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CORPORATE POWERS AND AUTHORITY -Act done in excess of corporate officers authority (cannot bind
-Corp has no power except those expressly, impliedly or corp)
incidental to its existence
-Exercise its power thru Board of Directors or duly authorized Ratification of Ultra Vires Act
officer -Corp is estopped from questioning the legality of such act
Ultra Vires Doctrine Action of BoD during meeting which was illegal for lack of
-Committed outside beyond the power of corporation notice may be ratified either expressly by the action of the directors
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in subsequent legal meeting or impliedly by the corp subsequent Removal of Director/ Trustee
course of conduct -Only by stockholders on stockholders meeting called by
atleast 2/3 outstanding capital stocks
Theory of Stockholders delegated power
-BoD is a creation of stockholders and direct affairs of the corp Hold-Over Principle
-Right to vote for the Directors -Directors to fill vacancy occuring in the Board until
qualification of their successors
Executive Committee -Hold-over is not part of the term of office of a member of BoD
-Board has the power to constitute it even if not provided in
AOI and by-laws Remaining members of Board cannot elect another director to
fill vacancy caused by the resignation of a hold-over director,
Business Judgment Rule vacancy can only be filled up by the stockholders
-Questions of policy or management are left solely to the
honest decision of BoD, courts have no authority to review Quorum
them, whether it will cause losses or decrease corporations A. Stock Corp- based on number of outstanding voting stock
profit B. Nonstock- actual living members with voting rights
-No court can in resolving issues between squabbling
stockholders, order the corporation to undertake certain Abstentation
corporate acts -Presumed to be counted as affirmative
Officers of a corporation may become liable for its loans when Conversion of preferred shares through amendment of AOI is
they breached their duty of diligence legitimate exercise of corporate powers
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Reduction of Capital stock cannot be employed to avoid Situs of shares of stock is the domicile of corporation
corporations’s obligation
Req for Issuance of Certificate of Stock
Assignment of Subscription Agreement 1. Signed by president/vp and countersigned by secretary
-Form of novation by substitute of a new debtor which requires 2. Sealed by corp seal
the consent of the creditor 3. Full amnt of subscription be paid
-Issuance of Stock certificate is not a condition sine-quanon to
When properties were assigned pursuant to pre-incorporation consider a subscriber as a stockholder
subscription agreement, but the corporation fails to issue the coverd
shares, return of such properties to the subscriber is a direct Req: for issuance of new certificate of stocks in lieu of those lost,
consequence of rescission and does not amnt to corporate stolen or destroyed
distribution of assets prior to dissolution 1. Reg owner file with corp an affidavit setting forth the
circumstances
Consideration for Subscription 2. Submit evidence
1. Cash 3. Publication of notice
2. Property -If there is contest- issuance of new cert of stock shall be
3. Services suspended until final decision of court
4. Shares
5. Retained Earnings GR:Holders of subscribed shared not fully paid are entitled to all
rights of a stockholder
Sec43: Prohibits the issuance of any stock dividend without the
approval of stockholders, representing not less than 2/3 EX: Delinquent stockholder/ Stockholder exercise his appraisal
right
Trust Fund Doctrine re: Unpaid subscription
-Subscription to the capital of corporation constitute a fund to Nonregistration od certificate of stock to corp books
which creditors have a right to satisfy their claims -Will not affect the validity in so far between contracting
-Board resolution releasing the stockholders from payment of parties but not effective to the corporation bcus the corp looks
balance of their subscription is ineffectual thru its books for the purposes of determining who are the
stockholders
A stockholder who is employed with the company, cannot
offset his unpaid subscription agsnt his claims for wages, where Necessity of registration of transfers stock
there has been no call for the payment of such subscription 1. Avoid fraudulent transfer
2. Afford corp to object/ refuse registration
Certificate of Stock 3. Enable corp to know who are stockholders
-Not the stock itself merely e vidence of ownership of shares of 4. Exercise his rights as stockholder
stock. Convenient instrument for the transfer of title 5. Protect creditor
-No certificate shall be issued until full amnt has been paid
-Not a negotiable instrument but merely quasi negotiable bcus 3 Ways to become stockholder
maybe transferred thru delivery coupled with endorsement 1. Contract of subscription- take and pay stocks of a corp. Not
