POINTERS IN CORPORATION LAW

clarence Sec. 16, Art. XII (1987 Constitution) The Congress shall not, exce t !" general la#, ro$i%e &or the &or'ation, organi(ation or regulation o& ri$ate cor orations. )*CCs 'a" !e create% or esta!lishe% !" s ecial charters in the interest o& the co''on goo% an% su!+ect to the test o& $ia!ilit"., ATT-I./T0S *1 A C*-2*-ATI*3 (1) it is an arti&icial !eing (4) it is create% !" o eration o& la# (5) it has the right o& succession (6) it has onl" the o#ers, attri!utes, an% existence.

ro erties authori(e% !" la# or inci%ent to its

7ATT0-S 20-TAI3I3) T* T80 C*-2*-ATI*3 AS A 20-S*3 9ia!ilit" &or torts (co''itte% !" its o&&icers &or cor orate ur ose) 9ia!ilit" &or cri'es: a cor oration %oes not ha$e 'alice, there&ore, the res onsi!le o&&icers #ill !e lia!le A cor oration is entitle% to %ue rocess, e;ual rotection, rotection against unreasona!le search an% sei(ure ./T a cor oration is not entitle% to the ri$ilege against sel&:incri'ination. A cor oration is not entitle% to 'oral %a'ages (except for besmirched reputation) A cor oration cannot engage in the ractice o& a ro&ession, although it 'a" hire one, since a ro&ession is !ase% on ersonal accounta!ilit" #hich is all lost #here one acts as a 'ere agent, or alter ego o& unlicense% cor orations or ersons. A cor oration cannot &or' a artnershi . Why? /n%er the rinci le o& 'utual agenc" in artnershi s #here the artner(s) can !in% the artnershi an% the other artners #hich rinci le is $iolati$e o& the rinci le un%er the Cor oration Co%e that onl" the .*< 'a" !in% the cor oration. Theor" o& Concession: that the cor oration o#es its existence to the State, its !irth !eing urel" %e en%ent on its #ill. A cor oration #ill ha$e no higher right than that o& its creator an% cannot re&use to "iel% to o!e%ience to acts o& its state organs. -e;uire'ents shoul% !e 'et in or%er &or the State to grant cor orate ersonalit". Theor" o& Cor orate 0nter rise or 0cono'ic /nit : that the cor oration is not 'erel" an arti&icial !eing, !ut 'ore as an aggregate o& ersons %oing !usiness. This is the un%erl"ing theor" !ehin% the a lication o& iercing the cor orate $eil an% %octrine o& esto el. lex cervus A<=A3TA)0S *1 A C*-2*-ATI*3 (1) A strong an% se arate +uri%ical ersonalit" %istinct &ro' its S8s or 7s. (4) 9i'ite% lia!ilit" to in$estors (5) 1ree trans&era!ilit" o& units o& o#nershi (6) Centrali(e% 'anage'ent ATTAC> *3 =A9I<IT? *1 A C*-2*-ATI*3 )03. -/90@ onl" a %irect attacA through a ;uo #arranto rocee%ing I1 A =*I< C*-2*-ATI*3@ collateral attacA allo#e% since it has no ersonalit" to sue I1 A <0 1ACT* C*-2*-ATI*3@ %irect attacA re;uire% (Sec. 4B). Why? There is a $ali% atte' t to incor orate. It 'ust ha$e a Certi&icate o& Incor oration. I1 A <0 C/-0 C*-2*-ATI*3@ cannot !e attacAe% %irectl" or collaterall" !ecause it is a $ali% cor oration an% there is nothing to attacA 1

)*CCs: go$erne% !" the Ci$il Ser$ice 9a# an% their res ecti$e chartersD thus 39-C has no +uris%iction as )*CCs are not go$erne% !" the 9a!or Co%e. 3ationali(e% cor orations@1BBE 1ili ino:o#ne% 7ass 'e%ia, rural !anAs, rice an% corn in%ustr" 7BE:1ili ino: o#ne%@ A%$ertising, !anAs an% other rural !anAs an% ne# !anAs esta!lishe% !" consoli%ation o& !ranches or agencies o& &oreign !anAs in the 2hili ines (-A 557), ri$ate %e$elo 'ent !anAs (-A 6B95) 6BE:1ili ino:o#ne%@ 1inancing co' anies, &isher" in%ustr", ex loration, %e$elo 'ent an% utili(ation o& natural resources, o#nershi o& lan%s, o eration o& u!lic utilities, e%ucational institutions other than those esta!lishe% !" religious grou s, an% an" !usiness reser$e% !" Congress (Source: ssc bar ops 2002 hand-out) -etail Tra%e is no longer restricte% to 1ili inos (-A 8764)

7oral %a'ages in &a$or o& a cor oration The a#ar% o& 'oral %a'ages cannot !e grante% in &a$or o& a cor oration !ecause, !eing an arti&icial erson an% ha$ing existence onl" in legal conte' lation, it has no &eelings, no e'otions, no senses. There&ore, it cannot ex erience h"sical su&&ering an% 'ental anguish, #hich can onl" !e ex erience% !" one ha$ing a ner$ous s"ste'. (A S-! " case# $0% S!&A '($) 7*-A9 <A7A)0S )en. -ule@ A cor oration is not entitle% to 'oral %a'ages 0xce tion@ !es'irche% re utation (Car%ine $. CA, 555 SC-A 686) .?:9AFS .":la#s cannot o erate to restrict ro ert" rights o& S8s. Authorit" grante% to a cor oration to regulate the trans&er o& its stocA %oes not e' o#er the cor oration to restrict the right o& a S8 to trans&er his shares, !ut 'erel" authori(es the a%o tion o& regulations as to the &or'alities an% roce%ure to !e &ollo#e% in e&&ecting trans&er. ()homson v* !A# 2+, S!&A 2,0) The lace o& 'eeting o& S8s is ro$i%e% in the .9s (cit" or 'unici alit" #here the rinci al o&&ice is locate%)D ./T the lace o& 'eeting o& the .*<s or trustees 'a" !e ro$i%e% &or in the .9sD lace o& 'eeting o& %irectors or trustees 'a" !e outsi%e the 2hili ines i& so ro$i%e% &or in the .9s. .I3<I3) 0110CT *1 .?:9AFS T* T8I-< 2A-TI0S@ thir% arties are not !oun% !" the !":la#s, exce t #hen the" ha$e Ano#le%ge o& the ro$isions either actuall" or constructi$el". Thir% arties shoul% ha$e Ano#le%ge o& the .9s at the ti'e o& the transaction #ith the S8s. The cor oration shoul% ha$e in&or'e% the le%gee o& its .9s #hen it sent notice &or'all" recogni(ing le%gee o& its shares registere% in the na'e o& the S8 o& recor%. The cor orationGs !elate% notice at the ti'e o& &oreclosure #ill not su&&ice. (!hina an- v* !A# 2(0 S!&A. /illanueva# p* 0+%) <I-0CT*-SH S8SH *11IC0-S 1resident 'ust !e a %irector )reasurer 'a" or 'a" not !e a %irector Secretary #ho shall !e a resi%ent an% 1ili ino citi(en Thus, a S anish citi(en can !e a 2resi%ent ro$i%e% he is a %irector exce t in the nationali(e% !usinessD he can also !e a <irector exce t in the nationali(e% !usinessD the S anish citi(en, ho#e$er, cannot !e a Secretar" !ut he 'a" !e a 'anager exce t in the 2

