Essential Features and Effects of Partnerships and Corporations

PARTNERSHIPS
AND
CORPORATIONS
Atty. Amado R. Villegas, Jr.
FEU / Bats CPAR
Partnerships and Corporations ARV
Common types of business organizations

(1) Sole Proprietorship
(2) Partnerships
(3) Corporations
Other kinds -
Partnership - by the contract of partnership two or more

persons bind themselves to contribute money, property
or industry to a common fund with the intention of
dividing the profits among themselves (Art. 1767, NCC)
Corporation – is an artificial being created by operation of
law, having the right of succession and the powers,
attributes and properties expressly authorized by law or
incident to its existence (Sec. 2, BP 68)
Distinctions
Partnerships v. Corporations
General v. Limited Partnerships
Universal P. v. Particular
UP of All present prop v. UP of profits
Stock corp. v. Non-Stock corp.
Open corp. v. Close corp
Delectus personarum / Delectus personae –
- literally, choice of the person
- Nobody can become a member of the partnership

without the consent of all the partners.
Characteristics of Partnership
(1) Consensual
(2) Nominate
(3) Bilateral or multilateral
(4) Onerous
(5) Commutative
(6) Principal
(7) Preparatory
Essential features / Elements of Partnership

(1) There must be a valid contract
(2) Legal capacity to enter into a contract
(3) Mutual contribution of money, property or industry
to a common fund
(4) Lawful object
(5) Intention to divide profits and losses
2 kinds of persons
(1) Natural person
(2) Juridical person
Concept of juridical personality

Doctrine of Corporation Fiction
Who may become partners?

- natural person
- partnership may enter into another partnership
Can a corporation enter into a partnership?

Exception -
Rules to determine the existence of partnership

 Persons not partners to each other
 No partnership in co-ownership or co-possession
 No partnership in sharing of gross returns
 Receipt of share in the profits (only prima facie evidence)
except
a. as debt by installment
b. as wages of an employee or rent to a landlord
c. as annuity to a widow
d. as interest on a loan
e. as the consideration for the sale of a goodwill of a business
Partnership v. Conjugal partnership of

Gains
Partnership v. Co-ownership
Partnership v. Voluntary Associations
Partnerships v. Corporations
Effects of Unlawful partnership (unlawful object or

purpose)
 It is void ab initio
 Profits shall be confiscated in favor of the
government
 Instruments or tools and proceeds of the crime
shall also be forfeited
 Contributions of the partners shall not be
confiscated unless…
Form of partnership
G.R. – no form is required by law
Exceptions –
(1) more than one year
(2) limited partnership
(3) immovable property was contributed
form and effect of non-compliance
Partnership with capital of P3,000 or more

Requirements
(1) public instrument
(2) registered with SEC
Effect of non-compliance -
Acquisition or conveyance of partnership

property – only in the name of the
partnership
Secret partnerships without juridical personality

Universal v. Particular
General v. Limited
Partnership at will v. Partnership with a fixed
term
De Jure v. De Facto
Ordinary/ Real v. Partnership by
Estoppel/Ostensible
Secret v. Open/Notorious
Capitalist v. Industrial
General v. Limited
Managing v. Liquidated
Continuing v. Surviving
Ostensible v. Secret
Silent v. Dormant
Original v. Incoming
Real v. Partner by estoppel
Universal Partnership of All Present Property v.

Universal Partnership of Profits
What is contributed?
What is transferred to the partnership?
Things not allowed to be contributed
In case of doubt –
General or Limited
UP of All Present Prop or UP of Profits

Persons who are prohibited from forming a

universal partnership
- Art. 87 Family Code (1)
- Art. 739 NCC (3)
Effect - VOID
Can husband and wife create a partnership?
Particular Partnership has for its object –

 determinate things
 their use or fruits
 specific undertaking
 exercise of a profession or vocation
When does a partnership begin?
Continuation of partnership beyond fixed term

- presumption
- rights and duties of partners in a partnership at will
Obligations with respect to contribution of property

 contribute the money, property or industry
 answer for eviction
 answer for the fruits
 preserve the property with diligence of good
father of a family
 indemnify for any damage
Effect of failure to contribute – automatically a

debtor of the partnership
Remedy of the partners – Action for Specific

Performance with damages
Inventory v. Appraisal
What kind of property?