-Endorsement of Certificate of stock is mandatory requirement required to be in writing. Fraud does not apply. Conditional
for effective transfer of certificate of stock subscription is valid
-Could not be considered issued in contemplation of the law 2. Purchase of shares of existing stockholder
unless signed by P/VP and countersigned by Secretary 3. Purchase of treasury shares from corp
Registering lis pendens is inapplicable to shares of stocks which A clause contained in the by-laws of a corporation which
are personal provides that the owner of a share of stock cannot sell it to another
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person except to the corporation is ultra vires. Violative of property -Unpaid subscription is not due and payable until call us made
rights of shareholders by corporation for payment
Unauthorized Issuance of certificate of stock
-Either by fraud/ mistake Call is not necessary in the ff
-GR: no legal title and no right of remedy agnst the corporation 1. Contract of subscription provides for date of payment
-Ex: If corporation issues a new certificate of stock to a bona 2. Corp become insolvent
fide purchaser, corp is estopped to deny its validity, can GR: Valid and binding subscription of stock cannot be canceled so
compel the corporation to recognize his title as to release the subscriber from liability
Ex: Consent of all stockholders are given
Watered stock Ex to ex: Bona fide compromise, set-off of debt due from corp,
-issued by corp as fully paid up shares when in fact whole amnt release supported by consideration
of value is not paid
-Directors and officers are solidarily liable with stockholders Stockholder is personally liable for the financial obligation of a
concerned and its creditors for the difference between fmv at corporation to the extent of his unpaid subscription
the time of issuance and par value
Delinquent stock is not entitled to
Ways which watered stocks may be issued 1. Voted
1. Monetary is less that its par value 2. Represented at stockholder smeeting
2. Property valued in excess of its fmv 3. Any of the rights of stockholders
3. Gratuitously -Except it is entitled to dividends
4. In the guise of stock dividends, no surplus profit
Rule: holders of not fully paid of subscribed shares but not
Effect of watered stocks delinquent shall have all the rights of stockholders
A. As to corp- state may institute quo warranto Ex: not entitled to be issued a certificate of stock
B. Corporation and subscriber- subscription is void, pay full
value Rights of stockholders
C. Consenting stockholder- estopped from raising any 1. Appraisal rights
objection 2. Exercise preemptive rights
D. Dissenting stockholder- they may compel the payment 3. Issued certificate of stocks
solidarily agnst the responsible and consenting directors 4. Inspect books
E. Creditors- Enforce payment 5. Have corporation dissolve
6. Receive dividends
When unpaid subscription= interest shall be paid 7. Right of first refusal
1. On the date fixed in the contract of subscription 8. Right to file derivative suit
2. Specified by BoD 9. Transfer shares of stocks
10. Participate in distribution of assets of corp upon
Remedies of the corporation to enforce payment of unpaid dissolution
subscription
1. Delinquency sale by board action Obligations and liabilities of Stockholder
2. Collection case in court 1. Answer the water in stocks
-Failure/ refusal of corp to enforce/ collect payment of unpaid 2. Answer to creditors for unpaid subscription
subscription will not prevent creditors or receiver of corp to 3. Liable as general partners if ostensible corp
institute a court action to collect unpaid portion 4. Liable for corp torts if participated
5. Pay interest on unpaid subscription
Grounds for questioning delinquency sale
1. Irregularity in notice of sale Corporate books
2. “ in sale -Subject to inspection(to protect his right as stockholder) at
reasonable hrs on business days- must act in gf
Conditions before an action to recover delinquent stocks Inspection of books in personal but may be delegated
irregularly sold may be allowed
1. Party seeking pay first to the party holding the stock sum One requesting must not be guilty of using it improperly the
same as sold info and must act in gf
2. File a complaint within 6 mns from date of sale
GR:Any officers who refuses to allow inspection shall be liable for
Call damages
-Condition precedent before the right of action to institute a EX: Defense of 1) Improperly use of information 2) not acting in GF
recovery suit accrues
-Demand is required before debtor may incure delay
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Remedies of stockholder who is denied inspection
1. Crim complain Amendment of plan of M/C
2. Damages -Must be approved by majority vote of the respective BoD/T of
3. Mandamus all corp
Dissenting stockholder is not prohibited from selling, Claim established agnst the corporation may be prosecuted