nationali(e% !usiness. "otes@ 2"!3&13&A)3&S (I:1I): natural ersons, o& legal age, an% 'a+orit" o& the' 'ust !e resi%ents an% 'ust o#n at least 1 share o& stocA. 42&5!)3&S: o#n at least one share registere% in the !ooAs o& the cor oration an% continuousl" hol% such, other#ise, he ceases to !e a %irectorD 'a+orit" 'ust also !e resi%ents. In a stocA cor oration, the o#er to %eter'ine #ho the o&&icers shoul% !e an% the o#er to elect the' are lo%ge% in the .*< !" 'a+orit" $oteD in those 'atters, the S8s ha$e no sa". In a non:stocA cor oration, unless other#ise ro$i%e% &or in the A*I or the .9s, o&&icers o& a non:stocA cor oration 'a" !e electe% !" the 'e'!ers. Since the 0xecuti$e Secretar" is not ro$i%e% &or in the .9s o& the association, the incu'!ent is not a cor orate o&&icer an% is not su!+ect to the %iscretion o& the .*< to ter'inate. .eing a non:o&&icer, she en6oys security of tenure an% can onl" !e %is'isse% &or cause. (7ita 1ardo case# %%2 S!&A 28$. /illanueva# p* 080) In instances #here the ter' o& an o&&icer is not &ixe% !" contract or in the .9s, he 'a" !e re'o$e% at an" ti'e #ith or #ithout cause at the leasure o& the .*< since the o#er to elect or a oint o&&icers !eing $este% #ith the .*<, the o#er o& re'o$al 'ust necessaril" !e exercise% !" it. The cor orate o&&icerGs osition an% issues such as ter'ination are intra:cor orate %is utes #ithin the +uris%iction o& the S0C (no# -TC) an% not the 39-C since it &alls #ithin the exercise o& the .*<s o& their !usiness +u%g'ent. (3n9-in9co v* ":&!# 2(0 S!&A 0%$). The %eter'ination o& the conco'itant rights an% lia!ilities arising &ro' the ouster &ro' such ositions #oul% !e an intra:cor orate contro$ers". ()aban9 v* ":&!# 200 S!&A# /illanueva# p*08%)

2o#ers exercise% !" .*T8 the .*< J S8s A'en%ing Articles o& Incor oration Selling all or su!stantiall" all o& cor orate ro ert" 7erger <issolution In$est'ent in a ur ose other than the ri'ar" ur ose 0xtension or shortening o& the cor orate ter' Cor orations #hich 'a" not issue no ar $alue shares .anAs Insurance co' anies .uil%ing an% 9oan Associations 2u!lic utilit" co' anies #ithout a ro$al o& an" o& the a ro riate !oar%s Trust co' anies lex cervus fraternity SS!-& 3*3:=*TI3) S8A-0S 3* share shall !e %e ri$e% o& $oting rights exce t those classi&ie% an% issue% as re&erre%, or re%ee'a!le,. Treasur" shares are also non:$oting. 3*3:=*TI3) S8A-0S 7A? =*T0 *3 T80S0 7ATT0-S@ A'en%'ent o& A*I A%o tion J a'en%'ent o& .9 Sale or other %is osition o& all or su!stantiall" all o& the cor orate ro ert" Incurring, creating or increasing !on%e% in%e!te%ness Increase or %ecrease in ca ital stocA 7erger or consoli%ation #ith other cor oration(s) In$est'ent o& &un%s in another cor oration or &or a %i&&erent ur ose Cor orate %issolution. (Sec* 0)

9I7ITATI*3S *3 T80 ISS/A3C0 *1,3* 2A- =A9/0, S8A-0S 3

It cannot ha$e an issue% rice o& less than 2I.BB The entire consi%eration &or its issuance constitutes ca ital so that no art o& it shoul% !e %istri!ute% as %i$i%en%s The" cannot !e issue% as re&erre% shares The" cannot !e issue% !" !anAs, trust co' anies, insurance co' anies, !uil%ing an% loan associations, u!lic utilities The A*I 'ust state the" are issue% as no ar $alue shares *nce issue%, the" are fully paid and non-assessable

2-010--0< S8A-0S 0ntitles the hol%er thereo& to certain re&erences o$er the hol%ers o& co''on stocA. (1) 2re&erre% shares as to assets, (4) 2re&erre% shares as to %i$i%en%s. (4.1.) Cu'ulati$e re&erre% share: entitles the hol%er to a"'ent o& current %i$i%en%s an% also to %i$i%en%s in arrears (4.4.) 3on:cu'ulati$e re&erre% share (4.5.) 2artici ating re&erre% share: share in sti ulate% %i$i%en%s at the re&erre% rate an% also to the re'aining ro&its pro rata a&ter the co''on shares ha$e !een ai% the a'ount o& the sti ulate% %i$i%en% at the sa'e re&erre% rate. (4.6.) 3on: artici ating re&erre% share -0<007A.90 S8A-0S Issua!le onl" i& ex ressl" ro$i%e% &or in the A*I. The" ha$e to !e urchase% or taAen u !" the cor oration on the ex iration o& the erio% s eci&ie% in sai% shares. The urchase taAes lace #hether or not the cor oration has unrestricte% retaine% earnings #hen the ex ir" %ate arri$es. "otes: -I)8T *1 A22-AISA9 )en. -ule@ Allo#e% onl" #hen the cor oration has /-0, 'eaning the a'ount in excess o& the legal ca italD other#ise, the legal ca ital #oul% !e %istur!e%. 0xce tions@ (1) In case o& re%ee'a!le shares (Sec* ,) This is su!+ect to the con%ition that the cor oration has, a&ter such re%e' tion, assets in its !ooAs to co$er %e!ts an% lia!ilities inclusi$e o& ca ital stocA. -e%e' tion there&ore, 'a" not !e 'a%e #here the cor oration is insol$ent or i& such re%e' tion #ill cause insol$enc" or ina!ilit" o& the cor oration to 'eet its %e!ts as the" 'ature. (/illanueva# p* 0%8) (4) In case o& close cor oration (Sec* %08)

Treasur" shares T-0AS/-? S8A-0S: shares o& stocA #hich ha$e !een issue% an% &ull" ai% &or, !ut su!se;uentl" re:ac;uire% !" the cor oration !" urchase, re%e' tion, %onation or through so'e other la#&ul 'eans. TS 'a" not !e $ote%. Why? The" are in the na'e o& the cor oration. It is as i& the 'anage'ent #oul% $ote &or the'sel$es. TS shall ha$e no $oting rights as along as stocA re'ains in the treasur" TS are not entitle% to %i$i%en%s. Why? The result #oul% !e that the cor oration #oul% !e a"ing itsel&

