Q. How do you classify sale of the corporation’s real property?

It is part of the retained earnings. Retained earnings include not only earnings realized from
the ordinary course of business of the corporation but also those arising from transactions not
associated with but incidental to or necessary in keeping the business for which the
corporation was organized (e.g. earnings from rent, royalties, fees and interests for the use by
others of the corporate assets and resources).

Q. Can the corporation distribute gains from the sale of real properties as dividends?

NO, if the value of the remaining assets after distribution is less than the amount of legal or
stated capital and liabilities.

YES, but only as far as property dividends.

Q. Can treasury shares be declared as stock dividends or cash dividends?

NO. They are not considered as part of the earned or surplus profits. Distribution would be
converting the corporation into both a debtor and creditor for the same amount at the same
time.

Q. How can you issue treasury shares?

It may be declared as property dividend out of the retained earnings previously used to
support their acquisition provided that the amount of the said retained earnings has not been
subsequently impaired by losses.

Q. What are the other rules concerning dividends?

1. SH are entitled to dividends pro rata based on the total number of shares and not on the
amount paid for the shares.

2. SH at the time of declaration are entitled to dividends. Dividends declared before transfer
and tose declared after the transfer belong to the transferor.

3. SH’s right to be paid dividends accrues as soon as the declaration is made in accordance
with sec. 43 of the CC. From that time, the SH can already demand payment thereof.

4. SD can be declared at a premium.

5. Even unpaid subscribers are entitled to SD.

Q. What are the requisites for the sale of all or substantially all properties of the corp?

1. Approval of majority of the directors or trustees;

2. assent of SH 2/3 of OCS or 2/3 of members in a meeting called for that purpose AFTER
written notice.
3. must comply with the formalities of the Bulk Sales Law.
Q. What is the test to determine the sale covers “substantially all”?

If the corporation would be rendered incapable of continuing the business or accomplishing

the purpose for which it was incorporated.

Q. In relation to the question above, is the transferee/buyer liable to the debts of the
corporation?

G.R. Not liable under the Nell Doctrine

EXP.

1. if there is an express assumption of the liabilities;

2. consolidation or merger;
3. purchase was in fraud of creditors; and
4. purchaser becomes a continuation of the seller (Business Transfer Rule)

Q. What is the Business-Enterprise Transfer Rule?

The transferor transfers both its assets and business and the transferor is left with its juridical
existence devoid of its industry or earning capacity.

EXP.

1. Sale of the entire property and assets is necessary in the usual and regular course; OR
2. Proceeds of the sale or other disposition of such porperty and assets will be appropriated
for the conduct of its remaining business.

Q. What is the way to increase/decrease capital stock?

1. increasing/decrease the number of shares and retaining the par value;

2. increasing/decrease the par value of existing shares without changing the number of
shares; or
3. increasing/decrease the number of shares and increasing the par value.

Q. What are the qualifications of directors?

1. i. NSC – must be a member thereof

ii. SC

a) own at least 1 share capital stocks; b) SH in his own name; and c) must be a legal title, not
beneficial title.

Note: SH-trustor in a voting trust agreement cannot be a director because he only has
a beneficial title; TRUSTEE can be elected as director because he has legal title.
2. Majority of the directors/trustees must be residents of the Phl.
3. Must not have been convicted by final judgement of an offense punishable by
imprisonment for a period exceeding 6 years OR a violation of the CC committed within 5
years before the date of his election.
4. legal age
5. possess other qualifications as may be prescribed in the BL.

Q. What is Business Judgement Rule?

• Questions of policy or management are left solely to the honest decision of officers and
directors of a corporation
• Court cannot substitute their judgment for the judgment of the board
Rationale: shield director from liability for decisions
• Courts should not second guess
Presumption only – subject to rebuttal

Q. What are the METHODS OF VOTING – ELECTION OF DIRECTORS?

1. Straight voting – default unless provided in BL

• Every SH may vote such no. of shares for as many persons as there are directors to
be elected

2. Cumulative voting for one candidate – SH is allowed to concentrate his votes and give
one candidate as many votes as the no. of directors multiplied by the number of his
shares

• no. of share X no. of directors = 1 (help minority)

3. Cumulative voting by distribution – SH may cumulate his shares by multiplying number

of his shares by no. of directors to be elected and distribute it to as many candidates
he shall see fit

• distribute as he shall see fit (help minority)

Note: N/A to non-stock unless otherwise provided in the BL

Q. What is the rule on ELECTION OF BOD (STOCK)?

• At large – SH + quorum
• All shareholders with voting right
• No voting of district or region (allowed in NS because it can be limited, broadened or
denied in AOI or BL)
Q. What are requisites for the REMOVAL OF DIRECTOR

1. Regular or special meeting of SH or members called for the purpose

2. There must be previous notice to SH or members of intention to remove
3. The removal must be by a vote of SH representing 2/3 OCS or 2/3 members
4. The director may be removed with or without cause EXC: elected by minority, then
there must be cause required

Q. Who should call the MEETING for the purpose of removal?

Corporate secretary upon order of Pres,

OR
• By SH rep. majority of ACS (otherwise, meeting is VOID)
• No corp. secretary or refuses
• Notice signed

Q. How are VACANCIES FILLED?

• By the SH or members
a. If vacancy results because of Removal
b. Expiration of term
c. Ground other than expiration of term (death, resignation, remaining BOD not quorum)
d. Increase in number of directors

• BY BOARD – if remaining directors constitute a quorum

• Cases not reserved to SH

Q. What is the rule on replacement of holdover directors?

Directors must be replaced by the SH or members in an election when their term of office
expires. Loss of their rights is automatic upon the expiration of their term.

Resignation of holdover director – remaining holdover directors cannot replace him, even if
they constitute a quorum.

