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§ The vote of the director is not o When the insider proves that information was
necessary to approve the contract not gained from such a relationship; OR
involving interlocking directors; o If the other party who is selling to or buying
§ The contract is fair and reasonable from the insider or his agent is identified, the
under the circumstances; insider proves (basically, BOTH OF THEM
§ If officer is involved with the contract, KNOW about the material information)
the board of directors approved the § That he disclosed the information to
contract the other party
Seizing Corporate Opportunity § He had reason to believe that the
• If there is presented to a corporate officer or director a other party otherwise is also in
business opportunity, which the corporation has an possession of the information
interest or a reasonable expectancy, the self-interest of • Presumption of insider information when:
the officer or director will be brought into conflict with that o The trade is done between spouses or relatives
of his corporation. The law does not permit him to seize by affinity or consanguinity within the second
the opportunity even if he will use his own funds in the degree, legitimate or common-law
venture. If he seizes the opportunity thereby obtaining o The transaction took place after the information
profits to the expense of the corporation, he must account came into existence but prior to the
all the profits by refunding the same to the corporation. dissemination of such information to the public
and the lapse of a reasonable time for the
Requisites: market to absorb such information
1. The Corporation is financially able to undertake the o When rebutted: A showing that the
business opportunity. purchaser/seller (the non-insider) that he was
2. From the nature of the business opportunity, it is in line aware of the material nonpublic information at
with corporation’s business and is of practical advantage the time of the purchase or sale
to the corporation.
3. The corporation has an interest or a reasonable Duty of Controlling Shareholder
expectancy, by embracing the opportunity. • Insuranshares v. Northern Fiscal Corp.:
o Those who control a corporation, either through
Consequences of seizing corporate opportunity without the majority stock ownership, ownership of large
requisites: blocks of stock less than a majority,
officeholding, management contracts, or
General Rule: otherwise, owe some duty to the corporation in
1. Directors must account for all the profits by refunding respect of the transfer of the control to outsiders.
the same to the corporation o The owners of control are under a duty not to
2. Directors may be removed from the board. transfer it to outsiders if the circumstances
surrounding the proposed transfer are such as
Exception: The act of the director/trustee has been ratified by a to awaken suspicion and put a prudent man on
vote of the stockholders owning or representing at least two-thirds his guard unless a reasonably adequate
(2/3) of the outstanding capital stock. investigation discloses such facts as would
convince a reasonable person that no fraud is
Using Insider Information intended or likely to result.
• Definition of Insider Trading: When an insider of the
corporation sells or buys the securities of an insider, and Right of Inspection
that insider possesses material information not
generally available to the public (SRC, Sec. 27) Corporate Books and Records include:
o What constitutes “material information”: • Record of all business transactions
Material information means information which a • Minutes of all meetings of stockholders/members; board
reasonable investor would consider important in of directors/trustees, which shall set forth:
determining whether to buy, sell or hold o Time and place of the meeting
securities, or in connection with the exercise of o How meeting was authorized
related voting rights (SRC IRR) o The notice given
o When is material information nonpublic o Whether the meeting was regular/special
(“material nonpublic” information): If the § If special: Purpose/object
information: o Those present and absent
§ Has not been generally disclosed to o Every act done or ordered done at the meeting
the public and would likely affect the o When a stockholder/member/trustee/director
market price of the security after being entered or left the meeting (upon demand of
disseminated to the public and the stockholder/member/director/trustee)
lapse of a reasonable time for the • Vote (yeas or nays taken on any motion or proposition)
market to absorb the information; OR • Protest of any director/trustee/stockholder/member on
§ Would be considered by a reasonable any action proposed (must be recorded in full)
person important under the
circumstances in determining his Stock and Transfer Book; Transfer Agent
course of action whether to buy, sell, • When necessary: in stock corporations
or hold the security • What is kept:
• When an insider can trade securities:
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o A record of all stocks in the names of the Request for Inspection of Financial Statements (FS):
stockholders alphabetically arranged • Made upon written request by any stockholder/member
o Installments paid and unpaid on all stock for • Corporation to supply most recent statements:
which the subscription was made o Balance Sheet as of the end of the last taxable
o The date of payment of any installment year
o Statement of every alienation, sale, transfer of o Income statement (profit/loss statement) for the
stock made last taxable year
o Date of the transfers o Must show in detail assets/liabilities
o Who made the transfer/To whom transferred • Must also be presented in a regular meeting of the
o Other entries provided by by-laws stockholders/members (that of the preceding year)
o Where kept: o Must be duly signed and certified by an
o Principal office of the corporation independent CPA
o Office of the stock transfer agent o Exception: if PUC is less than PhP50,000 (may
• Open to inspection? YES (reasonable hours + business be signed by treasurer/responsible officer of the
days) corporation)
• Stock and Transfer Agent:
o Must secure a license from the SEC Derivative Suits
o Pays a fee fixed by the SEC (renewable annually)
• Can a corporation do it itself (w/o a stock and transfer • Nature and Basis: Those brought by one or more
agent? YES (follows the licensing and fee requirements stockholders/members in the name and on behalf of the
imposed on stock and transfer agents) corporation to redress wrongs committed against it,or
• Purpose of a STB: A stock and transfer book is protect/vindicate corporate rights whenever the officials
necessary as a measure of precaution, expediency and of the corporation refuse to sue, or the ones to be sued,
convenience since it provides the only certain and or has control of the corporation.
