, my right as
an oner may be regulated but never restricted. The board cannot
control the right of the oner to dispose.
I:o transfer of the shares of stocks contained in the certi=cate shall be sold
higher than the fair market value.J
o Invalid. It is an unfair restriction. For example, the fair market value is
/1?0 per share and someone o'ers to buy it at /19? per share. Bou are
supposed to be entitled to /19? but because of the restriction, you can
only get /1?0. It is unconstitutional, it is deprivation of property
ithout due process of la. (ayuCa abot ah... but it is correct. If you
stretch that logic, it ill end up there. That restriction in e'ect has
deprived me of my property. That restriction compels me to receive
less than hat a buyer is illing to pay. It does not only regulate the
right to transfer, it no violates that right, or prevents the right to
transfer. $s transferor, normally I expect pro=t, but my right to en!oy
certain pro=ts is no tharted by that restriction.
IThese shares of stocks must be transferred only at a value hich is less than
the fair market value.J
o Invalid. )ame reason as above.
I)hares of stocks cannot be sold for an amount less than the par value.J
o Invalid. It is a restriction on the property right of the stockholder.
0hat about the trust fund doctrine,
o The trust fund doctrine is not violated. It only applies only on the initial
or original subscription, upon the issuance of stocks. 0hen they ere
issued, the par value as already met, the par value has been
complied ith. The subse3uent sale of a stockholder to someone else
no longer a'ects the trust fund doctrine. If I ant to sell it at a loss, itFs
up to me. If I bought the share at /> and I ant to sell it at /4, itFs up
to me. $nyay, the /> has already been paid to the corporation,
money has already been paid. It is a subse3uent transfer, not a
subscription.
)o restriction on transfers, ho is it stated,
o I:o transfers of shares in this certi=cate shall be made ithout =rst
o'ering this to the existing stockholders.J
)o you pledge your certi=cates of stocks to the bank and you failed to pay
your loan. The bank ill foreclose and then conduct a public sale. $ public
auction is held and the shares are sold. $fter the sale, you have no option to
redeem since this is a personal property. )o you 3uestion the sale. Bou hired a
layer ho told you that you can redeem the shares since the sheri' sold the
shares ithout =rst o'ering them to the existing stockholders, in violation of
the restriction found in the certi=cate. &an the sale be considered null and
void,
o :o. The restriction applies only to voluntary sales.
$ll these restrictions should be indicated conspicuously on the face of the
certi=cate so that it ould be very easy for a transferee to notice and
discover these restrictions. )o much so that insofar as the transferee is
concerned, is he considered to have knon the restrictions,
o Bes. %nce they are indicated on the face of the certi=cate, there is a
conclusive presumption that the transferee must have knon, must
have read the restriction. $s a matter of fact, if it involves the number
of directors and therefore the number of certi=cates, that is also
binding on the transferee.
-o ill you kno that there are only 20 of these certi=cates available, -o
ill the transferee kno that this is a close corporation, hence there are only
20 stocks available,
o If you ant to be safe, you can in3uire, you can ask the corporate
secretary. 2ut usually they ill indicate the number Deg. 1 of 20, 2 of
20E. )o if you bought 21 of 20 certi=cates, then there is a conclusive
presumption that you kno of such fact, and therefore presumed to be
a purchaser in bad faith.
In this case, could you compel the corporation to register the transfer,
o :o. Bou cannot compel the corporation to register but the corporation
may register if it ants to.
+nder hat circumstances,
o 1. If the transfer has been consented to by all the stockholders.
o 2. If the close corporation has amended its articles of incorporation.
If they do not agree, hat is your remedy,
o Bou could recover from the transferor the amount that you have paid.
2eing a close corporation, other than those in the articles and byClas, the
stockholders among themselves may also execute other agreements. 0hat is
the e'ect of these agreements,
o They are valid as long as they are not inconsistent ith the articles of
incorporation. )o maybe ? of the 20 stockholders may agree among
themselves that henever there is an issue to be resolved, that they
should vote as a block and that if somebody does not comply, then he
ill be liable for damages among us. They can make those side
agreements so long as these side agreements ould not violate or
contradict the provisions of the articles or byClas because e cannot
help it that even in a close corporation, it might be composed of 2
families. The corporation could start ith the father and hen the
father retired from the business, he decided to give it to his to sons,
so that the to sons are no the stockholders of the corporation. $nd
these to sons have their on children ho are also involved in the
business. )o the children of one son can !ust agree among themselves
that this is our agreement, this is ho e must vote, ho e must
manage, and if e are authoriKed to manage then this is hat e
should do. If all of them could agree, the children of the to brothers,
ell and good. 2ut that is hardly done. )o hat could be easily done is
for the children of one brother to agree among themselves. $nd this is
alloed, there is nothing rong ith this. This cannot be considered as
a treachery to the other group because they are free to determine their
on stockholdings. $nd still this is part of the right of an oner. They
on one block and they should be alloed to determine ho these
stocks should be protected.