Effect of non-compliance?
Who will determine/comply?
In a corporation, is inventory required?

Who will determine the valuation of the property if it is
used for a consideration?
Obligations with respect to contribution of money and

money converted for personal use
 contribute on the date due what he promised
 reimburse the money taken from partnership coffers
 pay the agreed or legal interest
 indemnify the partnership for damages
Industrial Partner v. Capitalist Partner

Business
Same
Different ALLOWED
Exception – express permission - stipulation

Effect of Violation
- exclusion - bring to common fund
- availment of benefits - bear losses alone
with rt to damages
GR – Partners contribute equally

Exception - stipulation
Obligations of the partner to contribute additional capital

GR – imminent loss to the business of the partnership
Exceptions –
(1) not applicable to IP
(2) stipulation of no additional contribution
(3) partner is insolvent
Obligation of MP who collects debt

GR – IF RECEIPT in the name of –
MP - PROPORTIONATELY
partnership - fully applied to partnership credit
Exceptions –
(1) NOT the managing partner
(2) NOT yet due
(3) personal credit more onerous to him
Obligation of Partner who receives share of the

partnership credit
If the debtor should later become insolvent,

BRING to the partnership capital what he
received even though he may have given
receipt for his share only
Compensation of damages with profits earned

for partnership by guilty partner – NOT
allowed
Exception – if unusual profits have been realized, court
may equitably lessen
Risk of loss of things contributed –

What is transferred to the partnership?
OWNERSHIP or USE
When was it lost?
BEFORE OR AFTER DELIVERY
What kind of thing was lost?
GENERIC or SPECIFIC
Responsibility of partnership to the partners

 refund amounts disbursed by him in behalf of the
partnership
 answer for obligations contracted in good faith in the
interest of the partnership
 answer for risks in consequence of its management
Distribution of Profits and Losses

Profits – stipulation, if none, capital contribution
Losses – stipulation, if none, profit sharing agreement,
if none, capital contribution
Share of the IP
Profits – stipulation, if none, what is just and
equitable
Losses – NOT liable
Can a TP decide the profit and loss sharing of the partners?

GR – NO, parties should
Exception – agreement of the partners
If agreed upon, can the partners question the decision of the

TP?
GR – NO, decision is binding on them
Exception – 1. decision has been executed
2. three month period expired
Can a stipulation exclude one of the partners from

profit or loss sharing?
When did they agree? BEFORE or AFTER the creation of the
partnership
Can one of the partners decide the profit and loss

sharing?
Can the IP be made liable for losses?
Is the IP liable for contractual liability?
Can the MP be removed?

It depends when he was appointed.
If appointed in the Arts of Partnership –IRREVOCABLE,
except for a just and lawful cause and the vote of
the majority of the controlling interest.
If appointed after the creation of the partnership, it is
REVOCABLE.
Powers of two or more MPs whose respective duties

are unspecified
GR – any MP can perform
Exception – in case of tie, majority of MP
Exception to the exception – in case of tie, vote of the
controlling interest
Where unanimity of action stipulated
GR – consent of ALL MP
Exception – imminent danger of grave or irreparable injury
to the partnership
GR – Every partner is an agent of the

partnership (Acts of Administration)
Acts of Ownership / Acts of Strict Dominion /

Alteration – consent of ALL of the partners
Sub-Partner v. Substituted Limited Partner
Rt. to Inspect v. Rt. To Demand Formal Accounting (4

exceptions)
Fiduciary relationship
Property Rights of the partner –

- specific partnership property
- interest in partnership
- participate in the management
What is assignable?
What can be attached by the separate creditor?
Effects of partner’s right in specific partnership

property
- NOT to be possessed, except

- NOT assignable, except
- NOT subject to attachment or execution, except
- NOT subject to legal support
Partner’s interest – profits and surplus
Effect of assignment – NOT a partner

If interest is charged by a separate creditor, it can be
redeemed with:
(1) separate prop. of any one of the partners
(2) partnership prop. with consent of all the
partners
Partnership name
 Effect of inclusion of the name of a TP
 Registration of the name
General Partnership
Limited Partnership
Corporation
Liability for contractual obligations of the partnership
Pro rata and subsidiary