accurate method of establishing the various • Requirements (Filipinas Port Services v. Go)
corporate acts and transactions and of showing the o The party bringing suit should be a
ownership of stock and like matters. shareholder as of the time of the act or
• Nature of a STB: However, a stock and transfer book, transaction complained of, the number of his
like other corporate books and records, is not in any shares not being material;
sense a public record, and thus is not exclusive o He has tried to exhaust intra-corporate
evidence of the matters and things which ordinarily remedies, i.e., has made a demand on the
are or should be written therein. In fact, it is generally board of directors for the appropriate relief but
held that the records and minutes of a corporation are not the latter has failed or refused to heed his plea;
conclusive even against the corporation but are prima and
facie evidence only, and may be impeached or even o The cause of action actually devolves on the
contradicted by other competent evidence. Thus, parol corporation, the wrongdoing or harm having
evidence may be admitted to supply omissions in the been, or being caused to the corporation and
records or explain ambiguities, or to contradict such not to the particular stockholder bringing the
records. suit.
• If an appraisal right exists, then you can’t proceed to a
derivative suit (nasa rules on intra-corporate remedies,
Extent and Limitations of the Right of Inspection and a case. Forgot which.)
• When right to inspection accrues: Upon demand: • If the demand is for damages against a stockholder, then
o At reasonable hours the right to institute a derivative suit does not exist.
o On business days • Basic Principles in Derivative Suits:
• Expenses, in case director/trustee/stockholder/member o Remedies within a corporation must be
demands a written copy of corporate books and records, exhausted.
is to be borne by the one making the request o A demand must be made with incumbent
• Liability for Refusal: When there is refusal to allow any directors for them to correct it (If it will be
director, trustee, stockholder, member to examine useless, because they have benefitted from the
and copy excerpts from records or minutes: action: demand is not necessary)
o If done by officer or agent of the corporation: o Must be a stockholder at the time the
officer is liable for DAMAGES + CRIMINAL transactions were undertaken
LIABILITY under Art. 144, Corp. Code o Must be brought in the name of the corporation.
o If done through Board Resolution: o Any benefit recovered by the shareholder as a
• Defenses for Refusal: The person demanding result of bringing the case must be accounted
examination and copying of excerpts from records and for to the corporation, who is the RPI
minutes: o It is not a derivative suit if the relief prayed for is
o Has improperly used the information secured for the benefit of the suing shareholder. It must
through any prior examination of be in favor of the entire corporation. If you
records/minutes of THE CORPORATION or OF represent that to be a derivative suit, I must be
ANY OTHER CORPORATION; or dismissed.
o Was not acting in GOOD FAITH for a o Directors sued and absolved of liability have the
LEGITIMATE PURPOSE in making his demand right to reimbursement (through a director’s and
officer’s liability insurance)
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Just because you are a holder of a preferred share ii. If AOI does not provide for
does not mean you have no right to vote. However, convertibility, amendment will be
there is always a trade-off (e.g. only entitled to cash necessary, which may give rise to
dividends, not stock dividends) appraisal right.
c. Redeemable: Rights depend on what is stated in the AOI. iii. Sec. 81(1): There is an appraisal
Can be bought back by the corporation upon expiration right “in case any amendment to
of the fixed period, whether or not the corporation has AOI has the effect of changing or
unrestricted retained earnings; but note SEC restricting rights of stockholder or
requirements; shares which the corporation may have to class of shares”
pay back at a certain point b. Non-convertible: Cannot be
• What if the redeemable shares mature if there is converted to common shares
no unrestricted retained earnings? A: The SEC 4. Par value vs. no par value shares
requires a sinking fund to pay for these shares a. Par value of a share: Nominal peso
amount assigned to a share of stock by
• Preference as to Dividends (Preferred Shares) the issuer
1. Participating and non-participating b. No par value share: Class of shares
a. Participating: After getting fixed that are not assigned a par value or
dividend preference, may share with base value in the corporate charter
common shareholders in rest of the • Sec. 14(8): If stock corporation, AOI must
dividend state:
b. Non-participating: Limited to fixed 1. Amount of ACS
dividend rate as provided in the Articles 2. Number of shares into which
of Incorporation; do not participate in authorized capital stock is
the rest of the dividends (the more divided
usual type of preferred shares) 3. In case shares are par value
2. Cumulative vs. Non-Cumulative shares, the par value of each
a. Cumulative: Where no dividends 4. Whether some or all of the
declared in a given year, when shares are without par value
dividends are declared in subsequent • Sec. 6: x x x Any or all of the shares or
years, will be paid dividends for years series of shares may have a par value or
when no dividends were received have no par value as may be provided in
(regardless of year when profit was the AOI
earned); more common • Note: The par value does not really reflect
b. Non-cumulative: No need to make up the fair value/does not necessarily relate to
for dividends not received for years market value of a share. Example: San
when the corporation has no profit Miguel’s par value is Php5.00, but the fair
c. Discretionary: Right of preferred value of the shares is somewhere between
shareholders to receive dividends will Php60.