In a family, hen there is a meeting of stockholders, usually hat happens,
.o they actually hold formal meetings,
o :o. Good if there is a gathering, usually they !ust call up each other. If
there is a resolution to be signed, they !ust call up or text each other.
The formalities are usually dispensed ith so much so that resolutions
can be adopted even ithout a formal meeting.
If there is no formal meeting, clearly this is a violation, being a collegial body.
)o there is a defect there. 2ut this defect may be corrected, ho,
o 1. 2efore or after such action is taken, ritten consent thereto is
signed by all the directors5 or
o 2. $ll the stockholders have actual or implied knoledge of the action
and make no prompt ob!ection thereto in riting5 or
o 4. The directors are accustomed to take informal action ith the
express or implied ac3uiescence of all the stockholders5 or
o >. $ll the directors have express or implied knoledge of the action in
3uestion and none of them makes prompt ob!ection thereto in riting.
0e ill continue on <onday ith dissolution.
February 1>,2011
&#&LOC'S(
Is hen the directors or stockholders are so divided respecting the management of
the business and a'airs of the corporation that the votes re3uired for any corporate
action cannot be obtained and as a result business and a'airs can no longer be
conducted to the advantage of the stockholders.
They may rite a petition to )"& to arbitrate the dispute.
In this case the )"& shall have the poer to arbitrate the dispute and in the exercise
of such poer,the )"& shall have authority toL
1.E&ancel or alter any provision in the $%I, 2yC(as
2.E&ancel or alter, or en!oin any resolution of the corporation
4.E.irect or /rohibit any act of the corporation
>.EHe3uire the purchase of the fair value of shares of any stockholder either by a
stockholder or by the corporation regardless of the availability of unrestricted
retained earnings
?.E$ppoint a provisional director
@.E.issolve a &orporation
9.E$ny other reliefs as the circumstances may arrant
-o many provisional directors,
CIt depends on the situation, the )"& ill decide on ho many provisional directors
are needed to end the deadlock. The point in reason is that appointing a provisional
director is to do aay ith the deadlock.
? .irectors, ho many votes can you get,
CIts not alays 4C2,>C1 but 2C2C1, because there is alays somebody ho is neutral,
he ill abstain from making a vote. )o here , e need a provisional director.
0e need to keep in mind that the function of a provisional director is not only to end
a tie beteen the board, but also the functions and has all the poers of a director.
-e also participates, hoping perhaps ith his experience he could inMuence the
decision of the board, therefore might be able to sing some votes to his side, not
necessarily to end a tie break.
0ho pays the provisional directors,
CThe parties may agree on ho ill pay, or they ill share the salary of the director,
or if the parties ont agree ith each other, the )"& ill =x his compensation.
0hat are the other functions of a provisional director,
C-e can recommend to the )"&, hat are the proper actions to be taken by the
corporation.
H"&"I1"H vs /H%1I)I%:$( .IH"&T%H
C$ provisional director only comes in hen there is a deadlock, $ppointed by )"&
C$ receiver is di'erent from a provisional receiver, it is appointed more speci=cally
to administer the assets of the corporation and determine hether it is still
practicable to pursue the business of the corporation. -e is appointed by the court ,
and see it it that the assets are preserved, protect the interest of the creditors. -ere
he acts as an administrator, determine the appropriate moves in preserving the
business of the corporation.
If there is no amount settlement can be achieved or arbitration ill resolve the
conMict, hat ill )"& do,
C%rder the .issolution of the corporation
-oever, short of dissolution, other stockholders might !ust opt to leave the
corporation, in hich case hat can they do,
C0ithdra from the corporation, by compelling the corporation to purchase his
shares at their fair value, hich shall not be less than the par or issued value, hen
the corporation has suNcient assets in its books to cover its debts and liabilities
exclusive of capital stock.
