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Manner of creation

Name that may be used

# of organizers

Agreement between the
Can use any name except
that which is similar or
confusingly similar to the
Always for profits
Parties may agree on any
Just a minimum of 2 no


Managed by the partners,

but the decision are made
by the partner or partners

What may be contributed

by the parties
Right of succession

Either money or property

or industry
Right does not exist. When
a partner dies, thats the
end of the partnership. No
right of succession.

Created by operation of
Needs to add to its
corporate name the word
corporation or the word
incorporated whether fully
spelled or abbreviated.
May or may not be for
Maximum of 50 years
Minimum of 5 and a
Managed by a board.
1. Corporation
where there is no
board it is managed
by the head of the
Close corporations
incorporators or the
stockholders agreed
to manage directly
the affairs of the
corporation in which
case by reason of
that agreement no
need for a board.
Either money or property
but not industry
Right exists. It wont be
dissolved with the death
of the stockholder. A
existence independent of

Sharing of profit

Profits and losses are

shared according to the
agreement of the partners

Extent of liabilities

General partners may be

some more if there are
unpaid creditors although
they may have fully paid
for their subscriptions
minimum paid up capital
At the will of any partner
insignificant his interest
might be

As to causes of dissolution

the existence of the

Once a subscriber have
subscription he cannot be
some more
It requires a minimum
paid up capital of 5k
To dissolve a corporation
voluntarily it cannot be
dissolved by just 1 person.
Because the very 1st
requirement to dissolve
resolution of the board of

Created by law there is a specific law creating a corporation

Created by operation of law all that u have to do is comply with the requirements
of the law and once complied, in the eyes of the law there be a corporation.
Difference is, when we are talking about privately owned corporations, they are
created by operation of law, but if GOCC they are created by law, there is a special
law that created the GOCC and that special law is called their charter.
Example: GSIS, SSS, DBP they are created by special law
Security banking corp., FIlam Life corp. private corporations created by operation
of law
GOCC that is created by operation of law by the corp. code Philippine national
construction corp. it used to be construction and development corp. of the
Philippines. it became a GOCC because the corporation incurred a lot of obligation
toward government financial institutions. Since that CDCP could not pay those
obligations, the controlling stockholders as a compromise decided to give up their
shares to the GFI. The time came that the shares of CDCP were held by the GFI, so

when the GFIs became the controlling stockholders of CDCP they change the
corporate name to PNCC
Example of privately owned corp. that has a charter PNB. At the time of pres.
Marcos it was privatized. But it was created by special law

Example of corporations not for profits

Educational corporations
Corporation sole
Religious corporation propagation of faith
Elimosinary corporation it is for charity
If the corporation is managed by a board decisions are not made by the
stockholders or director with the controlling interest. In a corporation decisions are
made by a majority of the quorum in a meeting of the board.
Directors vote without considering their shareholdings in a corporation. You may
have just 1 vote but you may have 1 share.
If there is a board of 5, to have a valid meeting there must be present a quorum and
quorum is majority of number of directors. Majority of 5 is 3. And to pass a
resolution, just a majority of the quorum.

Forming a corporation
Persons forming a corporation are called incorporators. These incorporators are also
corporators. At the time of incorporation the incorporators are also corporators. But
later on these incorporators may leave the corporation so they cease being
corporators but although they may have ceased being corporators forever, these
incorporators remain incorporators.

One of those who organize the
corporation and he is one of those who
signed the articles of incorporation.

In a stock corporation the corporators
are called stockholders also known as
shareholders. Corporators of a nonstock
corporation are specifically called as

Articles of incorporation are only signed once, if the articles of incorporation would
later on be amended, the amended articles of incorporation will not show any
signature not even an initial.
Amended articles are not supposed to be signed by anyone. There is only 1 set of
signed articles of incorporation and that is the very 1 st one.
Stock corporation
Has 2 qualifications:
1. It has an authorized capital stock
divided into shares
2. Authorized to declare dividends
from surplus

Non-stock corporation



The corporation may have authorized capital stock divided into shares but not
because it has authorized capital stock divided into shares will it necessarily be
qualified as stock corporation. If in the articles of that corporation there is a
provision that in no case shall the board of directors declare dividends, that
corporation is a non-stock.
To form a corporation you file with the SEC articles of incorporation and the other
documents required by the SEC.
Other documents to be filed with the SEC for the purpose of incorporation