depend on discretion of the board on • “Fully paid and non-assessable”: The
declaration of dividends, even if the subscription is fully paid up, and the
corporation has retained earnings. corporation cannot demand more money
(Wag kayong tatanggap ng ganyang beyond what is covered by the
klaseng shares ha, baka kayo maipit) subscription contract.
d. Mandatory: Positive duty of the board • The subscription is not covered by par
to declare dividends as long as there value; may also cover fair value or “issue
are unrestricted retained earnings value”
e. Earned cumulative or dividend credit • When the corporation decides to issue its
i. Preferred shareholders cannot shares, the corporation will determine what
compel dividends from profits of the issue value should be.
previous year, but when dividends ISSUE VALUE – PAR VALUE = PREMIUM
are declared, has right to dividends OVER PAR
for years when there were profits How is the premium recorded in the STB? –
but dividend was not declared Recorded as APIC (additional paid-in capital)
before common shareholder are
paid; Different kinds of share values:
ii. Difference from cumulative 1. Market Value:
preferred shares: There is a right to a. Price at which shares of stock are
dividends even for years when there bought and sold, usually on stock
is no profit market
3. Convertible or non-convertible b. Affected by the financial condition of a
a. Convertible: May be converted to corporation and investors’ perception
common shares at a future date (at of such condition and prospects of
option of shareholder, or of board or at corporation
a pre-determined date) 2. Issued Value:
i. AOI must provide for convertibility a. No par value shares: Issued price of
of the preferred shares no par value shares may be fixed in the
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The resolution shall state the AMOUNT (of the subscription and Costs 10,000.00
the interest); and the time, date, and place of the sale
TOTAL 62,500.00
AMOUNT
Purchase Total
Amount of
Price per Purchase
Shares
Delinquency sale share Price
A: Yes, the corporation may bid at the auction sale, for so long o Example: On December 2015, Hill Estate
as it has unrestricted retained earnings to cover the shares Corporation incurred a loan from Donna, the
to be paid or acquired. EVP of Hill Estate Corporation. In the amount of
(Sec. 41, Power to Acquire Own Shares, (2) To collect or PhP10,000.00. On January 2017, the debt
compromise an indebtedness to the corporation, arising out of defaulted. Donna offered to receive shares of
unpaid subscription, in a delinquency sale, and to purchase stock, instead of cash, from the corporation.
delinquent shares sold during said sale) Tenable?
§ YES.
When the delinquency sale may be questioned • Amounts transferred from unrestricted retained earnings
to stated capital.
o THIS IS REALLY ISSUANCE OF STOCK
• Must be within six months from the date of sale DIVIDENDS.
• On the ground of • Outstanding shares exchanged for stocks in the event of
o Irregularity or defect in the notice reclassification or conversion
o Irregularity or defect in the sale
• The party questioning MUST FIRST: Watered stock; liability of directors for watered stock
o Pay or tender to the party holding the stock
(the buyer) the sum for which the same was
sold (the purchase price) Q: What is watered stock?
A: Watered stock issued gratuitously, money/property less than par
Q: Is a delinquency sale the only means to collect on delinquent value, services less than par value, dividends where no surplus
subscriptions? profits exist (ok basta LESS THAN par value)
A: No. The corporation may institute a collection case for the
unpaid subscription + interest + expenses. If watered stock is issued for less than par or issued value:
• The director or officer of a corporation
(And on this note, there is no need to “exhaust” delinquency sale o Who consented to the issuance of such stocks,
before filing a collection case, either) or
o Who has knowledge of the issuance but did
Rights of Unpaid Shares not express his objection in writing + filed
with the Corporate Secretary
Sec. 72. Rights of unpaid shares. - Holders of subscribed Shall be liable SOLIDARILY to
shares not fully paid which are not delinquent shall have all the o The corporation
rights of a stockholder. (n) o The corporation’s creditors
• Amount of liability: The difference between the fair value
Pretty self-explanatory. received at the time of issuance and the par or issued
value of the stock (FAIR – PAR = AMOUNT OF LIABILITY)
Consideration for Issuance of Shares of Stock of
Corporations
How payment of subscriptions is enforced
Form of Consideration
When balance on subscription payable:
What can be used as consideration for shares of stock: Sec. 13. Amount of capital stock to be subscribed and paid
• Cash for the purposes of incorporation. - At least twenty-five
• Property (tangible or intangible) actually received by the percent (25%) of the authorized capital stock as stated in the
corporation and necessary or convenient for its use and articles of incorporation must be subscribed at the time of
lawful purposes incorporation, and at least twenty-five (25%) per cent of the total
o Property value: Fair valuation equal to the par or subscription must be paid upon subscription, the balance to be
issued value of the stock issued payable on a date or dates fixed in the contract of subscription
o If intangible property (patents or copyrights): without need of call, or in the absence of a fixed date or dates,
valuation shall be: upon call for payment by the board of directors: Provided,
§ Initially determined by the however, That in no case shall the paid-up capital be less than
incorporators/Board five Thousand (P5,000.00) pesos.
