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Njpe Corpo Notes PDF
Njpe Corpo Notes PDF
CHAPTER I - INTRODUCTION
JOINT VENTURE PARTNERSHIP
No personality Has a personality
KINDS OF BUSINESS ORGANIZATION distinct and separate Separate and
from the persons Distinct
A. SOLE PROPRIETORSHIP composing it
Single or Particular Usually has a
- One conducted for profit by a lone or undertaking general business of
single individual who owns all the particular kind
assets, personally owes and answers all Corporations may Generally,
the liabilities or suffers all the losses and enter into joint Corporations can’t
enjoys all the profits to the exclusion of ventures enter into
others. Partnership.
- It eliminates the bureaucratic process
common corporations. The proprietor
make his own decision and can act GENERALLY, Corporations can’t enter into
without any delay. Partnership.
- Unlimited personal liability for all debts - Reason: identity of the corpo is lost or
and obligation, can be held liable merged with that of another and
beyond his capital, even personal discretion of the officials is placed in
properties not used in business can be other hands not permitted by law of its
attached or foreclosed. creation.
EXCEPTION allowed if the ff. are met:
B. PARTNERSHIP 1. Articles of incorporation expressly
authorized the corporation to enter
- Two or more persons bind themselves into Partnership.
to contribute money, property, or 2. The agreement of the Articles of
industry to a common fund with the Partnership must provide that all the
intention of dividing the profits among partners will manage the
themselves. (Article 1767 NCC) partnership.
- It may be brought about by express or 3. The article of Partnership must
implied contract. stipulate that all the partners are
- There is personal relationship and shall be jointly and severally
(Fiduciary) among partners. For this liable for all obligations of the
reason, Death and Incapacity of one of partnership.
the partners would result in its
dissolution. D. CORPORATION
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2
stockholder
Limited Liability Partners are liable CHAPTER III- CLASSIFICATION
Pro rata except if OF CORPORATION
Limited Partner and
after all the
A. Classes of Corporations under the
partnership property
Corporation Code
has been exhausted,
for all partnership
Section 3
liability
Existence is limited May exist for an
1. Stock Corporation
to 50 yrs but indefinite period
renewable subject only to
- Corporations which have capital stock
causes of dissolution
divided into shares and are authorized
provided for by law
to distribute to the holders of such
Cannot be dissolved Partners may
shares dividends or allotments of the
by mere agreement, dissolve it at will or surplus profits on the basis of the shares
the consent of State at any time deem fit. held are stock corporation.
is necessary Requisites
a. Capital Stock divided into
shares
b. They are authorized to
distribute dividends or
allotments as surplus profits
to its stockholders on the
basis of the shares held by
each of them.
2. Non-Stock Corporation
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PNOC-EDC vs NLRC
Ecclesiastical
a. Religious societies
b. Corporation Sole
Lay Corporations
a. Eleemosynary corporations
b. Civil Corporations
7. Quasi-public Corporation
8. Quasi Corporation
9. De jure Corporation
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Corporators- All persons who compose the Q: What about IBP it has 21 members?
corporation at any given time and need not be If a stock corporation it can be more
among those who execute the Articles at the than 15 members (Sec. 92)
start of the formation and organization.
Q: PSBA has 30 boards, are they violating
Incorporators- Those person mentioned in the the law?
articles as originally forming the corporation and Stock corpo can have more than 15
who are signatories of the Articles. directors. (Sec. 108)
Qualification of D/T
CAPITALIZATION
1. Every director must own at least 1 share
of the capital stock of the corporation by Capital- broadly covers all the assets of a
which he is a director. corporation used in the conduct of business.
Trustees of non-stock corpo
must be a member. Authorized Capital- signifies the maximum
2. Majority of D/T must be a Resident in amount fixed in the articles to be subscribed and
Philippines paid-in or secured to be paid by the subscibers.
XPN: Aliens, WON residents of the A.k.a Maximum number of shares that the
Philippines, may not qualify or be corporation can issue (Unless the Article is
elected as such, in any business amended)
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100k
is
the
Paid-‐up
capital,
which
is
within
25%
of
the
Subscribed Capital Stock- Total number of subscribed
capital
shares and its total value for which there are -‐
it
is
not
required
that
each
of
the
subscribers
will
pay
contracts for their acquisition or subscription. It 25%
which
is
250k.
is the stockholder’s equity account showing that
part of the authorized capital stock which has
been paid or promised to be paid, or that portion Corporation cannot exceed more than 1-
of the authorized capital stock which has been M it is the maximum amount it cannot issue
subscribed by the subscribers or stockholders. more unless Articles will be amended.
Maximum shares it can issue is 1M shares
Q: What is the minimum subscribed unless amended.
capital?
At least 25% of the authorized Penalty: Max Fine of 500M and imprisonment
capital stock must be subscribed. for 20 years.