Name verification slip

Articles of incorporation
Treasurers affidavit
Bank certificate of deposit
Authority to inspect bank deposit
Undertaking to change corporate name
Registration data sheet

Other documents to be filed with the SEC for the purpose of incorporation of nonstock corporation

Name verification slip

Articles of incorporation
Undertaking to change corporate name
Registration data sheet
Modus operandi
- short write up which state on how the non-stock
corporation would operate

The by-laws if ready could be filed simultaneously with those other documents
whether it be a stock or non-stock corporation but if the by-laws would not be
ready by then, the by-laws could be filed later on, 30 days from the issuance of
the certificate of registration.

Creation of foundation it is required that all the organizers will have to contribute a
total of atleast 1 million pesos.
Incorporation process
Incorporators prepare the articles of incorporation.
Only natural persons can be incorporators because a partnership or a corporation
cannot sign the articles of incorporation by themselves. Someone has to sign it for
To be an incorporator it is required that it has capacity to contract. Must be of legal
age. Majority of the incorporators must be residents of the Philippines not
necessarily citizens except when there is a law requiring minimum Filipino
participation like in public service, retail trade.
Articles of incorporation
Matters required to be agreed on in the articles of incorporation. They may stipulate
more but not to be less than what the law provides or demands.
1. Corporate name
a. Name of corporation must not be similar or confusingly similar with the name
of an existing partnership or corporation
Confusingly similar the words used may not be identical but if you were to
interpret them, there is likelihood that some persons would confuse one with the
b. Corporate name must have the word corporation or incorporated whether
fully spelled or abbreviated.
The word corporation may not be the last word, like refractories corporation of the
c. there are certain words that may no longer be used anymore as the first word
of a corporate name like Philippine, republic, national, state because this
words are already reserved for use of government owned or controlled
The use of the word bank or banking, if you are forming a corporation and your
business is not one under the supervision of the monetary board then you cannot
add to your corporate name the work bank or banking because the word bank or
banking may be used only by corporations the business of hick is under the
supervision of the monetary board.

Art 2. Purposes of a corporation

A corporation can only have 1 primary purpose although it may have any number of
secondary purposes for as long as they are compatible with the primary and
compatible with one another.
Secondary purposes, no limit except that it must be compatible with the primary
and compatible with one another.
Example of incomplatible
Primary purose: is to engage in the business of banking
Secondary purpose: business of insurance as an insurer
Any bank under the supervision of the monetary board cannot engage in the
business of insurance as an insurer. Because banks may engage in the business of
insurance selling insurance policies known as bancassurance also known as cross
compatible secondary purpose: to engage in the business of putting up and
operating memorial parlors
primary purpose: to develop a memorial parks

art 3. Term of the corporation

1st rule: a corporation can have a maximum term of 50yrs at any one time.
2nd rule: term may be extended only before it expires.
3rd rule: there is no limit of the number of extension of the corporate term. A
corporation may have a perpetual existence.
Example: BPI, San Miguel Corporation
Extension of the corporate term may not take place earlier than 5yrs before it
expires. Corporate term may be extended but not earlier than 5yrs before it expires
except when there be a justifiable reason.
Art. 4 principal place of business
When stating the principal place of business of the corporation the exact address
must be stated.
Art. 5. Full name, nationality and complete address of the incorporators
Full name






Art 6.
1st part - # of directors
2nd part complete name, nationality

In the articles of a stock corporation, the # of directors may be as lows as 5 but not
more than 15
In case of non-stock corporation, minimum of 5, no maximum.
Some corporations prefer an odd # of directors rather than an even # because it is
their belief that an odd # of directors there will be no deadlock in the board of
directors, it is a myth.
Incorporating directors persons whose names are stated in the articles of
incorporation as the first set of directors of the corporation.
1st 6 articles applies to both stock and non-stock corporations.
Art. 7 of stock corporation
1st part mentions the amount of the authorized capital stock, # of shares
representing the stock, and the value assigned to every share
Example: 1 million pesos divided into 1 million shares with a par value of P1per
Amount of authorized capital stock is always expressed in pesos. But when you
have a stock which means the totality of the amount that the corporation shall be
capitalied, there is a need to break up that stock into parts and the parts are known
as shares.
Shares of stock units of participation in the corporation
The incorporators determine the amount of the authorized capitalized stock, the #
of shares comprising the stock and the value to be assigned to every share. If there
is a government regulator prescribing a minimum aid up then the incorporators will
have to agree to an amount that shall comply with the minimum paid up capital.
To put up a universal bank, it is required for a paid up capital of P3.5 billion.