§ Subject to approval of SEC
• Labor/services actually rendered to the corporation Issuance of Certificate of Stock
o CANNOT be future service
o Example: Alfonso, the President and CEO of Sec. 63. Certificate of stock and transfer of shares. - The
Dim Lamps Inc., is interested in purchasing capital stock of stock corporations shall be divided into shares
shares of stock. In consideration thereof, he for which certificates signed by the president or vice president,
offered that his salary, as President, for six countersigned by the secretary or assistant secretary, and
months after the sale be withheld. Should the sealed with the seal of the corporation shall be issued in
sale prosper? NO. Future services cannot be accordance with the by-laws. Shares of stock so issued are
used as consideration for stocks. personal property and may be transferred by delivery of the
• Previously incurred indebtedness of the corporation certificate or certificates endorsed by the owner or his attorney-
in-fact or other person legally authorized to make the transfer.
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No transfer, however, shall be valid, except as between the • Unrestricted Retained Earnings, defined as the amount
parties, until the transfer is recorded in the books of the of accumulated profits and gains realized out of the
corporation showing the names of the parties to the transaction, normal and continuous operations of the company after
the date of the transfer, the number of the certificate or deducting therefrom distributions to shareholders and
certificates and the number of shares transferred. transfers to capital stock or other accounts, and which is:
No shares of stock against which the corporation holds any 1) not appropriated by its Board of Directors for
unpaid claim shall be transferable in the books of the corporate expansion projects or programs;
corporation. (35) 2) is not covered by a restriction for dividend
declaration under a loan agreement; and
Sec. 64. Issuance of stock certificates. - No certificate of 3) not required to be retained under special
stock shall be issued to a subscriber until the full amount of his circumstances obtaining in the corporation such
subscription together with interest and expenses (in case of as when there is a need for a special reserve for
delinquent shares), if any is due, has been paid. (37) probable contingencies
How Issued: Authority to Declare Dividends: the board of directors has the
• Must be signed by: authority to declare dividends (subject to shareholders’ approval +
o President, or URE in the case of stock corporations)
o Vice President
• Must be countersigned by: When right to dividends vests; rights of transferee: upon
o Corporate Secretary or declaration by the board of dividends.
o Assistance Secretary
• Must be sealed with: Purchase by Corporation of Own Shares
o Seal of the corporation
• Must comply with other provisions in the by-laws Sec. 41. Power to acquire own shares. - A stock corporation
shall have the power to purchase or acquire its own shares for a
Character of shares of stock issued: personal property legitimate corporate purpose or purposes, including but not
limited to the following cases:
For transfer of shares to be valid against the whole world: 1. To eliminate fractional shares arising out of stock
• Delivery of stock certificates dividends;
o Endorsed by the owner/attorney-in-fact/other 2. To collect or compromise an indebtedness to the
person legally authorized to make the transfer corporation, arising out of unpaid subscription, in a
• Recording of the transfer in the books of the corporation, delinquency sale, and to purchase delinquent shares
showing: sold during said sale; and
o Names of the parties to the transaction 3. To pay dissenting or withdrawing stockholders entitled
o Date of the transfer to payment for their shares under the provisions of this
o Number of the certificate/s Code. (n)
o Number of shares transferred
Provided, That the corporation has unrestricted retained
If not recorded in the books: only valid as between the parties earnings in its books to cover the shares to be purchased or
acquired.
If corporation has any unpaid claim on the stocks: Cannot be
transferred Amendments of Charter
If subscriber has not paid balance of subscription: Certificate of Power to Amend Articles of Incorporation
stock cannot issue
Sec. 16. Amendment of Articles of Incorporation. - Unless
Dividends and Purchases by Corporation of its Own Shares otherwise prescribed by this Code or by special law, and for
legitimate purposes, any provision or matter stated in the articles
Form of Dividends of incorporation may be amended by a majority vote of the board
• Cash of directors or trustees and the vote or written assent of the
• Stock stockholders representing at least two-thirds (2/3) of the
o Voting Requirement: outstanding capital stock, without prejudice to the appraisal
§ Shareholders representing at least 2/3 right of dissenting stockholders in accordance with the
of the outstanding capital stock, after provisions of this Code, or the vote or written assent of at least
resolution by the Board two-thirds (2/3) of the members if it be a non-stock corporation.
• Property The original and amended articles together shall contain all
provisions required by law to be set out in the articles of
If delinquent stock: incorporation. Such articles, as amended shall be indicated by
• Dividends should be applied FIRST to the unpaid balance underscoring the change or changes made, and a copy thereof
of stock + costs + interest duly certified under oath by the corporate secretary and a
• If stock dividend: WITHHELD from the delinquent majority of the directors or trustees stating the fact that said
shareholder amendment or amendments have been duly approved by the
required vote of the stockholders or members, shall be
Sources of Dividends (Sec. 43, Code; SEC Memo Circular 11, submitted to the Securities and Exchange Commission.
