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(d) To refuse to recognize and register the


CORPORATION LAW sale or assignment of any share where the RIGHTS OF MEMBERS
Atty. Japhet Derije subscription has not been fully paid; and On the other hand, the eleemosynary nature
JMC Law 2018-2019 (2nd Semester) (Sec 63, Corporation Code) of non-stock corporations
define the characteristic of membership
(e) To refuse to recognize a sale or therein as being essentially personal in
Stockholders assignment of shares of stock which have nature and therefore not generally
Those persons holding stocks of a not been duly registered in the stock and transferable.
corporation transfer book. (Sec 63, Corporation Code) Section 89 of the Corporation Code
Members – those with contributions in a specifically provides that the right of
non-stock corporation Doctrine of Equality of Shares members of any class or classes to vote
All shares or stocks of a corporation are “may be limited, broadened or denied to
Rights of Stockholders presumed equal with the same privileges the extent specified in the articles of
and liabilities, provided that the Articles of incorporation or the by-laws” of a non-stock
Rights of Corporaton with Respect to Incorporation is silent on such differences. corporation.
Shares
RIGHTS OF STOCKHOLDERS The SEC has opined that the rule in Section
(a) Subject to any contrary stipulation in the The Corporation Code, as it views the 6 allowing non-voting shares
subscription agreement, to call for the stockholders of a stock corporation to vote on specified fundamental matters
payment of the unpaid subscription, as a group of investors, provides for two does not apply to non-voting members
together with interest accrued, if any, on the complementing philosophical of a non-stock corporation; that insofar as
date specified in the contract of subscription approaches to the treatment of stockholders members of a non-stock corporation,
or on the date stated in the call made by the under relevant corporate contractual the applicable provision is not Section 6 but
board; (Sec 67, Corporation Code) relationship: Section 89 of the Code, which
(a)The default rule is that all stockholders specifically provides that members may be
(b) To impose interest on the unpaid have equal rights and obligations, denied entirely their voting rights in
subscriptions from the date of subscription, expressed in the last paragraph of Section 6 the articles of incorporation or by-laws of the
if so required by, and at the rate of interest that provides: “each share shall be equal in corporation.4
fixed in, the by-laws; (Sec 66, Corporation all respects to every other share.”
Code) (b) When preferences or restrictions are Section 89 also provides that the right of
made to apply to a members to vote by proxy may
(c) To refuse to issue to the subscriber the class of shares, then such preferences on be denied under the articles of incorporation
certificates of stock restrictions shall exists and be valid only or by-laws of a non-stock corporation.
covering shares where the subscription has when the particular form and procedure
not been fully mandated by the Code, which under the SEC. 6 viz Sec 89
paid; (Sec 64, Corporation Code) same section provides that it be “provided in Sec 6 does not apply to a member of a non-
the articles ofincorporation and stated in the stock corporation
certificate of stock.

Reviewer and Notes


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PARTICIPATION IN MANAGEMENT effective in the rehabilitation of insolvent specifically required as a condition in a loan
Concept of Proxy – corporations, as well as in irrevocably agreement, said voting trust may be
Under Section 58 of the Corporation Code, committing groups of shareholders to the for a period exceeding five (5) years but
stockholders and members continuation of fixed business shall automatically expire upon full
may vote in person or by proxy in all policies.77 payment of the loan.
meetings of stockholders or members. Under a voting trust arrangement, a A voting trust agreement shall be ineffective
stockholder of a stock corporation and unenforceable unless:
The proxy must first be examined by the parts with the voting power only but retains (a) It is in writing and notarized, and shall
secretary or the person in charge before it the beneficial ownership of the stock. specify the terms and
may be allowed to join the meeting. A voting trustee is only a share owner conditions thereof; and
vested with colorable and fictitious title for (b) A certified copy of such agreement shall
Requisites for a Valid Proxy the sole purpose of voting upon stocks that be filed with the
In order to be valid and enforceable, a proxy he does not own. Consequently, the corporation and with the SEC.
must comply with the following requisites: transferring stockholder, although he has
(a) The proxy shall in writing; ceased to be a stockholder of record, PROXY viz VOTING TRUST
(b) Signed by the stockholder or member; retains the right of inspection of corporate Proxy – relationship with a SH is Principal –
and books which he can exercise Agent Relationship
(c) Filed before the scheduled meeting with concurrently with the voting trustee. Voting Trust - relationship is that of a
the corporate secretary. By its very nature, a voting trust agreement Trustee and Beneficiary
results in the separation of the - SH still has beneficial ownership
Issue between the corporation and the voting rights of a stockholder from his other - Only Voting rights are surrendered
proxy – it is an intra corporate issue – the rights such as the right to receive
jurisdiction is with the RTC dividends, the right to inspect the books of Proxy – cannot exceed the delegated
the corporation, the right to sell certain authority
If the issue does not relate to the issue of interests in the assets of the corporation Trustee – only limit is that the act must be
election of BOD or if it is an inter corporate and other rights to which a stockholder for the benefit of the trustee, exercises
issue – the jurisdiction is with the SEC. may be entitled until the liquidation of the absolute voting rights for a period of not
corporation. more than 5 years. (the five years must be
VOTING TRUSTS renewed)
The trustee will already exercise the right to REQUISITES
vote Under Section 59 of the Corporation Code, P- in writing is sufficient
Sec 59. one or more stockholders of a VT – must be notarized
stock corporation may create a voting trust
The voting trust device involving the for the purpose of conferring upon a trustee P- filed with the corporation
complete surrender by the or trustees the right to vote and other rights VT – registered in the corporation and with
shareholder of his voting rights to a trustee pertaining to the shares for a the SEC
or trustees, appears to have been period not exceeding five (5) years at any
one time. In the case of a voting trust P- the ownership cannot be transferred