Minimum Par value that the incorporator may assign to every share is 1 centavo
because it is the lowest denomination in our currency system
Maximum amount any amount
.015 market value is 2 centavo. Cannot be par value
Par value the value assigned to every share.
A corporation may issue shares without par value called no par value shares.
Rules in no par value shares
1. When no par value shares are issued, they are issued for an assumed value
of P5 each.
2. All subscriptions to no par value shares should be immediately paid up or be
fully paid
3. Payment for no par value shares is considered capital contribution and
therefore may not be used in payment of dividends
4. Certain corporations are not allowed to issue no par value shares and they
include banks, insurance companies, trust companies, public utilities and
building and loan associations.
2nd part: full name of the subscribers, the nationality, # of shares subscribed, the
value of the subscription
The subscribers may not necessarily be natural persons, but may include
partnerships and other corporations.
Art 7 of non stock corporation
Has no authroized capital stock but every organization must have funds to operate.
Individual contributions or donations of the members or organizers of the

Corporation organize a subsidiary

Corporation putting up or creating the subsidiary mother corporation
A mother corporation can organize any # of subsidiaries.
Sister companies - Affiliates of the mother company
Art 8. Names of the subscribers, amounts individually paid on their subscription
Total of which must be equivalent to at least 25% or of the total amount

The total amount subscribed must be equivalent to at least 25% or of the amount
of the authorized capital stock and the total amount paid be equivalent to at least
25% or of the total amount subscribed.
If the total amount subscribed is 250,000 and the total amount paid up should be
62,500 is it required that all subscribers pay up at least 25%$ of their subscription?
No. look at the total, the total paid up must be equivalent to at least 25% or of
the total subscribed.
Total payment must not be no less than P5,000 in the case of an ordinary
Art 9. Name of the treasurer
Art 10. Applies to corporations the business of which is reserved by law to Filipinos.
No transfer of shares which will reduce the participation of the Filipinos to a
percentage less than that required by law shall be permitted to be recorded in the
books of the corporation.

Upon issuance of the certificate of registration corporation

A corporation as a person can acquire properties exclusively in its own name.
properties acquired by a corporation exclusively in its own name belong only to the
corporation. The stockholders or members cannot say that they are part owners of
those properties.
A corporation can enter into contracts exclusively in its own name. these contracts
are contracts of the corporation. If the other party violates that contract and the
corporation decides to sue the other party, the action shall be only in the name of
the corporation, not the president or any director of the corporation.
Liabilities of a corporation are liabilities of the corporation. If a party would like to
sue the corporation to enforce this liabilities the other party sues only that
corporation and no one else because a corporation has a personality of his own
separate and distinct from the personality of its organizers, directors or officers.
Exception: when it is proper to pierce the corporate veil. Disregarding the separate
personality of the corporation making its liabilities, the liabilities of certain persons
behind the corporation.
Piercing the corporate veil is not based on provision of law but on jurisprudence.
Pronouncement of the SC regarding the piercing of the corporate veil:

1. Not because a person has controlling interest in the corporation would it

always follow that in case of insolvency that controlling stockholder will be
obliged to pay.
2. Separate personality of a corporation may be set aside only when there is a
clear and convincing evidence that the corporation was organized purposely
to evade tax evasion, or to defeat public convenience or to commit a legal
wrong or there is a clear and convincing evidence that the corporation is
merely an alter ego of the controlling stockholder.
3. When there is clear and convincing evidence that of two corporations one is
considered a mere instrumentality of the other.
By-laws set of house rules of the corporation. It may be filed together with the
articles of incorporation in which case it is required that all the incorporators sign
the by-laws. But if the by-laws would be filed after issuance of the certificate of
registration then its enough that it may be signed by a majority of the
By-laws shall be filed within 30 days from the issuance of the certificate of
registration, if not there is a danger of cancellation of the certificate of registration.
When a corporation fails to file the by-laws within 30 day period, the cancellation of
the certificate of registration is not automatic.
Matters required to be stated in the by-laws