Pro rata – equally or jointly
Subsidiary – subsidiary or secondary
Distinction between liability and loss
Stipulation against liability
Among the partners v. TPs
Conveyance of real property of partnership

Things to consider
- registered in the name of whom (5 instances)

- what is transferred ownership or equitable
interest
- can the partnership recover, GR (Exceptions)
Effect of Admission by a partner (when was it

admitted?)
Notice or knowledge of any partner affecting

partnership affairs
Instances of SOLIDARY liability of the partners

and the partnership to TPs
- quasi-delict or tort committed
- Misapplication of money or property of a
third person
Partnership by Estoppel
v.
Partners by Estoppel
When is there partnership liability?

Liability of incoming partner for existing

obligations
- Existing creditors
- subsequent creditors
Preference of partnership creditors in

partnership property
Dissolution, Winding up and Termination

(defined)
Dissolution – Extra-judicial (7) v. Judicial (6)
Loss of specific thing v. generic thing

Effect of dissolution on authority of partner

GR – it terminates all authority of any partner to
act for the partnership
Exceptions –
(1) wind up partnership affairs
(2) complete transactions begun but not
then finished
Effect of A I D in transactions
Partnership is NOT bound by any act of the partner

after dissolution
(1) Unlawful to carry the business

(2) partner becomes insolvent
(3) partner had no authority to wind up
partnership affairs, except – (2)
Effect of Dissolution on partner’s existing liability – it

REMAINS, except
Manner of Winding up (2) v. 3-year Winding up of the

corporation
Persons authorized to wind up (3) v. Liquidation of the

Corporation (3)
Rights of the Partner at the time of dissolution

Without violation v. with violation
Guilty partner v. Innocent partner
Rights of the injured partner where partnership
contract rescinded
1. Rt. of Lien / Retention
2. Rt. to Subrogation
3. Rt. of Indemnification
Assets of the partnership (2)

Rules in settling accounts between partners after
dissolution
- creditors, partner-creditor, partner’s capital, partner’s
profits
In case the partner is insolvent (3)
compared to:
a. Limited Partnership (6)
b. Stock Corporation (3)
c. Non-stock Corporation (5)
Dissolution of partnership by change in membership
Rights of creditors of dissolved partnership which is continued
Rights of retiring or legal representative of deceased partner

when business is continued (2)
Persons liable to render an account (3)

LIMITED PARTNERSHIP (LP)

Characteristic of LP –
✓ compliance with statutory requirements
✓ GPs control the business, NOT LP
✓ no participation in management, except
✓ not personally liable
✓ may ask for the return of their capital
contributions under certain conditions
LIMITED PARTNERSHIP (LP)

Characteristic of LP –
✓ LP not allowed to contribute services
✓ LP not party to proceedings, except
✓ Interest is freely assignable with the effect that all
the rights are acquired
✓ LP’s name not allowed in the firm name, except
✓ LP may engage in any business
✓ LP’S death, etc. does not dissolve
Formal Requirements for LP

(1) Certificate must be signed and sworn to
(2) it must be recorded in SEC
If not complied – General partnership

CORPORATION CODE
OF THE PHILIPPINES
BP 68
May 1, 1980
(formerly, Act No. 1459, Corporation Law)
Corporation (defined) – is an artificial being

created by operation of law, having the right
of succession and the powers, attributes
and properties expressly authorized by law
or incident to its existence (Sec. 2)
Attributes of the Corporation
1. It is an artificial being (Juridical Person)

Doctrine of Corporate Fiction
2. It is created by operation of law
3. It has the right of succession;
4. It has only the powers, attributes, and properties expressly
authorized bby law or incident to its existence (Doctrine of
Limited Capacity, Sec. 36).
Classes of corporation
(1) As to number of persons who compose them:
(a) Corporation aggregate – more than one corporator
(b) Corporation sole – one corporator only
(2) As to whether they are for religious purpose or not:

(a) Ecclesiastical corporation – for religious purpose
(b) Lay corporation – other than religion
(3) As to whether they are for charitable purpose or not:

(a) Eleemosynary corporation – for charitable purpose
(b) Civil Corporation – for business or profit
(4) As to state or country where they have been created:
(a) Domestic corporation – created under BP 68
(b) Foreign corporation – other than the laws of the Philippines
(5) As to their legal right to corporate existence

(a) De jure – existing in fact and in law
(b) De facto – existing in fact but not in law
(6) As to whether they are open to the public or not

(a) Close corporation – limited to members of the family
(b) Open corporation – open to any person
(7) As to their relation to another corporation
(a) Parent or Holding corporation –
(b) Subsidiary corporation –
(8) As to whether they are for public or not

(a) Public corporation – formed for the government of a portion of the State
(b) Private corporation – formed for some private purpose, benefit or end
Corporations created by special laws or charters

(Sec. 4)
Governed primarily – by the special law creating

it
Suppletorily – provisions of Civil Code
Components of a corporation
(1) Corporator
(2) Incorporators
(3) Stockholders
(4) Members
(5) Promoters
(6) Subscribers
(7) Underwriter
Doctrine of Equality of Shares – shares

presumed to be equal in all respects
Trust Fund Doctrine – considers the subscribed capital as

a trust fund for the payment of the debts of the
corporation, to which the creditors can look for
satisfaction.
Classes of shares
(1) Authorized Capital Stock
(2) Subscribed Capital Stock
(3) Outstanding Capital Stock
(4) Paid-up Capital Stock
(5) Unissued Capital Stock
(6) Legal Capital
Capital v. Capital Stock

Capital Stock v. Legal Capital
Capital Stock v. Share of Stock
Classes of shares in general

(1) Par value or No par value
(2) Voting or Non-Voting
(3) Common or Preferred
(4) Promotion share
(5) Share in Escrow
(6) Convertible Stock
(7) Founder’s share (Sec. 7)
(8) Redeemable share (Sec. 8)
(9) Treasury share (Sec. 9)
(10) Over-issued or Spurious Stock
(11) Watered stock (Sec. 65)
Statutory restrictions regarding the issuance of

no par value shares
(1) Banks, trust companies, insurance companies, public utilities and building and
loan associations shall not be permitted to issue no par value shares of stock;
(2) Preferred shares of stock may be issued only with a stated par value;
(3) Shares issued without par value shall be deemed fully paid and non-assessable
and the holder of such shares shall not be liable to the corporation or its
creditors in respect thereto;
(4) Shares without par value may not be issued for a consideration less than the value
of P5.00 per share; and
(5) The entire consideration received by the corporation for its no par value shares
shall be treated a capital and shall not be available for distribution as dividends
Limitations regarding the issuance of preferred

shares
(1) Preferred shares can be deprived of voting rights in the
articles of incorporation (still entitled to vote under the
exceptions in Sec. 6);
(2) Preferred shares shall be entitled to preferences in the
distribution of dividends or assets;
(4) Preferred shares may be issued only with a stated par value;
and
(5) BOD may fix the terms and conditions of preferred shares of
stock
Sec. 7 – Founder’s shares – right to be vote and be voted for

a period of 5 years subject to the approval of SEC
Sec. 8 – Redeemable Shares – can be redeemed by the

corporation regardless of the existence of unrestricted retained
earnings
Sec. 9 – Treasury Shares – shares which have been issued and

fully paid for and subsequently reacquired by the corporation
Incorporation and Organization of Private

Corporation
Steps in the creation of a corporation
(1) Promotion
(2) Incorporation
(3) Formal organization and commencement of
business operations
(4) Payment of filing, publication and other fees
(5) Issuance by SEC of Certificate of Incorporation
Qualifications of incorporators (Sec. 10)

1. Natural person
2. Capacity to contract
3. Residents of the Philippines
4. Citizens of the Philippines
5. Owners of or subscribers to at least one share
Minimum capital stock required of stock

corporations (Sec. 12)
 No minimum capital stock requirement

 Equity Rule / Filipino ownership
requirement
Amount of capital stock to be subscribed and

paid for purposes of incorporation (Sec. 13)
25% of the authorized capital stock shall be
subscribed
25% of the subscription must be fully paid
In no case shall the paid-up capital stock be less
than P5,000
Sec. 14 – Contents of articles of Incorporation
Sec. 15 – Form of articles of incorporation
Treasurer’s Affidavit
Name of the corporation