FA?S *1 I3C-0ASI3) CA2ITA9 ST*C> ." increasing the nu'!er o& shares an% retaining the ar $alue ." increasing the ar $alue o& existing shares #ithout increasing the nu'!er o& shares 4

." increasing !oth the nu'!er o& shares an% the ar $alue

)-*/3<S 1*- -0C0CTI*3 *1 A*I *- A703<703TS (1) 3on:co' liance #ith the &or' rescri!e% (4) 2ur ose is illegal or i''oral (5) TreasurerGs a&&i%a$it is &alse (6) 3on:co' liance #ith ercentage re;uire'ent o& o#nershi re;uire% !" the Constitution (sec*%()

3*3:/S0- *1 C*-2*-AT0 C8A-T0- A3< C*3TI3/*/S I3*20-ATI*3 *1 C*-2*-ATI*3 (A) 3on:user &or 4 "ears, cor oration %oes not &or'all" organi(e or co''ence !usiness: %ee'e% %issol$e%, (auto'atic) (.) 3on:user &or I "ears: starte% !usiness !ut !eco'es su!se;uentl" ino erati$e &or at least I continuous "ears: a groun% &or re$ocation or sus ension o& cor orate &ranchise (there&ore, not auto'atic) <0-I=ATI=0 S/IT A suit &ile% !" an in%i$i%ual S8 on !ehal& o& the cor oration #herein he hol%s stocA in or%er to $in%icate or rotect cor orate rights #hene$er@ (1) the o&&icials o& the cor oration re&use to sueD (4) the o&&icials are the ones to !e sue%D (5) the o&&icials hol% control o$er the cor oration. lex cervus fraternity ssc-r -e;uisites &or %eri$ati$e suit@ (1) 0xisting cause o& action in &a$or o& the cor oration (as #here the .*< er&or' ultra $ires acts or #astes cor orate &un%s)D (4) 0xhaustion o& intra:cor orate re'e%iesD (5) The S8 or 'e'!er 'ust ha$e !een as such at the ti'e o& the o!+ectiona!le transaction unless such transactions continue an% are in+urious to hi' or a&&ect hi' in so'e other #a"D (6) The action 'ust !e !rought !" the S8 or 'e'!er in the na'e an% &or the !ene&it o& the cor oration. (4e :eon# p* '0,) (I) The 'inorit" S8 suing 'ust allege in his co' laint that he is suing on a %eri$ati$e cause o& action on !ehal& o& the cor oration an% all the other S8s si'ilarl" situate%. ()am v* 7a-asiar# $'0 S!&A. /illanueva# p* 0'+) A %eri$ati$e suit &ile% !" the S8s on !ehal& o& the cor oration #ill !e %is'isse% #hen the relie&s sought &or un%er the etition ertain to the S8s an% not the cor oration. (5van9elista v* Santos# ,0 1hil* $,()

-0K/ISIT0S 1*- =A9I< -ATI1ICATI*3 *1 /9T-A =I-0S ACT (1) The act or contract 'ust !e consu''ate%, not 'erel" executor" (4) The cre%itors 'ust not !e re+u%ice% (5) The rights o& the State are not in$ol$e% (6) All S8s ha$e gi$en their consent (/illanueva# p* 00%) The &iling o& the suret" !on%, #hich #as ultra $ires, !ut not illegal er se, an% #hich #as rati&ie% !" the acce tance !" the 'ining co' an" o& the !ene&its atten%ant to the o ening o& a ost o&&ice in the 'ining co' oun%, is !in%ing on the cor oration. (&epublic v* Aco6e# $ S!&A $0%. /illanueva# p* 002) 0$en #hen the contract entere% into in !ehal& o& the cor oration is outsi%e the usual o#ers o& the cor orate o&&icer, the cor orationGs rati&ication o& the contract an% acce tance o& !ene&its arising there&ro' ha$e 'a%e such contract !in%ing u on the 5

cor oration. (1eople;s Aircar9o v* !A# 2+( S!&A %(0) An ultra $ires act is not necessar" illegal ./T an illegal act is al#a"s ultra $ires. 5ffects of ultra vires acts: (1) execute% contract@ courts #ill not inter&ere (4) executor" contract@ $oi% an% unen&orcea!le (5) artl" execute%, artl" executor"@ rinci le o& no un+ust enrich'ent a lies (6) executor" contracts a arentl" authori(e% !ut ultra $ires@ rinci le o& esto el #ill a l".

Tests in %eter'ining the a lica!ilit" o& the %octrine o& iercing the $eil o& cor orate &iction C*3T-*9, not 'ere 'a+orit" or co' lete stocA control, !ut C*7290T0 <*7I3ATI*3, not onl" o& &inances !ut o& olic" an% !usiness ractice in res ect to the transaction attacAe% so that the cor orate entit" as to this transaction ha% at the ti'e no se arate 'in%, #ill or existence o& its o#n. Such control 'ust ha$e !een use% !" the %e&en%ant to co''it &rau% or #rong , to er etuate the $iolation o& a statutor" or other ositi$e legal %ut", or %ishonest an% un+ust act in contra$ention o& lainti&&Gs legal rightD an% The a&oresai% control an% !reach o& %ut" 'ust roxi'atel" cause the in+ur" or un+ust loss co' laine% o&. (:im v* !A# $2$ S!&A %0$) Tests in %eter'ining #hether a su!si%iar" 'a" !e treate% as a 'ere instru'entalit" o& the arent cor oration that #ill +usti&" iercing the cor orate $eil (1) The arent cor oration o#ns all or 'ost o& the ca ital stocA o& the su!si%iar" (4) The arent an% su!si%iar" cor orations ha$e co''on %irectors or o&&icers (5) The arent cor oration &inances the su!si%iar" (6) The arent cor oration su!scri!es to all the ca ital stocA o& the su!si%iar" or other#ise causes its incor oration (I) The su!si%iar" has grossl" ina%e;uate ca ital (6) The su!si%iar" has su!stantiall" no !usiness exce t #ith the arent cor oration or no assets exce t those con$e"e% to or !" the arent cor oration. (7) In the a ers o& the arent cor oration or in the state'ents o& its o&&icers, the su!si%iar" is %escri!e% as a %e art'ent or %i$ision o& the arent cor oration, or its !usiness or &inancial res onsi!ilit" is re&erre% to as the cor orationGs o#n (8) The arent cor oration uses the ro ert" o& the su!si%iar" as its o#n (9) The %irectors or executi$es o& the su!si%iar" %o not act in%e en%entl" in the interest o& the su!si%iar" !ut taAe or%ers &ro' the arent cor oration (1B)The &or'al legal re;uire'ents o& the su!si%iar" are not o!ser$e%. (1" v* &itratto# $% <uly 200%) Instances #hen a %irector, trustee or o&&icer is 20-S*3A99? lia!le Fhen he assents to atentl" unla#&ul acts o& the cor oration 1or !a% &aith or gross negligence in %irecting cor orate a&&airs 1or con&lict o& interest, resulting in %a'ages to the cor oration Fhen he assents to the issuance o& FAT0-0< ST*C> or #ho, ha$ing Ano#le%ge thereo&, %oes not &orth#ith &ile #ith the cor orate secretar" his #ritten o!+ection thereto Fhen he agrees to hol% hi'sel& ersonall" an% soli%aril" lia!le #ith the cor orationD or 8e is 'a%e, !" a s eci&ic ro$ision o& la#, to ersonall" ans#er &or his cor orate action. (5=uitable an- v* ":&!# 2($ S!&A $'2. sec* $% !orporation !ode) <*CT-I30 *1 C*-2*-AT0 *22*-T/3IT? A rule !" the Cor oration Co%e 'aAing a %irector account to his cor oration, gains 6