meetings of the stockholders or members

officers of the corporation
stock certificates in case of stock corporation
corporate seal
rules about the amendments of the articles or the by-laws

if there is nothing in the by-laws about how to amend the articles or the by-laws just
comply what the corporation code provides.
Rules on meetings:
Every corporation has an annual meeting known as regular meeting. The by-laws
states the day, time of the annual meeting. If the corporation has a few
stockholders or member, the meeting could be held in the principal office of the
corporation. But if the a corporation is publicly listed which perhaps may have
thousands of stockholders, and if the principal office of the corporation is not big
enough for all the stockholders or members, the meeting may be held in any other
place in a city or municipality where the corporation has its principal office.

Annual meeting are usually held after the audited financial statements are ready so
that the president has something to report to the stockholders based on findings of
the auditor of the corporation.
In every meeting whether it be a regular or special there must be a quorum.
Without a quorum at the start of the meeting, the meeting should be adjourned.
Quorum in a meeting of the stockholders - presence in person or by proxy of the
stockholder or stockholders representing the majority of the outstanding share.
Outstanding shares those issued by the corporation excluding treasury shares.
Treasury shares those shares already issued by the corporation but which later on
the corporation reacquires through any legal means
When shares had been subscribed, they are considered issued. As they are out of
the corporation they are also referred to as outstanding, out of the corporation.
Are all outstanding shares issued? Yes
Are all outstanding shares subscribed? No. because pwedeng issued as stock
dividends, they are not subscribed yet they have been issued.
Quorum in a meeting of members majority of the # of members usually but not
Attendance in meetings whether regular or special could be in person or by proxy.
Proxy representative of the stockholder or member who will be attending the
meeting on his behalf. Proxy arises from a contract of agency, both the agent and
principal must have a capacity to contract.
The proxy (representative) should bring along with him to the meeting his proxy
(written authority to appear for the stockholder or member)
The proxy must be in writing but not necessarily in a public instrument, must be
signed by the stockholder or member.
Proxy before the meeting must present that authority to the corporate secretary for
validation. The corporate secretary after receipt of the proxy shall compare the
signature of the stockholder in the proxy with the specimen signature in his file and
if it match the representative could be recognized, but if the signatures dont match,
the secretary would be justified in rejecting or not acknowledging the proxy. Proxies
must be presented at least 5 days for validation.
Special meetings are held upon call by the president of the corporation.
upon call by the president of the corporation written notice to the stockholders or
members before the special meeting in which notice must state the matter/s to be

taken up during that meeting, stating the day and time of the meeting. No other
matter/s will be taken up in that special meeting without the concurrence of all
In stock corporations only there is another form of voting through a voting trustee.
Are true in both stock and non-stock
Maybe in a private instrument
Filed only with the corporate secretary
Stockholder does not deliver his stock
certificates to his proxy

Takes instructions from the stockholders

or members on how to vote
Could be just for 1 meeting but could
also be for a period which must not go
beyond 5 yrs, because after 5yrs the
proxy becomes void but it may be
renewed or a new proxy could be issued
but a proxy could be issued at anyone
time for a maximum term of only 5 yrs.

Voting trust agreement

Are true only in stock corporation
Should be in a public instrument
Filed with the SEC
certificates to the voting trustee who in
exchange delivers to the stockholder a
voting trust certificate
Voting trustee votes for the stockholder
Could be issued for a term of 5 yrs.

A proxy maybe revoked and the revocation could be implied or express.

A proxy may not be revoked without the consent of the proxy if the proxy was
issued pursuant to a contract.
A proxy is generally revocable except when the parties stipulated that it is
irrevocable without the consent of the proxy and a proxy becomes irrevocable when
it is issued pursuant to a contract.
Is it correct to say that when you subscribe to 3k shares, 3k shares will also be
issued to you. What if of the 3k shares you have subscribed you fully paid only 1k
shares, will the 3k shares you have subscribed be issued to you? When the
corporation makes available for subscription any number of shares, when they are
subscribed even though they may not yet have been paid they are already
considered issued even though no payment has been made.
Once a share has been subscribed, it is already considered issued.
A person although he has not paid anything on his subscription may already qualify
as a director under the law.