Primary purpose / Secondary Purposes
Place of the corporation
Term of the corporation
Names, nationalities and residences of the
incorporators
Incorporating Directors
Sec. 16 – Amendment of the Articles on Incorporation

Vote required – majority of the BOD plus 2/3 of the vote of the
outstanding capital stock (OCS)
Necessity of the meeting (G.R.) Exception

Limitations on the powers of the corporation to amend
Effectivity of the amendment (G.R.) Exception
Sec. 17 – Grounds when articles of incorporation or

amendment may be rejected or disapproved
1. Not in Form required
2. Illegal purpose
3. Treasurer’s Affidavit is false
4. Percentage requirement not complied
5. No favorable indorsement by the appropriate government
agency
Suspension or revocation of the certificate of

registration of corporations (PD 902-A)
1. Fraud in procuring the certificate of incorporation
2. Serious misrepresentation as to what the corporation can do
3. Refusal to comply with the SEC order
4. Continuous inoperation for a period of at least 5 years
5. Failure to file by-laws within the period required
6. Failure to file the required reports
Sec. 18 – Corporate name

Where do you register? SEC
Requirements –
Limitations upon the use of corporate name -
Sec. 19 - Commencement of corporate

existence
- Issuance of the Certificate of Incorporation

Sec. 20 – De facto corporations

Requisites of a de facto corporations
1. Valid law under which a corporation might be
incorporated
2. Bona fide attempt to organize a corporation
3. Actual user or exercise in good faith of corporate
powers
4. Issuance of Certificate of Incorporation despite non-
compliance with the legal requirements
Direct Attack v. Collateral Attack
Quo Warranto Suit

Sec. 21 – Corporation by Estoppel

- it is neither de jure nor de facto
Liability of persons acting in a corporation by estoppel –
- liable as General partners

Sec. 22 –
Non-Use of Corporate charter – for a period of 2 years

(automatically dissolved)
Continuous Inoperation – for a period of 5 years (suit

must be filed to dissolve
Sec. 23 – Board of Directors (BOD)
Gen. Rule - governing body of the corporation

Exceptions to this rule (5 instances)
– Authorized by the BOD
– Ratification by the BOD
– Executive Committee (Sec. 35)
– Management Contract (Sec. 44)
– Close corporation (Sec. 101)
Qualifications of the BOD

1. Own at least one share
2. The share must be registered in his name
3. He must continuously own the said share
4. Majority of the directors must be residents of
the Philippines
Number of directors
General Rule – not less than 5, not more than 15
Exceptions
1. Non-stock corporations – may be even more than 15
2. Close corporations – managed by the stockholders
3. Trustees of non-stock educ’l corp – not less than 5, nor more than
15 (in multiples of 5)
4. Corporation sole – no BOD (only member)
5. BOT of religious societies – not less than 5, nor more than 15
Term of office
General rule – one year only
Exceptions
1. Non-stock corp – 3 years, 1/3 expiration
2. Trustees of non-stock educ’l corp – 1/5 expiration
Sec. 24 – Election of directors

Limitations
1. Presence of the majority of the OCS
2. By ballot, if requested
3. No delinquent stock shall be voted
4. Presence of the quorum
5. Notice must be given
Methods of voting
1. Straight voting
2. Cumulative voting for one candidate
3. Cumulative voting by distribution
Sec. 25 – Corporate officers and agents

Election – elected by the BOD
Term of office – may be fixed in the by-laws
Positions concurrently held by same person – applies to
President/secretary and president/treasurer
Qualifications
1. President – must be a director
2. Secretary – must be a resident and a citizen of the Phils
Requisites for the board meeting