2008)
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The amendments shall take effect upon their approval by the Sec. 117. Methods of dissolution. - A corporation formed or
Securities and Exchange Commission or from the date of filing organized under the provisions of this Code may be dissolved
with the said Commission if not acted upon within six (6) months voluntarily or involuntarily. (n)
from the date of filing for a cause not attributable to the
corporation. Voluntary dissolution
a) Where no creditors are affected
• Voting Requirement: Majority of Board > Resolution > Vote
of shareholders representing at least 2/3 OCS (ina metting for Sec. 118. Voluntary dissolution where no creditors are affected. -
the purpose) If dissolution of a corporation does not prejudice the rights of any
• Approval by SEC creditor having a claim against it, the dissolution may be effected
by majority vote of the board of directors or trustees, and by a
Grounds for Rejection by SEC resolution duly adopted by the affirmative vote of the
• Not in the form prescribed by the Corp Code stockholders owning at least two-thirds (2/3) of the outstanding
• Patently unconstitutional, illegal, immoral, or contrary to capital stock or of at least two-thirds (2/3) of the members of a
government rules or regulations meeting to be held upon call of the directors or trustees after
• Treasurer’s Affidavit is false publication of the notice of time, place and object of the meeting
• Percentage of Filipino ownership non-compliant for three (3) consecutive weeks in a newspaper published in the
• No favorable recommendation in cases of banks, etc. place where the principal office of said corporation is located; and
if no newspaper is published in such place, then in a newspaper
Effectivity of Amendment of general circulation in the Philippines, after sending such notice
• Upon approval of SEC; OR to each stockholder or member either by registered mail or by
• When not acted upon by SEC, for a cause not attributable to personal delivery at least thirty (30) days prior to said meeting. A
the corporation: six (6) months from the date of filing copy of the resolution authorizing the dissolution shall be certified
by a majority of the board of directors or trustees and
What cannot be amended countersigned by the secretary of the corporation. The Securities
and Exchange Commission shall thereupon issue the certificate
Special amendments of dissolution. (62a)
• Increase or decrease of capital stock, Sec. 38 and 122,
• Majority vote of directors/trustees > resolution
Code
• Corporate term, Secs. 11, 37, and 81, Code • Affirmative vote of stockholders owning at least 2/3 of
OCS/members
• Close Corporations, Secs. 16, 17, 37, 38, 103, Code
o In a meeting called for the purpose
Transfer of Shares
o Publication of the place of the meeting
o Registered mail
o Copy of this resolution: certified by majority of
Manner and Effectivity of Transfer, Sec. 63, Code
directors/trustees
• Endorsement of Stock Certificate; Registration in
Corporate Books • SEC shall thereupon issue certificate of dissolution
• Effect of Lack of Registration: binding only between the
b) Where creditors are affected
parties
• Unpaid shares cannot be transferred; assignment of
subscription • Petition for dissolution to be filed with SEC
• Remedy if registration refused o Signed by majority of directors
o Verified by president/secretary/one of its
Restrictions on Transfers directors/trustees
• GR: Free transferability of shares o Upon resolution of 2/3 OCS/members
• Restrictions, validity, requirements • If sufficient in form and substance:
o SEC issues ORDER reciting:
Unauthorized transfers § Purpose of petition
Collateral transfers § Date on or before which objections
Non-stock corporations; non-transferability of membership may be filed by any person
§ Not less than 30 days
Dissolution § Not more than 60 days after
entry of order
Causes for Dissolution: § Publication in 3 consecutive weeks in
• Voluntary newspaper of general circulation
o Shortening of corporate term through § municipality/city where
amendment of AOI principal office is situated
• Involuntary § Posting
o Expiration of corporate term (but can be § 3 public places in
voluntary daw in a sense that the corporation municipality/city
can extend its corporate life with the SEC) • Expiry of period for objections - notice - [5 days] - SEC to
o Quo warranto hear petition; purpose of hearing:
o Any issue made by the objections filed
o If objections not sufficient: material allegations
of the petition
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• If material allegations of petition are true: render Sec. 105. Withdrawal of stockholder or dissolution of
judgment DISSOLVING corporation corporation. - In addition and without prejudice to other rights
o SEC may appoint receiver to: and remedies available to a stockholder under this Title, any
§ Collect assets stockholder of a close corporation may, for any reason, compel
§ Pay debts of the corporation the said corporation to purchase his shares at their fair value,
4. Failure to organize; continuous inoperation which shall not be less than their par or issued value, when the
Sec. 22. Effects on non-use of corporate charter and continuous corporation has sufficient assets in its books to cover its debts
inoperation of a corporation.- If a corporation does not formally and liabilities exclusive of capital stock: Provided, That any
organize and commence the transaction of its business or the stockholder of a close corporation may, by written petition to the
construction of its works within two (2) years from the date of its Securities and Exchange Commission, compel the dissolution of
incorporation, its corporate powers cease and the corporation such corporation whenever any of acts of the directors, officers
shall be deemed dissolved. However, if a corporation has or those in control of the corporation is illegal, or fraudulent, or
commenced the transaction of its business but subsequently dishonest, or oppressive or unfairly prejudicial to the corporation
becomes continuously inoperative for a period of at least five (5) or any stockholder, or whenever corporate assets are being
years, the same shall be a ground for the suspension or misapplied or wasted.