Issuance of shares upon subscription already issued until the subscription is fully
paid there can be no issuance of stock certificate. The stock certificate shall be
issued only upon full payment of a subscription.
A subscription agreement is considered a s one indivisible contract. So you have to
fully pay the contract itself only then would it be said that you have fully paid the
contract or the subscription. If you have paid an amount equivalent to only 1k
share, hindi ka pa fully paid nun, partial payment parin un, because your payment
that corresponds to 1k shares is considered your partial payment on the entire
subscription. Every subscription agreement is considered as one indivisible contract.
In relation to the doctrine of the piercing the corporate veil at what stage in a
proceeding can a creditor take the necessary action to pierce said veil against the
debtor corporation and or its stockholders?
If you intend to pierce the corporate veil, you may implead all those who you want
to charge.
Suppose in a labor case the complainants obtained a favorable money judgment
against their employer, a lending corporation, upon execution of said judgment
which had already become final and executory said corporation closed its office,
seized its operation and its officers are nowhere to be found, can the said
complainants run after the assets of the president of the corporation who reportedly
has the controlling interest in the corporation? not because a person has a
controlling interest in the corporation would it always mean that in case of
insolvency of the corporation that the controlling stockholder would be obliged to
pay. The corporation is not the same as the president. Business misfortune, the
obligation cannot be passed on to the president simply because he is the controlling
stockholder of the corporation.
After doing further investigation the complainant found out the following: their
employer corporation is a mere subsidiary of another corporation. said other
corporation had almost the same stockholders and officers particularly the president
and the vice president, all memoranda, orders and directives of their employer
while still in operation came from said mother corporation based on the foregoing is
piercing of the corporate veil still possible for the complainants to hold the officers
liable personally? No. if you intend to pierce the corporate veil on the basis of the
instrumentality rule, you try to enforce the judgment against the officers but against
the mother corporation.
to become director of a corporation one must have all the qualifications provided in
the law and in the by-laws and he must also have none of the disqualifications
provided in the law and in the by-laws.
sources of qualification and disqualification: law and the by-laws

1. must own at least 1 share in that corporation.
When is a person said to own a share in the corporation? Once a person had already
subscribed to the share of the corporation although he has not paid anything yet on
his subscription he is already considered owner or ownee of that share.
The by-laws may provide that no one could be a director of a corporation until he
has fully paid all his subscription.
What kind of shares must one have susbscribed to to qualify him as a director? As
far as the law is concerned there is no distinction there is no qualification, the share
could be common or preffered, because all that the law says he must subscribed or
he must own at least 1 share. But in practice, once a corporation issues preferred
shares as the corporation guarantees a definite rate of return on said preferred
shares, the corporation deprives or denies the preferred stockholders the right to
elect directors and to be elected as such.
Preferred shareholders are entitled to vote on 8 occasions:

amendment of articles
amendment of by-laws
creation, increase or modification of a bonded indebtedness
increase or decrease of authorized capital stock
investment of corporate funds in another corporation
sale or disposition of all or substantially all of the assets of the corporation
merger or consolidation
in case of dissolution

if 2/3 votes are required the 2/3 include the preferred stockholders. Usually what the
preferred stockholders denied or deprived of are the rights to elect directors and be
elected as such. It is not accurate to say that preferred stockholders have no voting
Disqualifiations under the law:
1. sentenced by final judgment to suffer imprisonment of more than 6 yrs
2. one who had committed a violation of the corporation code during the past 5
term of director: refer first to the by-laws. if there is no term in the by-laws, then the
term of a director is annual, it expires every year.
If corporation is educational, the term of director is 5 yrs except the 1 st batch which
the law provides or which is obliged by law to agree among themselves that one or
some of them will serve initially for 1 yr, another or other for 2, 3, 4, 5 yrs. In an

educational corporation, the # of directors must be in multiples of 5. It must be