Reviewer and Notes


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VT – the legal ownership is transferred to of the stockholder to a third person of his or


the trustee in a VT Agreement her shares. 2. Labor

P – cannot be voted Pre-incorporation subscription 3. Outstanding Shares exchanged for


VT – can be elected as BOD because he GR: The person entering into the stocks
has legal title subscription agreement may not revoke
within six (6) months. 4. Previously incurred indebtedness of
P – revocable at will the corporation.This should be
VT – irrevocable unless there is fraud or EXPNs: approved by the majority of the BOD
misconduct by the voting trustee There is consent or within that said period and ratified by 2/3 of the
or after the said lapse, the corporation did stockholders because it will
VT- can also institute a proxy not materialize. decrease their capital stock in the
corporation.
A pre-subscription contract will become due EXPN to the EXPN
and demandable only when the corporation But if the articles of incorporation have
is incorporated. already been submitted to the SEC, the SA
Stocks may not be issued less than the par
cannot be revoked unless the SEC
or the stated value.
Subscription Agreement, definition disapproves the application.
Any contact is the agreement for unissued
Par value – it is the value indicated in the
shares or unissued stock in an existing or a SHARES OF STOCK
AOI and the By-laws. And only par value
still to be formed corporation The tangible certificate of stock will not be
shares has par value.
issued to you unless you pay in full your
Characteristics subscription.
The non-par value shares have an issued or
1. Promised contribution of a person to
stated value. Essentially, it does not have a
the capital of the corporation Sec. 12, Corporation Code
value, but the parties may assign it.
2. There can be SC only with the (Doctrine of Equality of Shares)
However, it must not be lower tha P5. The
unissued shares of the authorized
value of the share will depend upon the
capital stock Sec. 62 – Consideration for Shares
financial status or needs of the corporation.
3. The increase of authorized capital
stock through a formal amendment 1. Property
Watered Stock
of the AOI and registration with the The property should not be encumbered. It
Watered stock is stock issued not in
SEC should have clean title.
exchange for its equivalent either in cash,
Why the term, unissued is important. property, share, stock dividends, or
The valuation is determined by the
services, (see Sec. 62.) It includes stock:
If the shares were already issued it may be incorporators or BODs subject to the
the share or disposition of the corporation of approval of the SEC. This is important
(1) issued without consideration (bonus
its treasury shares or the sale or disposition because of the concept of watered stocks.
share); or

Reviewer and Notes


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(2) issued as fully paid when the corporation The conversion is placed in the agreement
has received a lesser sum of money than its No Par Value shares are deemed fully paid. of the parties like preferred stocks are
par or issued value (discount share); or They are not subject to delinquency sales. converted into common shares.

(3) issued for a consideration other than AOI must state that the corporation issues Non-voting shares
actual cash, such as property or services, no par value shares. Generally not entitled to vote.
the fair valuation of which is less than its
par or issued value; or AOI may state the issue price or stated Once the SH fails to pay the subscription
(4) issued as stock dividend when there are 5value of the no par value shares.
no sufficient retained earnings or surplus Denied the right to vote or be represented in
(see Sec. 43.) to justify it. BQ meetings
WON the BOD were authorized to
The consideration is measured at the time determine the issue price of a no par value The delinquent SH is still entitled to
of the sale and issuance of the stocks. Even shares? YES. Sec. 62, Corporation Code. dividends. All other rights are suspends.
if the value of the property increases in the
future, it will not cure the defect. (Sec. 31, Sinking fund Notices in delinquency sales is a
The BODs will become personally liable There is no necessity for unrestricted jurisdictional requirement
when it is done in bad faith.) retained earnings. You can redeem it even if
there is no unrestricted retained earnings. Highest Bidder = Amount of the balance
Sec. 65 and other expenses with the least number
Redemption cannot be undertaken if it will of shares.
Situs of the Shares of Stocks (for purposes resolve to the insolvency of the corporation.
of execution, attachment
Treasury Shares
GR: The domicile of the corporation. The Bought in a delinquency sale
principal place of business or the place These are issued
stated in the articles of incorporation.
Escrow shares
It will be placed in a escrow account and is
GR: Shares should have voting rights. prohibited to be withdrawn. The concept of
EXPN: Treasury Shares escrow is that such money in a certain
account may not be withdrawn and the
DIVIDENDS condition for withdrawal depends on the
GR: Preferred Stocks are non-participating, terms and conditions set forth by the
cumulative. parties.

Participating and Non-Participating Convertible Shares


Cumulative and Non-Cumulative

Reviewer and Notes