revocation of its corporate franchise or certificate of • How close corps are dissolved:
incorporation. This provision shall not apply if the failure to o By any stockholder, by written petition to the
organize, commence the transaction of its businesses or the SEC
construction of its works, or to continuously operate is due to o Causes: Whenever any of the acts of the
causes beyond the control of the corporation as may be directors/officers/those in control of the
determined by the Securities and Exchange Commission. corporation:
5. Involuntary Dissolution § Are, to the corporation/any
• Government v. Phil. Sugar Estate (no need to read but stockholder:
just so you’re all aware of this rule) § Illegal
o ISSUE: Whether or not it was sufficient for the § Fraudulent
court to merely prohibit the company from § Dishonest, or
selling real estate § Oppressive/unfairly
o RULING: NO, the decision must be modified to prejudicial
annul the charter of Phil Sugar Estate § Whenever corporate assets are being:
§ Nature of the contract: NOT a loan, but § Misapplied, or
a cuentas en participacion (co- § Wasted
partnership) • If close corp is dissolved:
§ No date fixed for the return o Any stockholder may compel corporation to
of money purchase shares
§ Return dependent on profits § At the fair value (not less than
(indicated that it was capital par/issued value)
contribution) § CONDITION: corporation has
§ Discretion of trial court to dissolve sufficient assets in its books to cover
corp charter: Wide latitude of its debts and liabilities exclusive of
discretion; BUT it should be exercised capital stock
for the protection of the people:
§ When abuses and violations B. Effects of Dissolution; Winding-Up/Liquidation
of the corporation
constitute/threaten a • Upon dissolution:
substantial injury to the o Corporation shall be continued as a body
public; or corporate for three years after dissolution;
§ Amounts to a violation of the purpose:
fundamental conditions of § Prosecuting and defending suits by or
the charter by which the against it
franchise was granted and
§ To enable it to settle and close its
defeats purpose of the grant
affairs
of charter
§ To dispose of and convey its property
§ SC order to lower court: franchise and distribute its assets
should be withdrawn and annulled
§ NOT for the purpose of continuing the
within 6 months; disallowed to do and
business for which it is established
continue doing business in the
Philippines, UNLESS it liquidates,
o What corporation is authorised to do during the
3-year period:
dissolves, and separates absolutely
and in every respect its interests in the
§ Convey all of its property to trustees
for the benefit of stockholders,
Tayabas Land Company
members, creditors, and other
6. Dissolution by minority in close corporations persons in interest
§ After this conveyance of
property in trust:
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§ (when the SEC will not be satisfied: pledge or other disposition of property and assets, subject to the
when the SEC has reason to believe rights of third parties under any contract relating thereto, without
that the proposed further action or approval by the stockholders or members.
merger/consolidation is contrary to or
inconsistent with the provisions of this Nothing in this section is intended to restrict the power of any
Code or existing laws. corporation, without the authorization by the stockholders or
2. Effects members, to sell, lease, exchange, mortgage, pledge or
o Constituent corporations shall become a single otherwise dispose of any of its property and assets if the same is
corporation necessary in the usual and regular course of business of said
§ Called “surviving corporation” if corporation or if the proceeds of the sale or other disposition of
merger such property and assets be appropriated for the conduct of its
§ Called “consolidated corporation” in remaining business.
consolidation
o Separate existence of constituent corporations In non-stock corporations where there are no members with
shall cease voting rights, the vote of at least a majority of the trustees in office
§ Except of the surviving will be sufficient authorization for the corporation to enter into any
corp/consolidated corp transaction authorized by this section. (28 1/2a)
o Surviving/consolidated corp shall exercise the
• Edward J. Nell v. Pacific Farms (1965)
rights, privileges, immunities, powers granted,
o Nell filed a collection case against Insular Farms,
and liabilities of a corp under the Corp Code
and won in that case
o Surviving/consolidated corp shall possess
o Writ of execution was issued after finality of
rights, privileges, immunities and franchises of
judgment. This was returned unsatisfied (no
each of the constituent corporations and all the
leviable property)
properties... etc. of the constituent corporation
o Nell now filed a case against Pacific Farms for
without further act or deed
collection
o Surviving/consolidated corp = responsible and
liable for liabilities and obligations of each of the
§ Theory: alter ego doctrine; Pacific
Farms was the alter ego of Insular,
constituent corporations; pending claims and
because Pacific purchased all or
actions, etc.;
substantially all the shares of stock,
§ Rights of creditors or liens upon
real properties, and personal
property of the constituent
properties of Insular
corporations shall not be impaired
o ISSUE: Whether or not Pacific was the alter
ego of Insular (or, in the alternative, for
C. Sale of all or substantially all corporate assets
purposes of the topic – whether or not the
• “Quasi-merger”
purchase of all or substantially all shares of
Sec. 40. Sale or other disposition of assets. - Subject to the stock constituted a merger or consolidation)
provisions of existing laws on illegal combinations and o SC: NO
monopolies, a corporation may, by a majority vote of its board of § Reason: there is no assumption as to
directors or trustees, sell, lease, exchange, mortgage, pledge or debt
otherwise dispose of all or substantially all of its property and § Where one corporation sells/otherwise
assets, including its goodwill, upon such terms and conditions transfers its assets to another
and for such consideration, which may be money, stocks, bonds corporation, the other corporation
or other instruments for the payment of money or other property does not assume the debts and
or consideration, as its board of directors or trustees may deem liabilities of the other corporation;
expedient, when authorized by the vote of the stockholders exceptions:
representing at least two-thirds (2/3) of the outstanding capital
§ Where the purchaser
stock, or in case of non-stock corporation, by the vote of at least
expressly/impliedly agreed
to two-thirds (2/3) of the members, in a stockholder's or
to assume the debts
member's meeting duly called for the purpose. Written notice of
§ Where the transaction
the proposed action and of the time and place of the meeting shall
amounts to a
be addressed to each stockholder or member at his place of
merger/consolidation of the
residence as shown on the books of the corporation and
corporations
deposited to the addressee in the post office with postage
prepaid, or served personally: Provided, That any dissenting
§ Where the purchasing
corporation is merely a
stockholder may exercise his appraisal right under the conditions
continuation of the selling
provided in this Code.