)o this means that they have unrestricted retained earnings,
C:ot necessarily, as long as they have enough assets,
Is this an appraisal right, 0hats the di'erence no,
C:o, It involves a dissent in the fundamental changes in the corporation, there must
be enough unrestricted retained earnings.
Take note the ithdraal is only alloed in a closed corporationOOO
2ecause if this is alloed in other type of corporation,
CThis is a premature distribution of assets, the creditors ill be pre!udiced, but here
in a closed corporation one may opt to ithdra, as long as there is enough
assets,exclusive of capital stocks.
In determining hether e have enough assets to pay o' the liabilities, do not
include those investments from the stockholders, that should be preserved,
although you have other assets, ofcourse this other assets may include property
and cash. Bou should protect the stockholders investment or e3uity. 2e sure that
other than the capital stock of the stockholders e3uity , you have more than enough
to pay the liabilities.
S"C$#L CO!"O!#T$O%S(
.ancing )chool , ,
C:% ,favorable recommendation re3uired from ministry of education and culture,
because the re3uirement is only re3uired to those $&$."<I& educational
institutions.
0hat are religious corporations,
They may either be corporation sole, or corporation aggregate.
%nce you =le your papers ith the )"& , could you open your church already, do
they have to ait for the approval,
CB"), approval is not needed, the mere =ling of the papers gives the church a
corporate personality.
0hats the point, in =ling,
C)o that they can have a legal personality to on lands
("T) &%:TI:+" :"PT <""TI:G ith .issolution, -$//B 1$(":TI:") I:.$BOOOO
<arch ;, 2011
Instances hen a foreign corporation is deemed to be doing business, hence must
obtain a license. If it does not and continues to do business it ould not have the
personality to sue in the /hilippines but may be sued.
Instances#
)oliciting %rders, service contracts, opening oNces, hether called Iliaison
oNces or branches5
$ppoint representatives or distributors domiciled in the /hilippines5
/articipates in management or supervision or control of any domestic
corporation5
$ny other acts that imply a continuity of commercial dealings
6uridical personality C granted the rights and obligations hich the la necessarily
extends only to natural persons.
%nce it fails to obtain a license it is not alloed to avail of the facilities of the state,
among these facilities ill be the !udicial processes. )o because he refuses to
secure a license, it refuses to recogniKe the foreign in the state, then the state in
return ill not be oblige to extend to him the facilities of government including the
right to avail of the !udicial processes of the state and the state cannot even extend
the necessary protection in the exercise of his right as a corporation in a foreign
country. -ere hile it cannot sue, it may still be sued.
In other ords it cannot say you cannot sue me because I do not have a license to
engage in business here, it cannot assume that position. If you did not ant to be
sued, then you should not have entered into any business transaction. )econdly you
are in estoppels, actually hen you decided to enter into business transaction you
are in e'ect brought yourself under the !urisdiction of /hilippine government. 0hile
you cannot avail of the !udicial facilities of the state by bringing yourself over or
under the !urisdiction of the state thru the contracts that you have executed, then
you are no prevented from denying the authority of the state from assuming
!urisdiction over you. That is the logic of itO
)ecuring a license, before a license is issued hat are you suppose to do as a
foreign corporation,
Sec. )*+. Application for a license. C $ foreign corporation applying for a license
to transact business in the /hilippines shall submit to the )ecurities and "xchange
&ommission a copy of its articles of incorporation and byClas, certi=ed in
accordance ith la, and their translation to an oNcial language of the /hilippines,
if necessary. The application shall be under oath and, unless already stated in its
articles of incorporation, shall speci=cally set forth the folloing#
1. The date and term of incorporation5
2. The address, including the street number, of the principal oNce of
the corporation in the country or state of incorporation5
4. The name and address of its resident agent authoriKed to accept
summons and process in all legal proceedings and, pending the
establishment of a local oNce, all notices a'ecting the corporation5
>. The place in the /hilippines here the corporation intends to
operate5
?. The speci=c purpose or purposes hich the corporation intends to
pursue in the transaction of its business in the /hilippines# /rovided,
That said purpose or purposes are those speci=cally stated in the
certi=cate of authority issued by the appropriate government agency5
@. The names and addresses of the present directors and oNcers of the
corporation5
9. $ statement of its authoriKed capital stock and the aggregate
number of shares hich the corporation has authority to issue,
itemiKed by classes, par value of shares, shares ithout par value, and
series, if any5
A. $ statement of its outstanding capital stock and the aggregate
number of shares hich the corporation has issued, itemiKed by
classes, par value of shares, shares ithout par value, and series, if
any5
;. $ statement of the amount actually paid in5 and
10. )uch additional information as may be necessary or appropriate in
order to enable the )ecurities and "xchange &ommission to determine
hether such corporation is entitled to a license to transact business in
the /hilippines, and to determine and assess the fees payable.