1. Meeting of the directors (actual)
2. Presence of a quorum
3. Decision of the majority of the quorum
4. Place, time, and manner in the by-laws
Sec. 26 – Report of the election of directors,

trustees and officers
- Within 30 days after the election of the directors, trustees and
officers of the corporation – REPORT TO THE SEC
- Should any of them die, resign, or in any other manner cease

to hold office
Sec. 27 – Disqualification of directors, trustees

or officers
1. If convicted by final judgment of an offense punishable by
imprisonment for a period exceeding six (6) years
2. If convicted for a violation of the Corporation Code

committed within 5 years prior to the date of his election
or appointment
Sec. 28 – Removal of directors or trustees
Requisites for the removal of directors or trustees

1. Meeting called for the purpose
2. Previous notice to the stockholders
3. Vote of at least 2/3 of the OCS or 2/3 of the members
Sec. 29 – Vacancies in the office of directors or

trustee
(1) By the stockholders or members
a. removal or expiration of the term
b. other than by removal or expiration, but no quorum
c. other than by removal or expiration, there is a quorum but delegated
d. increase in the number of the directors
(2) By the member of the BOD
- other than by removal or expiration, there is a quorum and they decided NOT
to delegate
Sec. 30 – Compensation of directors

Gen. rule – BOD has no compensation
Exception – if granted by vote of the majority of
the OCS
Limitation – not to exceed 10% of the net income before
the income tax of the corporate during the preceding year
- Directors without authority to grant compensation to themselves

Sec. 31 – Liability of directors, trustees or

officers
Duty of OLD
Gen. rule - NOT liable (Business Judgment Rule)
Exception – liable if:
1. Willfully and knowingly votes or assents to patently unlawful acts of the
corporation
2. Guilty of gross negligence or bad faith in directing the affairs of the
corporation; and
3. Acquires any personal or pecuniary interest in conflict with his duty
Sec. 32 – Dealings of directors, trustees or

officers with the corporation
Concept of the Self-Dealing Directors

3 Requisites for the contract to be valid
3 Conditions to ratify
Sec. 33 – Contracts between corporations with

interlocking directors
Gen. rule - Interlocking Doctrine is valid
Exception – if the requisites in Sec. 32 are violated/absent
Presumption – stockholdings exceeding 20% of the OCS shall be

considered substantial
Sec. 34 – Disloyalty of a director
Corporate Opportunity Doctrine
Ratification – 2/3 of the OCS

Sec. 35 – Executive Committee
Composition – not less than 3 members of the board to be

appointed by the board
Restrictions on the power – 5 instances

Sec. 36 –
Theory of General Capacity
Theory of Special Capacity
Doctrine of Limited Capacity
Express v. Implied v. Incidental

Express Power – are the powers expressly conferred upon the

corporation by law
Implied Power – are those powers which are reasonably

necessary to exercise the express powers and to
accomplish or carry out the purposes for which the
corporation was formed.
Incidental or Inherent Power – are powers which a corporation

can exercise by the mere fact of it being a corporation
Express Powers
1. Power to sue and be sued
2. Power to adopt and use a corporate seal
3. Power to acquire and convey property
4. Power to acquire shares or securities
5. Power to contribute to charity
6. Power to establish pension, retirement and other plans
Sec. 37 – Power to extend or shorten corporate

term
Vote required – majority of the BOD and 2/3 vote of the OCS
Appraisal right of the dissenting stockholders

Sec. 38 – Power to increase or decrease capital

stock
Vote required - majority of the BOD and 2/3 vote of

the OCS
Ways of increasing or decreasing the capital stock

Sec. 39 – Power to deny pre-emptive right

Gen. rule – pre-emptive right is given
Exception – if denied in the Articles of Incorporation any
amendment thereto (vote required)
Shares to which the right is not available (3 exceptions)

Sec. 40 – Sale of other disposition of assets

Vote required - majority of the BOD and 2/3 vote of the OCS
Exception – in case of abandonment (only the vote of the BOD)
Exception to the exception – if Implied power

Sec. 41 – Power to acquire own shares
Instances
1. Eliminate fractional shares
2. Collect or compromise an indebtedness
3. Pay dissenting or withdrawing stockholders
Sec. 42 - Power to invest corporate funds in

another corporation or business or for any
other purpose
Gen. rule – if primary purpose, vote is not required
Exception – if not, majority of the BOD and 2/3 vote of the OCS
Exception to the exception – if implied power
Sec. 43 – Power to declare dividends
Gen. rule – declared by the BOD