an% ro&its &ro' an" transaction entere% into !" hi' or another co' eting cor oration or entit" #here he has a su!stantial interest #hich coul% ha$e !een a transaction un%ertaAen !" his cor oration. (&5A4 sec*$8 on disloyalty of a director) Sec. 56 is a lica!le not#ithstan%ing the &act that the %irector risAe% his o#n &un%s. 8o#e$er, his act 'a" !e rati&ie% !" 4H5 $ote o& the *CS. C*3T-ACT .0TF003 C*-2*-ATI*3 A3< <I-0CT*-HT-/ST00 *- *11IC0)en. -ule@ $oi%a!le 0xce tions@ ($ali% in these instances) (1) 2resence o& such %irector in the 'eeting #as not necessar" to constitute a ;uoru' (4) =ote o& such %irector is not necessar" &or the a ro$al o& the contract (5) Contract is &air an% reasona!le (6) In case o& an o&&icer, the contract #ith the o&&icer has !een re$iousl" authori(e% !" the .*<s. (sec* $2) "otes@ In case 1 J 4 are a!sent, it 'a" still !e rati&ie% !" 4H5 *CS ro$i%e% there is &ull %isclosure o& a%$erse interest. 3ote the %i&&erence !et#een sec. 54 (sel&:%ealing %irector) an% sec. 55 (interlocAing %irectors).

-070<I0S I3 CAS0 *1 7IS7A3A)0703T *- A./S0 *1 2*F0-S .? T80 .*< *1 T80 C*-2*-ATI*3 (1) -ecei$ershi (4) In+unction i& the act has not "et !een %one (5) <issolution i& a!use a'ounts to a groun% &or ;uo #arranto !ut S*9)03 re&uses to act (6) <eri$ati$e suit or co' laint &ile% #ith the S0C (no# -TC) K/A9I1ICATI*3S *1 <I-0CT*-S At least 1 share 7a+orit" o& the cor orate %irectors 'ust !e resi%ents o& the countr" 7ust not !e con$icte% o& an o&&ense .? 1I3A9 C/<)703T o& 'ore than 6 "ears <oes not C*77IT a $iolation o& the Cor oration Co%e I "ears rior to his election or a oint'ent (con$iction not re;uire%, 'ere co''ission su&&ices) C/7/9ATI=0 =*TI3) a S8 shall ha$e as 'an" $otes as he has nu'!er o& shares ti'es the nu'!er o& %irectors u &or election. *utstan%ing shares x %esire% no. o& %irectors L 1 Total nu'!er o& %irectors L 1 0na!le 'inorit" S8s to $ote their re resentati$e in the .*< 7an%ator" in stocA cor orations !ut not in non:stocA cor orations unless ro$i%e% in the .9s 2-0:072TI=0 -I)8T *1 S8S 2-0:072TI=0 -I)8T: -ight o& S8s at the ti'e o& issue o& CS, in re&erence to other ersons, an% as !et#een the'sel$es, to su!scri!e &or, or urchase, the unissue% stocAs in ro ortion to the nu'!er o& shares o& the original stocA hel% !" the' res ecti$el". 0XC02TI*3S@ (no re:e' ti$e right) (1) StocA o&&erings to the u!lic in co' liance #ith la#s re;uiring such o&&erings (4) StocAs issue% in exchange &or ro ert" nee%e% &or cor orate ur oses (5) StocAs to a" a re$iousl" contracte% %e!t. (sec* $+) (6) Fhen %enie% !" the A*I or an a'en%'ent thereto. "otes: 7

2re:e' ti$e rights exten% to all classes o& shares inclu%ing treasur" shares. Fhere a cor oration increases ca ital stocA, S8s are entitle% to a re:e' ti$e right to su!scri!e to a su&&icient nu'!er o& shares in or%er to 'aintain their re$ious relati$e $oting o#er. The cor oration 'ust gi$e the S8 a reasona!le erio% #ithin #hich to exercise the right.

=ACA3C? I3 T80 *11IC0 *1 <I-0CT*- *- T-/ST00 1I990< /2 .? T80 -07AI3I3) 707.0-S *1 T80 .*A-<, C*3STIT/TI3) A K/*-/7@ I& $acanc" is %ue to %eath, resignation or legal %is;uali&ication I1 STI99

1I990< .? A =*T0 *1 S8s *- 707.0-S In case o& re'o$al o& a 'e'!er o& the !oar% or trustees I& the re'aining 'e'!ers o& the !oar% %oes not constitute a ;uoru' an% there&ore coul% not &ill the $acancies create% !" %eath, resignation or %is;uali&ication o& a %irector or trustee In case a %irector ceases as such !ecause o& ex iration o& ter' I& the $acanc" is create% !ecause o& increase in the nu'!er o& %irectors at an" ti'e o& the "ear. 2*F0-S *1 A C*-2*-ATI*3 0X2-0SS 2*F0-S@ Sue an% !e sue% in its cor orate na'e Succession A%o t an% use a cor orate seal A'en% its A*I A%o t !":la#s an% to a'en% or re eal the sa'e Sell or issue stocAs (StocA Cor ) or sell treasur" shares To urchase, recei$e, con$e" real or ersonal ro ert" 0nter into 'erger or consoli%ation 7aAe reasona!le %onations 2o#er to %en" re:e' ti$e right (sec* $+) 2o#er to exten% or shorten cor orate ter' (sec* $,) Sale or other %is osition o& assets (sec* 80) 2o#er to ac;uire o#n shares (sec* 8%) 2o#er to in$est &un%s in another cor oration (sec* 82) 2o#er to %eclare %i$i%en%s (sec* 8$) 2o#er to enter into 'anage'ent contract (sec* 88) I729I0< 2*F0-S@ Acts in the usual course o& !usiness Acts to rotect %e!ts o#ing to the cor oration Acts #hich in$ol$e e'!arAing in a %i&&erent !usiness Acts #hich are in #hole or in art inten%e% to rotect or ai% e' lo"ees Acts to increase the !usiness -I)8TS *1 ST*C>8*9<0-S 7A3A)0703T -I)8TS =oting rights (sec*0) :imitations on the ri9ht to vote: -ule on non:$oting shares (>ith exceptions)-sec*0 2re&erre%Hre%ee'a!le shares: cannot $ote i& so ro$i%e% 1ractional shares cannot $ote unless it constitutes one &ull share (sec*8%) Treasur" shares: no $oting rights so long as the" re'ain in the 8

treasur" StocAs declared delin=uent cannot $ote A trans&eree o& stocA cannot $ote i& his share is not registere% in the cor orate !ooAs -ight to re'o$e %irectors (sec* 2,)