$ttached to the application for license shall be a duly executed certi=cate under
oath by the authoriKed oNcial or oNcials of the !urisdiction of its incorporation,
attesting to the fact that the las of the country or state of the applicant allo
Filipino citiKens and corporations to do business therein, and that the applicant is an
existing corporation in good standing. If such certi=cate is in a foreign language, a
translation thereof in "nglish under oath of the translator shall be attached thereto.
The application for a license to transact business in the /hilippines shall likeise be
accompanied by a statement under oath of the president or any other person
authoriKed by the corporation, shoing to the satisfaction of the )ecurities and
"xchange &ommission and other governmental agency in the proper cases that the
applicant is solvent and in sound =nancial condition, and setting forth the assets
and liabilities of the corporation as of the date not exceeding one D1E year
immediately prior to the =ling of the application.
Foreign banking, =nancial and insurance corporations shall, in addition to the above
re3uirements, comply ith the provisions of existing las applicable to them. In the
case of all other foreign corporations, no application for license to transact business
in the /hilippines shall be accepted by the )ecurities and "xchange &ommission
ithout previous authority from the appropriate government agency, henever
re3uired by la. D@AaE
Sec. )*,. Issuance of a license. C If the )ecurities and "xchange &ommission is
satis=ed that the applicant has complied ith all the re3uirements of this &ode and
other special las, rules and regulations, the &ommission shall issue a license to the
applicant to transact business in the /hilippines for the purpose or purposes
speci=ed in such license. +pon issuance of the license, such foreign corporation
may commence to transact business in the /hilippines and continue to do so for as
long as it retains its authority to act as a corporation under the las of the country
or state of its incorporation, unless such license is sooner surrendered, revoked,
suspended or annulled in accordance ith this &ode or other special las.
0ithin sixty D@0E days after the issuance of the license to transact business in the
/hilippines, the license, except foreign banking or insurance corporation, shall
deposit ith the )ecurities and "xchange &ommission for the bene=t of present and
future creditors of the licensee in the /hilippines, securities satisfactory to the
)ecurities and "xchange &ommission, consisting of bonds or other evidence of
indebtedness of the Government of the /hilippines, its political subdivisions and
instrumentalities, or of governmentConed or controlled corporations and entities,
shares of stock in Qregistered enterprisesQ as this term is de=ned in Hepublic $ct :o.
?1A@, shares of stock in domestic corporations registered in the stock exchange, or
shares of stock in domestic insurance companies and banks, or any combination of
these kinds of securities, ith an actual market value of at least one hundred
thousand D/100,000.E pesos5 /rovided, hoever, That ithin six D@E months after
each =scal year of the licensee, the )ecurities and "xchange &ommission shall
re3uire the licensee to deposit additional securities e3uivalent in actual market
value to to D2RE percent of the amount by hich the licenseeSs gross income for
that =scal year exceeds =ve million D/?,000,000.00E pesos. The )ecurities and
"xchange &ommission shall also re3uire deposit of additional securities if the actual
market value of the securities on deposit has decreased by at least ten D10RE
percent of their actual market value at the time they ere deposited. The )ecurities
and "xchange &ommission may at its discretion release part of the additional
securities deposited ith it if the gross income of the licensee has decreased, or if
the actual market value of the total securities on deposit has increased, by more
than ten D10RE percent of the actual market value of the securities at the time they
ere deposited. The )ecurities and "xchange &ommission may, from time to time,
allo the licensee to substitute other securities for those already on deposit as long
as the licensee is solvent. )uch licensee shall be entitled to collect the interest or
dividends on the securities deposited. In the event the licensee ceases to do
business in the /hilippines, the securities deposited as aforesaid shall be returned,
upon the licenseeSs application therefor and upon proof to the satisfaction of the
)ecurities and "xchange &ommission that the licensee has no liability to /hilippine
residents, including the Government of the Hepublic of the /hilippines. DnE
$ foreign corporation is re3uired to put up a performance bond or a surety bond and
this surety bond ill serve as a security for any possible liability that a foreign
corporation might incur for doing business in the /hilippines. )o here, because they
might not have assets here, they might not have their deposits here, a foreign
corporation is re3uired to put up its paid up capital in a bank, and this paid up
capital could be use for the business of the corporation. $t least if a foreign
corporation deals ith the public, there is that capital here the public or third party
may go after. They have brought ith them the $%I registered ith the )"& and
bingo they can already deal ith the public, so if they incur liabilities here hat
ould be the assurance or guarantee that third persons5 that these corporations
might be dealing ith ill be protected from possible liabilities that these
corporation might incur. They do not have assets, at least e are not sure that
foreign capital came in because they is no such re3uirement. )o instead of
compelling the foreign corporation to bring in capital the la re3uires that the
corporation must put up security bond to secure any indebtedness that it might
incur, any liability that it might incur hile doing business here in the /hilippines. )o
that is a guarantee. %ther than that, they must prove that reciprocity.