either 5, 10 or 15 directors.
After a year the term of the 1 st 2 expires, if they would be re-elected their new term
shall be 5 yrs or if they will be replaced, the replacement shall have a term of 5 yrs.
May he be removed before the expiration of his term? Yes. Removal may be with or
without a valid cause except if the director represents the minority stockholders in
which case he can only be removed for a valid cause.
Who removes the directors? Stockholders or members. there must be a special
meeting of the stockholders or members.
Vacancy may be filled up by:
1. call a special meeting of the stockholders or members
2. if the remaining directors still constitute a quorum they may fill up the
vacancy, they do not need to call for a special meeting of the stockholders or
members but if the remaining directors no longer forms a quorum then no
choice but to call a special meeting of the stockholders or members for the
purpose of filling up the vacancy.
Directors as such are not entitled to regular compensation. Except:
1. when they are given regular compensation in the by-laws
2. when the directors give themselves regular compensation.
When directors give themselves regular compensation through a resolution but the
resolution cannot right away be implemented because it has to be presented first to
the stockholders for ratification and to ratify you need the vote of at least 2/3 of all
outstanding common shares only.
But the law allows directors to receive reasonable per diems for attending meetings
of the board.
Reasonable per diem It depends on the resources of the corporation.
The law allows directors to receive a share in the net profits of the corporation but
not to exceed 10% of the net profits before income tax.
a director may enter into a contract with the corporation where he serves a director
under the following conditions:
1. his proposal was approved in a meeting of the board in which meeting there
was a quorum but without counting his presence and the proposal was
approved by a majority of the quorum without counting his vote.
2. Terms and conditions must be fair and reasonable

In stock corporation voting of directors is said to be cumulative.

The purpose is to enable minority stockholders to have a representation in the
board. Cumulative voting is true only in stock corporations because there is no
minority stockholder in a non-stock corporation.
Cumulative voting
multiplied by the # of
directors to be elected +
total votes
All votes could be given or
cast in just 1 candidate

1 member is entitled to 1
vote but the # of votes
shall also be multiplied by
the # of directors to be
elected = total votes
All the votes shall be
given to 15 candidates. Or
stated differently, if you
were a member you
cannot cast more than 1
vote for every candidate
in a non-stock corporation

Meetings of the board

Usually directors meet once a month.
Quorum in a meeting of the board presence of the majority of the # of directors.
When should there be quorum in a meeting of the board quorum must be present
at the start of the meeting and decisions are made by the majority of that quorum.
Pre-emptive right of a stockholder is not strictly personal it is a property right as it
arises from ownership of shares in the corporation. As it is a right it may be waived
before the right expires either by not exercising it or before the right expires.
The pre-emptive right being a property rights are transferrable either by onerous or
gratuitous title.
Pre-emptive rights are not absolute right, there are times that they dont exist.
When do they not exist:
1. When so expressly provided in the articles or in the by-laws
2. When new shares are issued to pay for a property that the corporation needs
but for which property the owners wants payment in shares.
3. When new shares are issued to comply with a legal requirement that the
corporation go public

4. When a corporation issues new shares pursuant to a stock option plan for
officers and/or employees of a corporation
Watered stocks when they are issued but the corporation does not get the full fair
value of the shares.
Consequences of issuance of watered stock:
1. If there would be any unpaid creditor whose claims against the corporation
could not be satisfied from the assets of the corporation, that creditor could
claim against Mary for the difference between the value that she paid and the
fair value that she received. The person who received the watered stock
could be obliged to pay the difference.
2. The director/s who did not object to the issuance of the watered stock shall
be solidarily liable with the person who received the watered stocks.
Upon learning that watered stocks were issued if he does not agree he should file
with the corporate secretary his written objection and if doesnt he becomes also
solidarily liable with the others.
Watered stocks are valid except that those who received and those directors who
did not object to their issuance becomes solidarily liable to unpaid creditors whose
total claims cannot be satisfied from the present assets of the corporation and their
liability is to the extent of the difference of the full fair value and the value that was
Delinquency of sales
1. Shares become delinquent when they are not fully paid according to the
subscription agreement.
2. When no date of payment for the balance is mentioned in the subscription
agreement and they are not fully paid upon call (demand) by the corporation
Delinquency takes place when there is failure to pay in full the balance of one
subscription agreement by the date stated in the subscription agreement.
Call when there is a formal demand by the board of directors or stockholders full
payment on ones subscription.
If the balance is not fully paid within that period, the subscription becomes
Remedy of corporation in case of delinquency:
1. File a case in court to collect the amount due to the corporation (specific
2. Sell the delinquent shares in a public auction

Nature of dispute is intra-corporate dispute RTC takes cognizance of the case

where the corporation has its principal office
Divide the amount demanded by the corporation by the # of shares offered by
every bidder.
A corporation may bid for its own shares in that delinquency sale only if that
corporation has sufficient surplus profits.