• Power of remaining members of the board to fill in a vacancy applies only if a director
resigns before the expiration of his term

• Invalidly removed and cannot be reinstated even if term already expired and valid
election of new directors already held

Q What is the DOCTRINE OF CORPORATE OPPORTUNITY?

If there is presented to a corporate Director a business opportunity which: Sec. 34

1. Corp. is financially able to undertake;

2. From its nature, is in line with corp. business and of practical advantage to it; and
3. One in which the corp. has an interest or a reasonable expectancy

Liability of Director: Must account all profits by refunding the same to the corp.
Exc. Ratification by corp (2/3 OCS)

Q. What is an interlocking director?

One (or some or all) of the directors in one corporation is (or are) a director in another
corporation

Q. What are the rules involved in interlocking directors?

If the interest of the interlocking director in the corporations are both substantial
(stockholdings exceed 20% of OCS)

G.R.: a contract bet. 2 or more corporations having interlocking directors shall NOT be
invalidated on that ground alone

EXP: contract is fraudulent or not fair and reasonable

2. if the interest of the interlocking director in one of the corp. is nominal while substantial in
the other (stockholdings 20% or more), the contract shall be valid provided:

a. presence of director/trustee not necessary to constitute quorum for such meeting

b. vote was not necessary for approval of contract
c. contract is fair and reasonable under circumstances

Note: if first 2 are absent, contract can be ratified by vote 2/3 OCS or 2/3 members in a
meeting called for the purpose provided:
• full disclosure of adverse interest of directors/trustees involved is made on such
meeting
• contract is fair and reasonable under the circumstances

Q. Are CORPO AGENTS SOLIDARILY LIABLE WITH THE CORPORATION THEY

REPRESENT?

GR: NO
EXP:
1. Directors and trustees or officers:
a. votes or assents to a patently unlawful acts of the corporation
b. act in BF or with gross negligence in directing the affairs of the corporation
c. guilty of Conflict Of Interest to the prejudice of corp., SH, members, other persons

2. when a director consented to issuance of watered stocks or who, having knowledge

thereof, did not forthwith file with the corp. secretary his written objection thereto;

3. when the D.T. or O. has contractually agreed or stipulated to hold himself personally and
solidarily liable with the corp.

4. when a D.T. or O. is made by law personally liable for his corporate actions

Q. Who are SELF DEALING TRUSTEES/DIRECTORS/OFFICERS?

- those who personally contract with the corp. in which they are directors.
- discouraged because the DTO have fiduciary relationship with the corp. and there can be no
real bargaining where the same is acting on both sides of the trade.

Q. What is the rule on Contracts between the corp. and the self-dealing d/t?

GR: Voidable

EXP:

1. presence of such director/trustee in the board meeting approving the contract was not
necessary to constitute quorum for such meeting
2. vote of such d/t in the meeting approving the contract was not necessary for its approval
3. contract is fair and reasonable under the circumstances
4. in case of an officer, there was previous authorization by the board of directors or trustees

Note: Even if the requirements are NOT present, contract can be ratified by vote 2/3 OCS or
2/3 members in a meeting called for the purpose provided: (same sa interlocking below)

• full disclosure of adverse interest of directors/trustees involved is made on such

meeting
• contract is fair and reasonable under the circumstances

Q. Who are CORPORATE OFFICERS of a corporation?

1. President (who shall be a director)

2. Corporate Secretary (who shall be a resident and citizen of the Philippines)
3. Treasurer (who may or may not be a director)

Naming Corporate Officers in BL

-position must be expressly mentioned in the BL
-exclusive officers
-Board may create appointive position but do not amount to corporate officers

Considered CO

1. created position- Charter/ BL

2. such officer elected by BOD or SH

Q. Can the secretary of the President of the corporation receive summon?

NO.

Q. Who can validly receive service of summons for the corporation?

The following list is exclusive:

1. President
2. Managing Partner
3. General Manager
4. Corporate Secretary
5. Treasurer
6. In-house Counsel

Note: Summons cannot be served on any managerial employee. It must be to GENERAL

MANAGERS.

Note: in cannot be served under the pretext that a secretary is an “agent”.

Q. Who can appoint of remove officers of the Corporation?

Unless the BL specifies other officers who can appoint, the BOD shall appoint the officers and
as an incident of their power to appoint, they may also remove or discharge those they have
apointed.

Q. What are the KINDS OF BOARD MEETINGS?

• annual (date is as specified in By-Laws)

• regular (monthly unless otherwise specified in the By-Laws)
• special (upon the call of the Pres. or as provided in the By-laws)

Q. What are the requisites of a VALID BOARD MEETING?

1.NOTICE- at least 1 day prior to the scheduled regular or special meeting, unless different in
BL
2. Quorum - majority of the D/T as fixed in the AOI (By-laws may require more than the
majority of D/T as quorum) even if 1 vacancy, abstain, left

Q. Are proxies allowed in board meetings?

No. Proxies for Directors and Trustees in board meetings are not allowed. Proxies are only
allowed in SH meetings.

Q. Can the president as presiding officer, vote during board meetings?

President can vote even if he is the presiding officer because he is also a director

Q. What is the rule if Shares are Pledged or Mortgage?

SH-mortgagor-pledgor can still attend the meeting unless the right is given to pledgee or
mortgagee and such right is recorded in corporate books.

Q. What is the rule on BOARD MEETING THROUGH TELECONFERENCE OR VIDEO

CONFERENCE?

1. Corporation Secretary must include in the notice of meeting an inquiry if the D/T will attend
Physically or through video conferencing
2. Director or trustee must choose and give notice that he wants tele/ videoconferencing
3. Proceedings must be recorded and the recording stored by Corp. secretary.