corporation
A sale or other disposition shall be deemed to cover substantially § Where the transaction is
all the corporate property and assets if thereby the corporation entered into fraudulently in
would be rendered incapable of continuing the business or order to escape liability for
accomplishing the purpose for which it was incorporated. such debts
§ Besides, the theory of alter ego
After such authorization or approval by the stockholders or presumes that there are two
members, the board of directors or trustees may, nevertheless, in corporations, and this negates the
its discretion, abandon such sale, lease, exchange, mortgage, theory of merger or consolidation
D. Taxation
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6. Failure to pay any and all taxes, imposts, assessments venture and evidenced by a certificate, contract, instruments,
or penalties, if any, lawfully due to the Philippine whether written or electronic in character. It includes:
Government or any of its agencies or political (a) Shares of stocks, bonds, debentures, notes evidences
subdivisions; of indebtedness, asset-backed securities;
7. Transacting business in the Philippines outside of the (b) Investment contracts, certificates of interest or
purpose or purposes for which such corporation is participation in a profit sharing agreement, certifies of
authorized under its license; deposit for a future subscription;
8. Transacting business in the Philippines as agent of or (c) Fractional undivided interests in oil, gas or other
acting for and in behalf of any foreign corporation or mineral rights;
entity not duly licensed to do business in the (d) Derivatives like option and warrants;
Philippines; or (e) Certificates of assignments, certificates of
C. 9. Any other ground as would render it unfit to transact participation, trust certificates, voting trust certificates
business in the Philippines. (n) or similar instruments
(f) Proprietary or nonproprietary membership certificates
in corporations; and
Sec. 136. Withdrawal of foreign corporations. - Subject to (g) Other instruments as may in the future be determined
existing laws and regulations, a foreign corporation licensed to by the Commission.
transact business in the Philippines may be allowed to withdraw
from the Philippines by filing a petition for withdrawal of license. In sum: securities include shares, participation, or interests in a
No certificate of withdrawal shall be issued by the Securities and corporation or in a commercial enterprise or profit-making
Exchange Commission unless all the following requirements are venture, which is evidenced by:
met; • A certificate
1. All claims which have accrued in the Philippines have • A contract
been paid, compromised or settled; • Instruments
2. All taxes, imposts, assessments, and penalties, if any, Whether written or electronic in character.
lawfully due to the Philippine Government or any of its
agencies or political subdivisions have been paid; and Requirement of Registration for Securities
3. The petition for withdrawal of license has been
published once a week for three (3) consecutive weeks Section 8. Requirement of Registration of Securities.– 8.1.
in a newspaper of general circulation in the Philippines. Securities shall not be sold or offered for sale or distribution
within the Philippines, without a registration statement duly filed
with and approved by the Commission. Prior to such sale,
Securities Regulation Code information on the securities, in such form and with such
substance as the Commission may prescribe, shall be made
Section 2. Declaration of State Policy. – The State shall available to each prospective purchaser.
establish a socially conscious, free market that regulates itself,
encourage the widest participation of ownership in enterprises, 8.2. The Commission may conditionally approve the registration
enhance the democratization of wealth, promote the statement under such terms as it may deem necessary.
development of the capital market, protect investors, ensure full
and fair disclosure about securities, minimize if not totally 8.3. The Commission may specify the terms and conditions
eliminate insider trading and other fraudulent or manipulative under which any written communication, including any summary
devices and practices which create distortions in the free prospectus, shall be deemed not to constitute an offer for sale
market. To achieve these ends, this Securities Regulation Code under this Section.
is hereby enacted.
8.4. A record of the registration of securities shall be kept in
State Policy: Register Securities in which shall be recorded orders entered by
• To establish a market that is: the Commission with respect such securities. Such register and
1. Socially-conscious all documents or information with the respect to the securities
2. Free (in the sense of “free market” registered therein shall be open to public inspection at
3. Self-regulating reasonable hours on business days.
• To encourage the widest participation in enterprises 8.5. The Commission may audit the financial statements, assets
• To enhance the democratization of wealth and other information of firm applying for registration of its
• To promote the development of the capital market, securities whenever it deems the same necessary to insure full
• To protect investors disclosure or to protect the interest of the investors and the
• To ensure full and fair disclosure about securities public in general.
• To minimize if not totally eliminate insider trading and other
fraudulent or manipulative devices and practices which create Registration is required in order to sell or offer for sale for
distortions in the free market. distribution within the Philippines.