Exception – in case of stock dividend, majority
of the BOD and 2/3 vote of the OCS
Sec. 43 –
Gen. rule – It is the prerogative of the BOD to declare dividend

Exception – if in excess of 100% of their paid-in capital stock
Exception to exception – 3 instances wherein the exception does
not apply
Sec. 44 – Power to enter into management

contract
Vote required - Vote of both the majority of the BOD and majority vote of the OCS of
the managing and managed corporations
Exception – if :
1. 1/3 of the OCS of the managing and the managed are the same
2. majority of the BOD of both are the same
Rule – 2/3 of the OCS of the managed corporation

5 year limitation
Sec. 45 – Ultra Vires Act of the Corporation
Intra Vires v. Ultra Vires v. Illegal Act
Ratification if ultra vires – vote required

Sec. 46 – Adoption of by-laws

By-laws – internal rules of the corporation
When do you file it (2 instances)

Who approves it?
When effective?
Sec. 48 – Amendments to by-laws
Gen. rule – majority of the BOD and majority of the

OCS
Exception – if delegated by the stockholders, only 2/3
of the OCS
Exception to Exception – if revoked, vote required to
revoke is majority of the OCS
Secs. 49 – 50
Requisites for a valid meeting
1. Proper place
2. Stated time and date
3. Called by the proper person
4. Previous notice
5. Quorum
Sec. 51 – Place and time of Meetings
Place of meeting of stockholders – principal place of

business
Place of meeting of the BOD – anywhere even outside
the Philippines
N.B. – Metro Manila is considered a city or municipality
Sec. 52 – Quorum in meetings
Stock corporations – majority of the OCS

Non-stock corporations – majority of the members
Sec. 53 – Who presides in the meetings
1. President/Chairman/Vice-chairman
2. Stockholder or member in a temporary capacity
3. Stockholder or member chosen
Sec. 55 – Manner of voting
(1) Directly
(2) Indirectly, through a representative
a. by means of proxy
b. By a trustee under a voting trust agreement
c. by executors, administrators or receivers
Sec. 56 – Voting in case of joint ownership

Gen rule - consent of all co-owners
Exception – one is allowed if:
1. Written proxy
2. Issued in an and/or capacity
Sec. 57 – Voting for treasury shares
- no voting right as long as they remain in the

treasury
Sec. 58 – Proxies
Limitations
1. It must in writing, signed and filed before the
scheduled meeting
2. It is valid only for the meeting intended
3. Continuing proxy will be valid only for a period of 5
years
Sec. 59 – Voting Trust Agreement

Limitations
1. Valid only for a period of 5 years (exception)
2. It must be in writing and notarized
3. It must be filed in the SEC
Sec. 60 – Subscription contract

A person may become a stockholder:
1. By a subscription contract
2. By purchase from treasury shares
3. By transfer from a previous stockholder
Sec. 61 – Pre-incorporation Subscription

General rule – irrevocable for a period of 6 months
Exception –
1. All the subscribers consent to the revocation
2. Fails to materialize within the said period
Exception to the exception – After the articles of incorporation

have been submitted to SEC
Sec. 62 – Consideration for stocks

1. Actual cash
2. Property, actually received and necessary or convenient
3. Labor actually rendered
4. Previously incurred indebtedness by the corporation
5. Amounts transferred from unrestricted retained earnings to
stated capital
6. Outstanding shares exchanged for stocks
Sec. 63 – Certificate of stock and transfer of

share
- It must be signed by the president,
countersigned by the secretary and sealed
with the seal of the corporation
- How do you transfer – Indorsement plus
delivery
Sec. 64 – Issuance of stock certificate
No certificate of stock shall be issued to a

subscriber until the full amount of his subscription
together with interest and expenses has been paid
Rights of the stockholder

1. Management rights
2. Proprietary rights
3. Remedial rights
4. Appraisal rights
5. Inspection rights
Sec. 65 – Liability for watered stock