Heciprocity
They can !ust bring a certi=cate from the foreign government here they came
from5 to the e'ect that the country here the foreign corporation as registered
extends similar privilege to Filipinos ho might be interested or planning to organiKe
a corporation in their country.
Finally, prove their solvency.
0hy is proof of solvency and putting up of performance bond re3uired, 0hat is the
point of re3uiring them to put up a performance bond, Is it not overkill,
$re /hilippine creditors already protected, 2y the mere allegation or proof of
solvency, :ot yet. 2ecause solvency may refer only to the present condition,
moreover hen e talk of solvency it refers to the assets of a corporation being
more than its liabilities5 and these assets could be in the foreign land so even if their
books of account ould sho that they are very solvent, but that is not a guarantee
for a Filipino creditor. 0hat ill be the use of those assets if they are in a foreign
land, so hile e re3uire proof of solvency, that ill only sho as others have
stated, that this foreign corporation is legitimate ith sound =nancial condition. 2ut
that does not mean that those assets are readily available for creditors. 2ecause
these assets could be in the foreign land5 and no matter ho solvent it is, the local
creditors may not be amply protected, in the sense that if the foreign corporation
fails to pay its creditors, the creditors might not easily attach the assets of the
foreign corporation hich are in a foreign land. )o in addition to proof of solvency, it
is re3uired that the foreign corporation should put up a bond.
$mendment of articles of incorporation
Sec. )-.. Amendments to articles of incorporation or by-laws of foreign
corporations. C 0henever the articles of incorporation or byClas of a foreign
corporation authoriKed to transact business in the /hilippines are amended, such
foreign corporation shall, ithin sixty D@0E days after the amendment becomes
e'ective, =le ith the )ecurities and "xchange &ommission, and in the proper cases
ith the appropriate government agency, a duly authenticated copy of the articles
of incorporation or byClas, as amended, indicating clearly in capital letters or by
underscoring the change or changes made, duly certi=ed by the authoriKed oNcial
or oNcials of the country or state of incorporation. The =ling thereof shall not of
itself enlarge or alter the purpose or purposes for hich such corporation is
authoriKed to transact business in the /hilippines. DnE
)o that the )"& ill be guided to these changes in the articles of incorporation, the
foreign corporation is obliged to update the )"& from time to time on any of the
change either in the articles or in the byC las, so that should problem arise or
conMict ensue then the )"& ill be able to exercise its poers of authority more
appropriately if it is furnished an updated copy of the incorporation papers,
including the articles and the byClas. In the same manner that there could be
<"HG"H....
Sec. )-*. Merger or consolidation involving a foreign corporation licensed
in the Philippines. C %ne or more foreign corporations authoriKed to transact
business in the /hilippines may merge or consolidate ith any domestic corporation
or corporations if such is permitted under /hilippine las and by the la of its
incorporation# /rovided, That the re3uirements on merger or consolidation as
provided in this &ode are folloed.
)o that there could alays be changes in the structure of the corporation as ell as
the e'ects of the merger, hat should no the )"& do, )o far as its license is
concerned,
There should be an amendment of its license. To reMect the changes in the articles
or the byClas5 or hether or not there as a merger and e said if the foreign
corporation as the absorbed corporation necessarily it can no longer exist, then it
has to ithdra its registration from the /hilippine government.
)o that a foreign corporation is alloed to ithdra hat is needed,
(iabilites should be paid, otherise the claimants may go after the bond earlier
posted. $s e said these bonds serves to guarantee or protect the rights of local
creditors.