1. Registration shall be undertaken through a registration
What are securities? (Sec. 3, SRC) statement duly filed with the SEC
2. The SEC can conditionally approve a registration
Section 3. Definition of Terms. – statement, subject to such terms that it deems necessary
3. The SEC may audit the FS, assets, etc. of a firm applying
3.1. "Securities" are shares, participation or interests in a for registration of its securities
corporation or in a commercial enterprise or profit-making
Uncertificated securities
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• Refers to securities which are not certificated 2. Entering an order/s for the purchase and sale of securities
• Allowed: with the knowledge of a simultaneous order of such
1. When there is a resolution by the Board and agreement securities of substantially the same size, time and price
by the shareholder/investor/securities intermediary • To affect, alone or with others, a securities or transactions in
• Shall be without prejudice to the rights of the securities that:
securities intermediary to subsequently require the 1. Raises the price or induces the purchse of a security; or
corporation to issue a certificate in respect of any 2. Creates active trading to induce such a trade through
shares recorded in its name manipulative devices
2. When so provided in the AOI and by-laws, subject to a • To circulate or disseminate information that a listed security
condition that the investors may not require the will rise or fall because of manipulative market operations
corporation to issue a certificate in respect of any shares • To make a false or misleading statement with respect to any
recorded in their name material fact which he knew or had reasonable ground to
• The SEC may require provisions in the AOI or by-laws on the believe was so false or misleading, for the purpose of inducing
use of uncertificated securities the purchase or sale of any security listed or traded in an
• Transfers may be validly made and consummated by Exchange.
appropriate book-entries in the securities intermediaries or in • To effect, either alone or others, any series of transactions for
the STB held by the corporation the purchase and/or sale of any security traded in an Exchange
1. These shall be binding on the parties to the transfer for the purpose of pegging, fixing or stabilizing the price of
2. This has the effect of delivery of a security in bearer such security; unless otherwise allowed by this Code or by
form/duly indorsed in blank rules of the Commission.
3. But this transfer is only valid as to the corporation when a
transfer is recorded in the books of the Corporation 2) Fraudulent Transactions
• Valid transfers of uncertificated securities does not mean that § Employing any device, scheme, artifice todefraud;
compliance with BSP rules, banking laws, and regulations § Obtain money or property by means of any untrue
• Best evidence of transactions involving uncertificated statement
securities: the clearing agency record § Engage in any act, transaction, practice or course of
1. Corporation shall not be bound unless the corporate business which operates or would operate as a fraud or
secretary is duly notified in such a manner as the SEC deceit upon any person
may provide
3) Insider Trading
Exempt securities: Registration of securities is not required: (see discussion on insider trading)
• For any security issued or guaranteed by the Government
• Securities issued by any government with which the Jurisdiction of the SEC
Philippines maintains diplomatic relations on the basis of • Over corporations/partnerships/associations who are the
reciprocity (but SEC may prescribe compliance with form and grantees of primary franchises and/or licenses/permits
content) issued by the government
• Certificates issued by a receiver/trustee in case of bankruptcy
• To formulate policies and recommendations (to Congress)
(duly approved by the proper adjudicatory body)
concerning the securities market;
• Securities under the supervision of the Office of the Insurance
Commission, Housing and Land Use Rule Regulatory Board, • Approve, reject, suspend, revoke, require amendments to
or the Bureau of Internal Revenue. registration statements;
• Any security issued by a bank except its own shares of stock • Other functions mentioned in Section 5
• Any other securities which the SEC may add: o And for this purpose, jurisdiction over other
1. Which is not necessary to public interest; cases not covered in the Securities Regulation
2. After public hearing Code (e.g. intra-corporate disputes) are
transferred to the RTC
Tender offer, needed for:
• Any group or group of persons who: Cases mentioned in PD 902-A which are transferred to the
1. Intends to acquire at least 15% of any class of any equity RTC:
security of a listed corporation with assets of at least Section 5, PD 902-A. In addition to the regulatory and
PHP50M + 200 or more shareholders each; or adjudicative functions of the Securities and Exchange
2. Intends to acquire at least thirty percent (30%) of such Commission over corporations, partnerships and other forms of
equity (of a listed corporation) over a period of twelve associations registered with it as expressly granted under
months(12) existing laws and decrees, it shall have original and exclusive
jurisdiction to hear and decide cases involving.
a) Devices or schemes employed by or any acts, of the board of
Fraud, manipulation, and insider trading directors, business associates, its officers or partnership,
amounting to fraud and misrepresentation which may be
Fraud covered: detrimental to the interest of the public and/or of the
1) Manipulation of Security Prices stockholder, partners, members of associations or organizations
• Creating a false or misleading appearance of active trading registered with the Commission.
which may include b) Controversies arising out of intra-corporate or partnership
1. Transactions which involve no change in beneficial relations, between and among stockholders, members, or
ownership associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
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corporation, partnership or association and the state insofar as Trial Court branches that shall exercise jurisdiction over the
it concerns their individual franchise or right to exist as such cases. The Commission shall retain jurisdiction over pending
entity; cases involving intra-corporate disputes submitted for final
c) Controversies in the election or appointments of directors, resolution which should be resolved within one (1) year from the
trustees, officers or managers of such corporations, enactment of this Code. The Commission shall retain jurisdiction
partnerships or associations. over pending suspension of payment/rehabilitation cases filed
as of 30 June 2000 until finally disposed.
Intra-Corporate Disputes
Cases Covered
• Devices or schemes amounting to fraud which may be
detrimental to the interest of the public, stockholders, partners,
members of any corporation, partnership, association;
• Controversies arising out of intra-corporate partnership
• Controversies in the election/appointment of directors,
trustees, officers, managers
• Derivative suits
• Inspection of corporate books