Acts liable
1. Consenting to the issuance of watered stock
2. Less than the par value thereof
3. Consideration other than cash
4. Valued in excess of its fair value
5. Has knowledge does not forthwith express his objection in
writing
Remedies to enforce payment of stock

subscription
1. Extra-judicial sale at public auction
2. Judicial action
3. Collection from cash dividends and withholding of stock
dividends
Sec. 68 – Delinquency Sale
Sec 71 – Effect of Delinquency
Sec. 72 – Rights of unpaid shares

Books of the corporation
1. Record of all business transactions

2. Minutes of all the meetings of the stockholders
3. Minutes of all the meetings of directors or trustees
4. Stock and transfer book
Sec. 76 – Merger and Consolidation
Merger – A + B = A or B
Consolidation – A + B = C
Vote required – Majority of the BOD and 2/3 of the

OCS of both corporations
Secs. 81 – 86 – Appraisal Right
Appraisal right – right to receive the fair value of his

shares
Non-stock corporations
Characteristics
1. No part of its income is distributable as dividends
2. Each member is entitled only to one vote
3. Voting by mail is allowed
4. Number of trustees shall be not less than 5 but may even be
more than 15
5. Trustees are elected for a term of 3 years
6. Officers may be directly elected by the members
7. Membership shall be terminated in accordance with the by-
laws
Close corporation
Characteristics
1. Stockholders do not exceed 20

2. There are restrictions on transfer of shares
3. Not listed in the stock exchange
Special corporations
1. Educational corporations (stock or non-stock)

2. Religious corporations (corporation sole and
religious societies
Dissolution
1. Voluntary (4 instances)
2. Involuntary (7 instances)
Methods of corporate liquidation
1. Liquidation by the corporation itself

2. Liquidation by a duly appointed receiver
3. Liquidation by trustees
Foreign Corporations
Requirements
1. license to transact business
2. certificate of authority from the appropriate
government agency

Essential Features and Effects of Partnerships and Corporations

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Essential Features and Effects of Partnerships and Corporations

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PARTNERSHIPS

Common types of business organizations

Partnership - by the contract of partnership two or more

Delectus personarum / Delectus personae –

- literally, choice of the person

- Nobody can become a member of the partnership

Essential features / Elements of Partnership

Concept of juridical personality

Who may become partners?

Can a corporation enter into a partnership?

Rules to determine the existence of partnership

Partnership v. Conjugal partnership of

Effects of Unlawful partnership (unlawful object or

Partnership with capital of P3,000 or more

Acquisition or conveyance of partnership

Secret partnerships without juridical personality

Universal Partnership of All Present Property v.

UP of All Present Prop or UP of Profits

Persons who are prohibited from forming a

Particular Partnership has for its object –

When does a partnership begin?

Continuation of partnership beyond fixed term

Obligations with respect to contribution of property

Effect of failure to contribute – automatically a

Remedy of the partners – Action for Specific

What kind of property?

In a corporation, is inventory required?

Obligations with respect to contribution of money and

Industrial Partner v. Capitalist Partner

Exception – express permission - stipulation

GR – Partners contribute equally

Obligations of the partner to contribute additional capital

Obligation of MP who collects debt

Obligation of Partner who receives share of the

If the debtor should later become insolvent,

Compensation of damages with profits earned

Risk of loss of things contributed –

Responsibility of partnership to the partners

Distribution of Profits and Losses

Can a TP decide the profit and loss sharing of the partners?

If agreed upon, can the partners question the decision of the

Can a stipulation exclude one of the partners from

Can one of the partners decide the profit and loss

Can the MP be removed?

Powers of two or more MPs whose respective duties

GR – Every partner is an agent of the

Acts of Ownership / Acts of Strict Dominion /

Sub-Partner v. Substituted Limited Partner

Rt. to Inspect v. Rt. To Demand Formal Accounting (4

Property Rights of the partner –

Effects of partner’s right in specific partnership

- NOT to be possessed, except

Partner’s interest – profits and surplus

Effect of assignment – NOT a partner

Liability for contractual obligations of the partnership

Pro rata and subsidiary

Conveyance of real property of partnership

- registered in the name of whom (5 instances)

Effect of Admission by a partner (when was it

Notice or knowledge of any partner affecting

Instances of SOLIDARY liability of the partners

When is there partnership liability?

Liability of incoming partner for existing