Sec. )-). Amended license. C $ foreign corporation authoriKed to transact
business in the /hilippines shall obtain an amended license in the event it changes
its corporate name, or desires to pursue in the /hilippines other or additional
purposes, by submitting an application therefor to the )ecurities and "xchange
&ommission, favorably endorsed by the appropriate government agency in the
proper cases. DnE
&auses for revocation#
Failure to =le annual reports5
Failure to appoint and maintain resident agent5
Failure to inform the )"& of the change of residence of the resident agent5
Failure to submit copy of the amended articles or byClas or articles of
merger or consolidation5
$ misrepresentation in material matters in reports5
Failure to pay taxes, imposts and assessments5
"ngage in business unauthoriKed by )"&5
$cting as dummy of a foreign corporation5 and
:ot licensed to do business in the /hilippines
Corporation Transcription /0arch )), *.))1
0hat is the composition of the capital of the capital structure of a
corporation,
$uthoriKed &apital )tock D$&)E 7 it is the maximum capital as reMected in the
$%I hich a corporation could invest.
)ubscribed &apital stock D)&)E 7 hich is 2?R of the $&) hich must be
subscribed by the corporation.
/aid up &apital 7 hich is 2?R of the )&) that is actually the amount paid up
by the stockholders.
0hich among the three D4E is an outstanding capital stock D%&)E,
It is the )&) since it is already issued to and in the name of the subscribers.
0hat is then an %&),
It includes all shares of stock issued to stockholders hich are fully paid, and
if unpaid or only partially paid, as long as there is a binding subscription
agreement beteen the subscriber and the corporation. To be considered
outstanding the share of stock must be held by persons other than the
corporation itself.
/ossessor of such stock is already entitled to all the rights pertaining to a
stockholder like the right to receive dividends unless declared delin3uent
cause if such he is deprived of the right to dividends even if in possession of
an %&).
0hat is again the purpose of the performance bond as re3uired to a foreign
corporation, 0hy is such bond not re3uired to a domestic corporation,
It is intended to satisfy the liabilities hich a foreign corporation may incur
hile doing business in the /hilippines so as not to pre!udice and to protect
the interests of 4
rd
party creditors ho may be dealing ith such F&, and for
the bene=t of the Filipino public in general.
It is not re3uired of a .& since primarily most of its assets is situated in the
/hilippines. The 4
rd
party creditors and the Filipino public are guaranteed
through the execution of the TreasurerFs aNdavit to prove payment is
e'ected and to signify compliance to the capital re3uirement as provided in
the &orporation &ode. This is also supported by a bank certi=cate to con=rm
and authenticate the deposit of the re3uired 2?R paid up capital.
0ith respect to F&, the )"& is only able to receive more or less documents
hich are not enough to protect the interest of the 4
rd
party creditors5 thus, a
performance is additionally re3uired so as to address such a concern.
0hat is monopoly or combination in restraint of trade,
The concept embraces any combination the tendency of hich is to prevent
competition in the broad and general sense, or to control prices to the
detriment of the public. It is the concentration of the business in the hands of
a fe.
/ublic utilities like electricity and ater facilities in the hands of several
people in order to facilitate e'ective competition, is it valid, 0hat is sought
to be avoided is destructive competition herein due to extensive
competition, !ust to get ahead prices could be loered don to a very lo
level. The battle ill then be centered on the prices until one could no longer
compete since itFs already unpro=table as far as his business is concerned. $s
a result, he ill !ust opt to stop or close its business since he could no longer
cope ith the price competition. "ventually this can result to a monopoly
hich is the very evil sought to be avoided under the provisions of our &ode.
.estructive competition destroys in the sense that public interest is
pre!udiced since the poer to raise prices and exclude competition henever
desired is placed in the hands of monopoliKed businesses to the detriment of
the general public. Thus, the need of regulation in the public utility sector.
0hat are nationaliKed industries, These are industries hich address or
cater to the needs of the public. It is re3uired in a nationaliKed industry that
at least @0R of its capital stock is oned by Filipinos. The reason behind
such is to assure that control in such an industry is retained or maintained in
the very hands of the Filipinos.