A corporation may not bid for its own shares in a delinquency sale if the corporation
has no sufficient surplus profits because therell be a violation of the trust fund
Trust fund doctrine all subscriptions to the capital stock of the corporation both
paid up and unpaid portions constitute a trust fund for the benefit of the creditors of
the corporation
If the corporation made a bid for its own shares what then becomes of those
shares? They become treasury shares.
Appraisal right of a stockholder it is his right to demand payment of the fair value
of his shares under certain conditions.
1. Resolution of the board authorizing any of the following:
a. An amendment of the articles or by-laws limiting or restricting the existing
rights of the stockholders.
b. Or a resolution authorizing of investment of corporate funds in another
c. A resolution authorizing the sale or disposition of all or substantially all of
the assets of the corporation.
d. Authorizing a merger or consolidation.
2. That resolution was ratified by the required number of votes at least 2/3 of all
outstanding common and preferred shares.
3. The stockholder demanding payment for the appraisal right should have
voted against ratification.
4. He demands payment of his appraisal right within 30 days from ratification.
5. Corporation must have sufficient surplus.
If after one had demanded payment of his appraisal right but later the board of
directors changed its mind and reversed itself on the matter to which you objected
then the stockholder wont be entitled to his appraisal right.
If you were paid your appraisal right what becomes of those shares? They become
treasury shares.

Treasury shares are shares which have been previously issued but which the
corporation later on had reacquired through any legal means.
Ways that regular shares becomes treasury shares:
1. When the corporation bids its own shares in a delinquency sale
2. When the corporation pays the appraisal right of a stockholder
3. When the corporation eliminates fractional shares in stock dividends
Fractional share a share that is less than 1 whole share
Public 20 or more person. Under the securities law public means more than 19
person includes juridical or natural persons
Commercial enterprise is actually a stock corporation
only stock corporation engage in commerce
the public may entice to invest in a commercial enterprise:
1. As a loan
2. Invest as a part owner of the commercial enterprise
Invested in equity the investor became a part owner of the stock corporation
Kinds of securities
1. Promissory note a form of securities
2. Bond it is a promissory note where the repayment period is over 5 years
3. Debenture its a promissory note where the repayment period is over 5
years but the obligation is secured by assets of the corporation
Certificates of stock instrument evidencing investment in equity
Before a stock corporation could offer tis securities to the public, it should first
register its securities with the SEC.
The purpose of prior registration of securities with the SEC is to protect the public
from being defrauded.
Registration of securities with the SEC is commenced by filing with the SEC the
registration statement.
If the investment in the stock corporation would be in the form of equity
participation, once the securities are registered with the SEC the shares shall be
listed with Philippine stock exchange in order to raise capital

If a corporation wants to raise capital it list with the Philippine stock exchange so
that it can do an initial public offering.
All transactions, all subscriptions and all transfers of listed shares could be
conveniently done with the exchange.
Other purpose of listing with the Philippine stock exchange is to have a convenient
facility for the purpose of buying and selling shares of a corporation. (Listing by
Listing by introduction listing of shares of a corporation not for the purpose of
raising capital but for the purpose of having a convenient facility for the purpose of
buying and selling of its shares.
When a person buys shares which are listed at the stock exchange his investment in
such shares are considered very liquid because if shares are listed with the
Philippine stock exchange and you would like to sell them you can sell them right
away the only exception is when the corporation whose shares you own is already
bankrupt in which case nobody would buy those shares.
Liquid because it is easily convertible into cash
Although the shares are registered with the SEC such registration is not an
assurance that those shares would be listed in the Philippine stock exchange
As listing with PSE is not easy and cannot be guaranteed some corporations have
resorted to back door listing
Back door listing it is legal.
To do back door listing look for corporation whose shares are already listed with the
PSE. Look for a dormant corporation (still existing but no longer operating). After
locating or finding a dormant corporation whose shares are already listed with the
PSE you acquire controlling interest in that corporation.
How much is controlling interest at least 2/3 interest in the dormant corporation.
Merge with your corporation with that dormant corporation. Between the 2
corporation, it is not the dormant corporation that will not be dissolved. The shares
of the other corporation will be replaced with the listed shares of the dormant