2-*2-I0TA-? -I)8TS -ight to %i$i%en%s A raisal right (sec* ,%) -ight to issuance o& stocA certi&icate &or &ull" ai% shares (sec* 08) 2ro ortionate artici ation in the %istri!ution o& assets in li;ui%ation (sec* %%,-%%+ -ight to trans&er or stocAs in cor orate !ooAs (sec* 0$) 2re:e' ti$e right (sec*$+) -ight to ins ect cor orate !ooAs (sec* (8) -ight to recent &inancial state'ents (secs* (8-(') -ight to reco$er stocAs unla#&ull" sol% &or %elin;uent a"'ent o& su!scri tion -070<IA9 -I)8TS In%i$i%ual suit <eri$ati$e suit -e resentati$e suit

-0AS*3 1*- 9IA.I9IT? 1*- ISS/A3C0 *1 FAT0-0< ST*C> It #ill $iolate the Trust 1un% <octrine since it #ill a&&ect the legal ca ital. Sec* 0': soli%ar" lia!ilit" o& the %irector an% the S8 concerne% &or the %i&&erence !et#een the &air $alue recei$e% at the ti'e o& issuance o& the stocA an% the ar or issue% $alue. Test to %eter'ine #hether the sale in$ol$es all or su!stantiall" all o& the cor orate ro ert" I& !ecause o& the sale, the cor oration can no longer continue acco' lishing the ur ose &or #hich it #as incor orate%, then there is a sale o& all or su!stantiall" all o& the cor orate ro ert". >I3<S *1 <I=I<03<S (1) Cash (4) StocA (5) 2ro ert" (6) .on% (I) 9i;ui%ating

2*F0- T* <0C9A-0 <I=I<03<S CAS8 %i$i%en%s: .*< 'a+orit" ST*C> %i$i%en%s: .*< 'a+. L 4H5 o& *CS. Fh" 4H5 *CSM .ec. there is an increase in legal ca ital, thus 4H5 *CS re;uire%. >I3<S *1 S/-29/S (1) earne% sur lus (4) ai%:in sur lus (5) re$aluation sur lus (6) re%uction sur lus

A non:S8 'a" not recei$e stocA %i$i%en%s !ecause he is not a stocAhol%er o& recor%. In case o& unrecor%e% trans&ers As !et#een the arties, the trans&eree, i& at the ti'e o& the transaction, he is alrea%" a stocAhol%er at the ti'e o& the %eclaration. As !et#een the cor oration@ the trans&eror 9

<IS2*SITI*3 *1 C*-2*-AT0 ASS0TS (sec* 80) <es ite a ro$al !" the S8s or 'e'!ers, it is not 'an%ator" &or the .oar% to continue #ith the %is osition. (/illanueva# p* 0(') T-/ST 1/3< <*CT-I30 /n%er sec. 65, the cor oration can %eclare %i$i%en%s onl" out o& unrestricte% retaine% earnings, an% that un%er sec. 144, no cor oration shall %istri!ute an" o& its assets or ro ert" exce t u on la#&ul %issolution an% a&ter a"'ent o& all its %e!ts an% lia!ilities. (/illanueva# p* 0(0) /n%er the T1<, the ca ital stocA, ro ert" an% other assets o& the cor oration are regar%e% as e;uit" in trust &or the a"'ent o& the cor orate cre%itors. (!2& v* !A# $0% S!&A %'2) 2*F0- T* 03T0- I3T* 7A3A)0703T C*3T-ACT )en. -ule@ 7A3A)I3) C*-2*-ATI*3 7a+orit" $ote o& !oar% L 'a+orit" o& *CS 7A3A)0< C*-2*-ATI*3 7a+orit" !oar% L 'a+orit" o& *CS

0xce tions@ (nee% &or 4H5 $ote o& S8s re resenting *CS i&) (1) A S8 re resenting sa'e interest o& !oth 'anaging an% 'anage% cor oration o#n or control 'ore than 1H5 o& the *CS entitle% to $ote o& the 'anaging cor oration. (4) Fhere a 'a+orit" o& the 'e'!ers o& the !oar% o& %irectors o& the 'anaging cor oration also constitute a 'a+orit" o& the 'e'!ers o& the .*< o& the 'anage% cor oration. 700TI3)S .*A-< *1 <I-0CT*-S -0)/9A- 7T)@ 'onthl" unless .9s ro$i%e other#ise S20CIA9 7T)@ at an" ti'e u on the call o& the 2resi%ent or as ro$i%e% in the .9s 29AC0@ in or outsi%e the 2hili ines unless other#ise ro$i%e% in the .9s 3*TIC0@ one #eeA rior unless other#ise ro$i%e% in the .9s S8S *- 707.0-S -0)/9A- 7T)@ annuall" as &ixe% in the .9s, other#ise, on an" %ate in A ril S20CIA9 7T)@ at an" ti'e ro$i%e% one #eeA notice unless other#ise ro$i%e% in the .9s. 29AC0@ rinci al o&&ice. An" ro$ision in the .9s changing such lace is illegal. (sec* '%) 2-*XI0S =ali% onl" &or the 'eeting &or #hich it is inten%e%. 3o rox" shall !e $ali% an% e&&ecti$e &or a erio% longer than I "ears at an" one ti'e. (sec*',) 1ile% in #riting, signe% !" the S8 or 'e'!er an% &ile% !e&ore the sche%ule% 'eeting #ith the cor orate secretar". =*TI3) T-/STS )en. -ule@ one or 'ore S8s 'a" create a =T &or the ur ose o& con&erring u on a trustee or trustees the right to $ote an% other rights ertaining to the shares &or a erio% not exceedin9 ' years* 0xce tion@ in the case o& a =T s eci&icall" re;uire% as a con%ition in a loan agree'ent, sai% =T may be for a period exceedin9 ' years ?) shall automatically expire upon full payment of the loan* 1*-7 *1 =*TI3) T-/ST@ 10