0hy are telecommunications considered as a nationaliKed industry, It is
possible that if onership of telecommunication industries is not regulated
then likely if not all but more airtime is accorded to foreign shos to the
detriment of the people. Dmahibung nalng d ka ika mata nimo pag on !ud
nimo sa T1 puro na Instik ang ga yaCyaEO
0hat kind of body is )"&, )"& is a 3uasiC!udicial body, and in the same time,
an administrative body or a regulatory agency. $dministrative or regulatory in
the sense that )"& performs the folloing functions5
.eals ith the =ling of the $%I and 2ylas to ensure the re3uirements
provided for under the &ode are duly complied ith.
It in3uires into the veracity of the fact 0%: the corporation is doing business
in accordance to its speci=ed purpose.
It can also exercise visitorial poers.
&orporations are also re3uired to =le ith )"& an annual report to shocase
its solvency as it must set forth in such report its assets and liabilities.
It is also obliged to facilitate a corporate structure.
The minutes of the meeting must also be duly recorded and copies of hich
furnished to )"& in proper cases or hen re3uired.
It must also account of the corporationFs capitaliKation 0%: thereFs an
increase in the capitaliKation.
)"& is a 3uasiC!udicial body since it also performs the folloing functions5
a.E It imposed sanctions for the violation of las and the rules and regulations,
and issues orders in pursuant thereto.
b.E It prepares, approves, amend or repeal rules, regulations, orders, and issue
opinions and provide guidance on and supervise compliance ith such rules,
regulations, and orders.
c.E It issues cease and desist orders to prevent fraud or in!ury to the investing
public.
d.E It punishes for contempt of the commission, both direct and indirect, in
accordance ith the pertinent provisions of and penalties prescribed by the
Hules of &ourt.
e.E It issues subpoena duces tecum and summon itnesses to appear in any
proceedings of the commission and in appropriate cases, order the
examination, search and seiKure of all documents, papers, =les and records,
tax returns, and books of accounts of any entity or person under investigation
as may be necessary for the proper disposition of the cases before it, sub!ect
to existing provisions of la.
f.E It can also suspend or revoke, after proper notice and hearing, the franchise
or certi=cate of registration of corporations, partnerships, or associations,
upon any ground provided by lay.
0ho has !urisdiction if a corporation fails to pay its income tax, 2IH.
If a 1/ of a corporation is removed ho has !urisdiction, %riginally )"& but
no transferred to HT& under /. ;02C$ sec. ?. Dtantamount to intracorporate
disputeE
Issues regarding illegal dismissal 7 !urisdiction is vested ith :(H&.
$n example as given hen a stockholder has a building hich as rented
out by the corporation and the corporation fails to pay or settle its
obligations. Tuestion is ho has !urisdiction concerning such controversy, It
should be the HT&. The renting of the building is separate and distinct from
him being a stockholder of the corporation. -is position as a stockholder is
only incidental to the issue of liability of unpaid rentals. This is an e!ectment
case and for nonCpayment of rentals sub!ect to the !urisdiction of the regular
courts.
0hat is an intraCcorporate dispute,
These are disputes or partnership relations, beteen and among
stockholders, members or associates5 beteen any or all of them and the
corporation, partnership or association of hich they are stockholders,
members or associates, respectively5 and beteen such corporation,
partnership or association and the )T$T" insofar as it concerns their
individual franchise or right to exist as such entity.
0hat are the cases transferred to HT& hich ere originally vested to )"&,
a.E &ontroversies in the election or appointment of directors, trustees, oNcers or
managers of such corporation, partnership, or association.
b.E &ontroversies arising out of intraCcorporate disputes or partnership relations,
beteen and among stockholders, members or associates5 beteen any or all
of them and the corporation, partnership or association of hich they are
stockholders, members or associates, respectively5 and beteen such
corporation, partnership or association and the )T$T" insofar as it concerns
their individual franchise or right to exist as such entity.
c.E /etitions of corporations, partnership or associations to be declared in the
state of suspension of payments in cases here the corporation, partnership,
or association possesses suNcient property to cover all its debts but foresees
the impossibility of meeting them hen they respectively fall due or in cases
here the corporation, partnership, or association has no suNcient assets to
cover its liabilities, but is under the management of a Hehabilitation Heceiver
or <anagement &ommittee created pursuant to this degree.
d.E .evices or schemes employed by or any acts of the board of directors,
business associates, its oNcers or partners, amounting to fraud and
misrepresentation hich may be detrimental to the interest of the public and
or of the stockholders, partners, or members of associations or organiKations
registered ith the &ommission.