transferring or assigning his shares agsnt the liquidator even after 3 yrs from dissolution
A director who exercise his appraisal right remained to be a Upon dissolution of the corporation, its assets are held for the
director until his share no longer registered in his name benefit of its stockholder after payment of debts
Stockholder whose subscription not fully pais is still entitled to GR: BoD of a dissolved corporation is not permitted to undertake
exercise his appraisal right any activity outside the usual liquidation of the corporation
EX: Stockholders of a dissolved corp may convey their respective
DISSOLUTION shareholdings towards the creation of new corporation to continue
-Extinguishment of corporate franchise and termination of the business of the old
existence
-Can no longer pursue business except winding up its affairs Incorporation test is applied in determining whether
corporation is domestic or foreign. Except: In times of war, Control
3 modes of dissolution test applies
1. Expiration of term
2. Voluntary dissolution If corporation is incorporated in another state, it is a foreign
3. Revocation of franchise corporation, while if it is registered in Ph laws, deemed as Filipino
domestic corporation irrespective of the nationality of the
Stockholder/ member of corporation can institute dissolution stockholders
proceeding agnst own corporation
GR: Corporation can have no legal existence outside the
SEC has concurrent jurisdiction to suspend, revoke, after boundaries of the sovereign by which it is created
proper notice and hearing the franchise/ certificate of registration of EX: Principle of comity
corporation
Derivative Suit
Effect of dissolution -Action brought by minority stockholders in the name of
1. Terminates corp franchise and prevents further exercise of corporation to redress wrongs committed agnst the
secondary franchise if any corporation for which the directors refuse to sue
2. Terminates power to enter into contract -This is agnst the abuse of majority stockholders
3. Contracts for personal service are terminated
4. Debts due to corp are not extinguished Family corporation is not exempt from complying the
5. GR: Lease to a corporation, rights and obligation therein is requirements to file derivative suit
not extinguished by dissolution. Stockholders succeed to rights
and liabilities in unexpired leasehold Req: of Derivative Suit
EX: Lease terms also terminates it when corp ceases 1. Must be a shareholder during the time the act/ transaction
complained (number of shares is immaterial)
Liquidation and winding up 2. Exhausted intra-corporate remedies
-Collection of corporate assets 3. Cause of action actually devolves on the corporation and
-Payments of debts, settlement if obligation not to the particular stockholder bringing the suit
-Distribution of corporate assets in accordance to 4. Not a nuisance suit
stockholders proportionate share 5. Appraisal right is not available
-Dissolved corporation continues as a body corporate for 3 yrs
from time of dissolution for purposes of prosecuting and ONE-MAN CORPORATION (OPC)
defending suit, convey and distribute assets -Corporation with a single stockholder
-Separate and distinct legal personality still applies
Assets distributable to creditor/ stockholder who is unknown -Limited liability
or cannot be found shall be escheated to city/ municipality where -Only natural person, estate and trust may form opc
assets is located -Not required to have a minimum capital stock
-Not required to file by-law bcus these are rules and
GR: No corp shall distribute any of its assets except upo dissolution regulations that govern intracorporate relations. Since there is
and after payment of debts only 1 stockholder, no need
EX: Decrease of capital stock or otherwise allowed by Code -Shall distinguish itself as ‘OPC’
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Corporate officers of OPC
1. President- sole director Liabilities of ordinary stock converted to OPC- OPC acquires it
2. Corporate Secretary- citizen and resident of Ph
3. Treasure- must be resident of Ph FRIA
4. Other officers -Allows corp to apply for rehabilitation even before its uffers
-Within 15 days from issuance of certificate of incorporation, losses in order to recover financially
appoint such officers
Stay order
Nominee and Alternate Nominee -Stop collection and let corporation recover first
-Designated by single stockholder in the event of his death,
incapacity, to take place as director and manager Submit a rehabilitation Plan
-There must be written consent of nominee and a.n attached -Containing when to pay and who to pay first
to AOI
-Contain the name, residence, address and contact details of Dividends from retained earnings can be declared to
nominee and a.n stated in AOI stockholders and cannot to the creditors
-Their consent maybe withdrawn in writing at anytime prior to
stockholder death/ incapacity Corp already dissolved cannot anymore issue Board resolution