(1) In #riting (4) Certi&ie% co " &ile% #ith the S0CD other#ise the =T is ine&&ecti$e an% unen&orcea!le (5) Cancel ol% certi&icate o& stocA(s) (C*S) an% issue ne# ones in the na'e o& the trustee(s) stating that the" are issue% ursuant to the =T agree'ent (6) 3ote the =T in the !ooAs o& the cor oration (I) The trustee(s) shall execute to the trans&erors =T certi&icates #hich shall !e trans&era!le in the sa'e 'anner an% #ith the sa'e e&&ect as C*S. "otes: The o#ner o& the share(s) is onl" %e ri$e% o& the right to $ote ./T shall retain all other rights liAe the right to %i$i%en%s 3o =T i& it #ill $iolate la#s against 'ono olies an% illegal co'!inations in restraint o& tra%e The $oting trustee 'a" $ote !" rox" unless the agree'ent ro$i%es other#ise A T-/ST00 'a" !e electe% to the .*<. A %irector #ho executes a =T o$er all his shares is auto'aticall" %is;uali&ie% since he onl" re'ains as a !ene&icial o#ner an% not one #ith legal title o$er the shares. 8ence, ceasing to o#n the shares, he is no# %is;uali&ie% &ro' !eing a %irector in the cor oration. C*3SI<0-ATI*3 1*- ST*C>S (1) Cash (4) 2ro ert" (5) 9a!or er&or'e% &or or ser$ices actuall" ren%ere% to the cor oration (6) 2re$iousl" incurre% in%e!te%ness !" the cor oration (I) A'ounts trans&erre% &ro' /-0 to state% ca ital (6) *utstan%ing shares exchange% &or stocAs in the e$ent o& reclassi&ication or con$ersion. ST*C> C0-TI1ICAT0 .est e$i%ence o& o#nershi ./T i& a su!scri tion has not !een ai% an% is not %elin;uent, then the su!scri!er is %ee'e% a S8 &or the &ull nu'!er o& shares su!scri!e% !" hi' an% he 'a" $ote such nu'!er o& shares at a S8Gs 'eeting e$en though he 'a" not ha$e !een issue% a certi&icate o& stocA. Shoul% !e signe% !" the 2resi%ent or =2 an% counter:signe% !" the cor orate secretar" an% seale% #ith the seal o& the cor oration The issue% certi&icate o& stocA is ri'a &acie e$i%ence o& the genuineness an% $ali%it" o& the stocA !ut this 'a" !e re!utte% !" e$i%ence to the contrar" such as the !ooAs an% recor%s o& the cor oration an% e$en the stocA an% trans&er !ooA. 0n%orse'ent lus %eli$er" an% registration in the cor orate !ooAs re;uire% to trans&er o#nershi . The trans&er o& shares 'ust !e recor%e% in the !ooAs o& cor oration, other#ise, though $ali% !et#een the arties, it cannot !e e&&ecti$e as against the cor oration an% the unrecor%e% trans&eree cannot $ote nor !e $ote% &or. The ur ose o& registration is t#o: &ol%@ (1) to ena!le the trans&eree to exercise all the rights o& a S8, inclu%ing the right to $ote an% to !e $ote% &or, an% (4) to in&or' the cor oration o& an" change in share o#nershi so that it can ascertain the ersons entitle% to the rights an% su!+ect to the lia!ilities o& a S8. The %eli$er" o& the stocA certi&icate %ul" en%orse% !" the o#ner is the o erati$e act o& trans&er o& shares &ro' the la#&ul o#ner to the trans&eree. (sec*0$) 70-)0- A3< C*3S*9I<ATI*3 7erger@ A L . N A or . Consoli%ation@ AL . NC (the arties are calle% constituent cor orations) 11

4 Ain%s o& 'erger (1) 9egal 'erger: !" la# (4) Kuasi:'erger@ rights an% lia!ilities 'a" $ar" accor%ing to the ter's o& the 'erger. 0110CTS *1 70-)0- (S0C. 8B) Constituent cor orations !eco'e a single cor oration Se arate existence o& constituent cor orations cease exce t that o& the sur$i$ing cor oration or consoli%ate% cor oration The sur$i$ingHconsoli%ate% cor oration shall assu'e all rights, ri$ileges, i''unities, &ranchises an% o#ers Assu' tion o& lia!ilities A*I o& a!sor!e% cor oration nee% not !e a'en%e% A!sor!e% cor oration nee% not execute a %ee% o& assign'ent 0xe' tion &ro' ca ital gains tax I3STA3C0S F803 -I)8T *1 A22-AISA9 7A? .0 0X0-CIS0<@ (1) In case the a'en%'ent o& the A*I has the e&&ect o&@ (a) -estricting the rights o& an" S8 or class o& shares (!) Authori(ing re&erences in an" res ect su erior to those o& outstan%ing shares o& an" class, or (c) 0xten%ing or shortening cor orate ter' o& cor orate existence (4) In case o& sale, lease, exchange, trans&er, 'ortgage, le%ge or other %is osition o& all or su!stantiall" all o& the cor orate an% assets as ro$i%e% !" the Co%e (5) In case o& 'erger or consoli%ation (6) In case o& in$est'ent o& &un%s in another cor oration or !usiness ur ose other than the ri'ar" ur ose (I) In close cor oration, a S8 'a" co' el the cor oration to urchase his shares at &air $alue &or an" reason. "otes: Increase in ACS, no a raisal right. Why? 3ot in the enu'eration 0xce tion to the rule that a cor oration cannot !u" !acA its o#n shares@ A stocAhol%er exercising his a raisal right

-I)8T *1 A22-AISA9 )en. -ule@ Allo#e% onl" #hen the cor oration has /-0, 'eaning the a'ount in excess o& the legal ca italD other#ise, the legal ca ital #oul% !e %istur!e%. 0xce tions@ (1) In case o& re%ee'a!le shares (Sec* ,) (4) In case o& close cor oration (Sec* %08) "otes: I& the %issenting S8 is not ai% #ithin 5B %a"s &ro' a&ter the a#ar%, he shall auto'aticall" !e restore% to all his rights as S8. (/illanueva# p* (2,) I3STA3C0S F803 -I)8T *1 A22-AISA9 IS 9*ST@ (1) 1ailure to 'aAe %e'an% #ithin 5B %a"s a&ter the $ote #as taAen on the cor orate act (4) 1ailure to surren%er C*S #ithin 1B %a"s &ro' %e'an% &or notation (5) 3on:existence o& unrestricte% ro&it to co$er a"'ent o& the &air $alue o& %issenting shares #ithin 5B %a"s &ro' %ate o& re#ar%D (6) Su!se;uent trans&er o& the shares #hich ha$e !een annotate% #hen the ne# certi&icates o& stocA are issue%D (I) Fhen the cor oration consents a %e'an%ing S8 to #ith%ra# the right o& a raisal (6) A!an%on'ent o& cor orate action 12

(7) <isa

ro$al !" S0C o& cor orate action

/3-0ST-ICT0< -0TAI30< 0A-3I3)S Who determines value? .*<, in the a!sence o& agree'ent as to the &air $alue as o& the %a" rior to the %ate on #hich the $ote #as taAen exclu%ing an" a reciation or %e reciation in antici ation o& such cor orate action I1 T80-0 IS <ISA)-00703T@ it shall !e a raise% !" three %isintereste% ersons, one na'e% !" the S8, another !" the cor oration an% last, !" the &irst an% secon% 'e'!er. /3-0ST-ICT0< -0TAI30< 0A-3I3)S: those &ree &or %i$i%en% %istri!ution to S8s i& the" ha$e not !een reser$e% or set asi%e !" the .*< &or so'e cor orate ur ose or &or so'e other ur ose in accor%ance #ith 'anagerial, legal or contractual re;uire'ents. 1or ur oses o& %i$i%en% %eclaration, the ter' sur lus ro&its, 'a" !e use% s"non"'ousl" #ith /-0. lex cervus fraternity

Fhen %oes the right o& a S8 to !e ai% the &air $alue o& his shares ceaseM (1) Fhen the cor oration gi$es its consent to the #ith%ra#al (4) Fhen the cor orate action is a!an%one% or rescin%e% !" the cor oration (5) Fhen the cor orate action is %isa ro$e% !" the S0C #here such a ro$al is necessar" (6) Fhen the S0C %eter'ines that such S8 is not entitle% to the right o& a raisal 0110CTS *1 <09I3K/03C? SA90 <elin;uent shares shall not !e $ote% &or or !e entitle% to $ote or to re resentation at an" S8 'eeting The hol%er thereo& shall not !e entitle% to an" o& the rights o& a S8 exce t the right to %i$i%en%s. 8*F A C*-2*-ATI*3 C*990CTS .A9A3C0 *3 T80 S/.SC-I2TI*3 Cu%icial action (sec* (0) <eclaration o& cash %i$i%en%s Sale at u!lic auction (extra:+u%icial) 2roce%ure (extra:+u%icial)@ (1) 1ile a&&i%a$it stating circu'stances as to ho# the certi&icates #ere lost (4) 2u!lication (5) Instea% o& #aiting &or one "ear, a !on% 'a" !e &ile% an% a ne# certi&icate 'a" !e issue% e$en !e&ore the one "ear ex ires, 2-*=I<0< that i& there is a en%ing contest as to o#nershi , the issuance o& the ne# certi&icate #ill !e sus en%e% until the &inal %ecision o& the court. -I)8T T* I3S20CT C*-2*-AT0 .**>S 4efenses that may be availed of by the !3&13&A)23" @ (1) That the erson %e'an%ing to exa'ine cor orate recor%s has i' ro erl" use% an" in&or'ation secure% through an" rior exa'ination o& such recor%s (4) That he #as not acting in goo% &aith (5) That %e'an% #as not &or a legiti'ate ur ose. -I)8T T* 1I3A3CIA9 STAT0703TSH .A9A3C0 S800TH2-*1IT A3< 9*SS STAT0703T Fithin 1B %a"s &ro' recei t o& a #ritten re;uest 8o#e$er, i& the ai%:u ca ital o& the cor oration is less than 2I,BBB, the 1S 'a" !e certi&ie% !" the Treasurer or an" res onsi!le o&&icer. 13

3*3:ST*C> C*-2*-ATI*3S 7e'!ers entitle% to onl" one $ote. There is no cu'ulati$e $oting in 3SC unless other#ise ro$i%e% in the A*I 7e'!ershi in a 3SC is ersonal an% non:trans&era!le unless the A*I or .9s ro$i%e other#ise. As a rule@ the registere% o#ner o& the shares is entitle% to $ote on the sai% shares. 0xce tion@ se;uestere% shares o& ri$ate ersons ac;uire% #ith ill:gotten #ealth. T0STS@ (1) is there ri'a &acie e$i%ence sho#ing that the sai% shares are ill:gotten an% thus !elong to the stateM (4) Is there a %anger o& %issi ation, thus, +usti&"ing the their continue% se;uestration an% $oting !" the 2C)) #hile the 'ain issue is en%ing !e&ore the Sandi9anbayanM (/illanueva# p* ($2) )rustees- 'a" !e 'ore than 1I in nu'!erD the" 'a" classi&" the'sel$es &or ur oses o& the ex iration o& ter' o& 1H5 o& their nu'!er &or e$er" "earD su!se;uentl" electe% Trustees ha$e a ter' o& three (5) "ears. )a-e note of the rules on distribution of assets in case of dissolution (/illanueva# p* ($8) C9*S0 C*-2*-ATI*3 (sec* +0) C9*S0 C*-2*-ATI*3: a cor oration >hose A32 provide that: (1) all o& the cor orationGs issue% stocAs o& all classes, exclusi$e o& treasur" shares, shall !e hel% o& recor% !" not 'ore than a s eci&ie% nu'!er o& ersons, not excee%ing 4BD (4) All o& the issue% stocA o& all classes shall !e su!+ect to one or 'ore s eci&ie% restrictions on trans&er er'itte% !" this TitleD (5) The cor oration shall not list in an" stocA exchange or 'aAe an" u!lic o&&ering o& an" o& its stocA o& an" class. T80 1*99*FI3) CA33*T .0 A C9*S0 C*-2*-ATI*3@ 'ining, oil co' anies, stocA exchanges, !anAs, insurance co' anies, u!lic utilit", e%ucational institution, other cor orations $este% #ith u!lic interest. 2-0:072TI=0 -I)8T I3 C9*S0 C*-2*-ATI*3S@ shall exten% to all stocAs to !e issue%, #hether &or 'one" or ro ert" or ersonal ser$ices, unless the A*I ro$i%e other#ise. (sec* %02)

C8A-ACT0-ISTICS *1 A C9*S0 C*-2*-ATI*3@ (1) S8s act as %irectors #ithout nee% o& election an% there&ore lia!le as %irectorsD (4) ;uoru' 'a" !e greater than 'ere 'a+orit"D (5) trans&er o& stocAs to others, #hich #oul% increase the nu'!er o& S8 to 'ore than the 'axi'u' are $ali%D (6) cor orate actions !in%ing e$en #ithout &or'al !oar% 'eeting, i& the S8 has Ano#le%ge or rati&ie% the in&or'al actionD (I) re:e' ti$e right exten%s to all stocAs issue%D (6) %ea%locAs in !oar% are settle% !" the S0C, on the #ritten etition !" an" S8D (7) S8 'a" #ith%ra# an% exercise his right o& a raisal. S20CIA9 -/90 *3 C9*S0 C*-2*-ATI*3@ a cor oration is not %ee'e% a close cor oration #hene$er 4H5 o& the $oting stocAs or $oting rights is o#ne% or controlle% !" another cor oration #hich is not a close cor oration. "otes: -0A< Sec. 99 (6): Trans&er o& stocA in !reach o& con%itionsD trans&er o& stocA to one #ho is not entitle%D e&&ect. *#nershi o& 99.866E o& the *CS %oes not +usti&" the conclusion that a cor oration is a close cor oration. There shoul% !e co' liance #ith Sec. 96 in 14

or%er that it !e a close cor oration. *#nershi o& al'ost all cor orate stocAs %oes not +usti&" iercing the cor orate $eil. (/illanueva# p* ($() Sec. 1B6 on <0A<9*C>S: etition #ith the S0C Sec.1BI:as long as there is unrestricte% ro&its, the cor oration can !e co' elle% to !u" out the S8.

7*<0S *1 <ISS*9/TI*3 *1 A C*-2*-ATI*3 A. =oluntar" %issolution i. Fhere no cre%itors are a&&ecte% (sec* %%,) ii. Fhere cre%itors are a&&ecte% (sec* %%+) .. ." shortening cor orate ter' (sec* %20) C. In$oluntar" %issolution (sec*%2%) @rounds: non:user &or "ears non:user &or I "ears %issolution !" S0C !ase% on existing la#s etc. 'isre resentation &rau% or 'isre resentation as to the ai%:u ca ital re&usal to a%o t .9s (/illanueva# p* ('0)

5 7*<0S *1 9IK/I<ATI*3@ !" the .*<H Trustees con$e"ance to a trustee 'a%e #ithin the 5:"ear erio% !" 'anage'ent co''ittee or reha!ilitation recei$er "otes: In the @elano case, the counsel o& the %issol$e% cor oration #as consi%ere% a trustee. In the later case o& !lemente v*!A (282 S!&A) #e hel% that the .*<s 'a" !e er'itte% to co' lete the cor orate li;ui%ation !" continuing as trustees, !" legal i' lication. Asee sec*%8'. &eburiano v* !A# $0% S!&A. /illanueva# p* ('2) :i=uidation in$ol$es the #in%ing u so that assets are %istri!ute% to those entitle% to recei$e the'. It is the rocess o& re%ucing assets to cash, %ischarging lia!ilities an% %i$i%ing sur lus. 7ean#hile, rehabilitation is the o osite, it connotes the reo ening or reorgani(ation o& a continuing cor orate li&e.

1*-0I)3 C*-2*-ATI*3S A cor oration &or'e%, organi(e% or existing un%er an" la# other than those o& the 2hili ines, an% #hose la#s allo# 1ili ino citi(ens an% cor orations to %o !usiness in its o#n countr" or state. (sec* %2$) Test to %eter'ine nationalit" o& &oreign cor orations I3C*-2*-ATI*3 T0ST: %eter'ine% !" the state o& incor oration regar%less o& the nationalit" o& the S8s. <*7ICI90 T0ST C*3T-*9 T0ST: %eter'ine% !" the nationalit" o& the controlling S8s or 'e'!ers in the 2hili ines (also Ano#n as #ar:ti'es test) <*I3) ./SI30SS, 15

I' lies a continuit" o& co''ercial %ealings an% arrange'ents, an% conte' lates to so'e extent the er&or'ance o& acts or #orAs or the exercise o& so'e &unctions nor'all" inci%ent to an% in rogressi$e ursuit o& the ur ose an% o!+ect o& its organi(ation. IT I3C9/<0S@ soliciting or%ers, ser$ice contracts, o ening o&&ices #hether liaison or !ranches, a ointing re resentati$es to sta" in the 2hili ines &or 'ore than 18B %a"s, artici ating in the 'anage'ent o& a %o'estic cor oration, an" other act #hich i' lies a continuit" o& co''ercial %ealings. IT <*0S 3*T I3C9/<0@ (a) 'ere in$est'ent as a sharehol%er !" &oreign e;uit" in %o'estic cor orations or the exercise o& such rights as in$estorD (!) ha$ing a no'inee %irector or o&&icer to re resent its interestsD (c) a ointing a %istri!utor or re resentati$e %o'icile% in the 2hili ines #hich transacts !usiness in its o#n na'e an% &or its o#n account. &einsurance does not per se constitute doin9 business : -0I3S/-A3C0 is a se arate an% %istinct arrange'ent &ro' the original contract o& insurance, #hose contracte% risA is insure% in the reinsurance agree'ent. 8ence, the original insure% has generall" no interest in the contract o& reinsurance. (Avon v* !A# 2(, S!&A. /illanueva# p* (00)

Tests to %eter'ine #hether the &oreign cor oration is %oing !usiness (1) Su!stance test: i& it 'aintains the 'ain !usiness or has asse% it on to another (4) Continuit" test: i& it is exercising so'e o& the &unctions nor'all" inci%ent to an% in rogressi$e rosecution o& the ur ose an% o!+ect o& its organi(ation. S/A.I9IT? *1 1*-0I)3 C*-2*-ATI*3 A. 1oreign cor oration %oing !usiness i. #ith license@ 'a" sue an% !e sue% ii. #ithout license@ cannot sue !ut 'a" !e sue% in the 2hili ines (sec*%$$) .. 1oreign cor oration not %oing !usiness in the 2hili ines, on an isolated transaction: 'a" sue an% !e sue%. S/ITS A)AI3ST T80 1*-0I)3 C*-2*-ATI*3 Although &oreign cor orations not %oing !usiness in the 2hili ines #oul% ha$e no resence here an% there&ore cannot generall" !e su!+ect to our la#s an% +uris%iction, 'ush less to our +u%icial rocesses, the SC has enunciate% that the" are susce ti!le to 2hili ine +uris%iction either !" consent, sti ulation as to $enue, esto el, or !" rinci le o& e;uit". In%ee%, i& a &oreign cor oration, not engage% in !usiness in the 2hili ines, is not !arre% &ro' seeAing re%ress &ro' courts in the 2hili ines a fortiori, that sa'e cor oration cannot clai' exe' tion &ro' !eing sue% in 2hili ine courts &or acts %one against a erson or ersons in the 2hili ines. (Bacilities 79mt*# ,+ S!&A) Status o& contracts entere% into #ithout license <oes not a&&ect the $ali%it" ./T re'o$es its legal stan%ing to sue in local courts. 8o#e$er, the %e&ect 'a" !e cure% !" o!taining the re;uire% license. (Come 2nsurance v* 5astern Shippin9# %2$ S!&A) 3ote the %octrine o& esto el 9egal stan%ing to sue on cor orate na'es, tra%e'arAs an% tra%ena'es@ Although not %oing !usiness in the countr", it has legal stan%ing to sue to o ose the registration o& tra%e'arA #hen it is sho#n that its ro%ucts are !eing i' orte% an% sol% in the 2hili ines. (@eneral @arments v* 4irector# 8% S!&A. /illanueva# p* (08) 16

-0SI<03T A)03T 0ither 1ili ino or %o'estic cor oration 2o#er o& attorne" re;uire% to recei$e S0C rocesses ISS/A3C0 *1 9IC03S0 T* 1*-0I)3 C*-2*-ATI*3 A oint'ent o& resi%ent agent 2roo& that countr" o& origin grants reci rocal rights to 1ili inos 0sta!lish an o&&ice Assets /n%ertaAing that in case o& insol$enc", 1ili ino cre%itors #ill !e re&erre% 6 'onths notice rior to ter'ination o& o erations &ranchises an% atents 'ust re'ain in the 2hili ines, i& this is ossi!le 21BBT !on% That #ithin 6 'onths a&ter each &iscal "ear, S0C shall re;uire the %e osit o& a%%itional securities e;ui$alent to 4E o& the a'ount in excess o& 2I7 o& gross re$enue.

17