Paid up Capital- Actual amount or value which Q: What is the Minimum for a
has been actually contributed or paid to the domestic corporation? In no case shall the
corporation in consideration of the subscriptions paid- up capital be less than 5k
made thereon. It may either be in cash, property
or in the form of services actually rendered to Q: Is there a minimum authorized
the corporation. capital imposed by the code? If there is
Section 62 - means that payment to minimum paid-up logically there should also be
subscription to the capital stock of a corporation a minimum capital =5000
may be paid in varied forms (personal or real
property). So long as they are capable of SHARES OF STOCK CORPORATION AND
valuation and is fairly valued. THEIR CLASSIFICATION
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1. Preference as to dividends
-‐ Holder of such share has the privilege of
being paid with dividend first before any
other stockholders are paid in the event
that there are profits available for
7.
payment of dividends.
Q: What Advantage & Privilege will one -‐ The guaranty is not absolute because
have against the other? None, they will be the BOD has the discretion to determine
presumed equal if no restrictions in the Articles whether dividends are to be declared
(Note: they are nor presumed common stock) out of the unrestricted retained earnings
GR: Equal
of the corporation.
XPN: If a specific type of share
is indicated in the Articles. -‐ The amount of preference is stated in
the “contract of subscription” and is
usually on a fixed percentage or
Ø COMMON STOCKS specified amount.
-‐ one which entitles its owner to an equal -‐ If after paying the preferred stocks no
pro rata division of profits and without more surplus profits remain the not so
any preference or advantage in respect preferred stockholders has no recourse.
over any other stockholder or class of
stockholders. GR: However, if the remaining surplus
profits substantial, the other
-‐ It usually carries with it the right to vote, stockholders can possibly receive a
bigger dividends than the preferred
and frequently, the exclusive right to do
holders. (Preferred dividends is non-
so. participating)
XPN: Unless there is a stipulation in the
-‐ GR:If there are more than one kind of articles on the participation of preferred
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GR: Stockholders can’t be denied of their right Section 137. Outstanding capital stock
to vote defined. - The term "outstanding capital stock",
XPN: Unless provided in the Articles, and only as used in this Code, means the total shares of
Preferred, redeemable shares, and those
stock issued under binding subscription
provided in the code (Founder’s shares) can be
deprived of voting rights. agreements to subscribers or stockholders,
XPN to XPN: Even if deprived of their right to whether or not fully or partially paid, except
vote, they can still vote in the following treasury shares. (n)
instances. (S.6)
1. Amendment of the articles of -‐ Voting and dividend rights, it refers to
incorporation; the outstanding capital stocks
-‐ Only outstanding stocks are allowed to
2. Adoption and amendment of by-laws; vote and receive dividends
-‐ Actually the same
3. Sale, lease, exchange, mortgage,
pledge or other disposition of all or substantially
all of the corporate property; Ø Founder’s Shares
-‐ Code does not define it
4. Incurring, creating or increasing -‐ Presumed to be shares of stock which
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De Jure De Facto
DE FACTO CORPORATION Corporate existence Can be Directly
cannot be directly attacked in a Quo
-‐ one that is so defectively created as attacked warrranto proceeding.
not to be a de jure corporation but (Only the State can
nevertheless exists, for all practical institute)
purposes, as a corporate body, by virtue
of its bona fide attempt to incorporate Municipality of Malabang vs Benito
under existing statutory authority, The mere fact that Balabagan was
coupled with the exercise of corporate organized at the time when the statute had not
powers. been invalidated cannot conceivably make it a
de facto corporation, there is no other valid
-‐ It exist as corporation separate and statute to give color of authority to its creation.
distinct if the following conditions are
met Q: If Certificate of Registration is not ye
issued by SEC, can there be a de facto
§ Requisites: corporation? They know that there is no
existing corporation. They can’t claim in GF that
1. There is a valid law under which the there is a Corporation
corporation could have been created as
a de jure corporation; Hall vs PICCIO
FELC only signed the Articles but SEC
2. An attempt, in good faith, to form did not approve its incorporation yet.
corporation according to the SEC has no jurisdiction. First, It did not
requirements of law (colorable obtain a Certificate of Incorporation. They are
compliance); not in goof faith. Collateral Attack is applied only
with existence of errors and irregularities, but not
3. A user of corporate powers; the with a TOTAL OR SUBSTANTIAL DISREGARD
transaction in some ways as it were a OF THE LAW. Second, Not a suit in which
corporation. corporation is a party, it is a suit among
stockholders for purposes of dissolution. Even
4. Good faith in claiming to be doing the existence of de jure corporation may be
business as a corporation terminated in a private suit for its dissolution
between stockholders, without the intervention
- Existence of a de facto corporation cannot of the State.
be Collaterally attacked either by the State
or person. However, its existence may be CORPORATION BY ESTOPPEL
Directly attacked by the State in Quo
warranto proceeding. - One that is so defectively formed as not to be
either de jure or de facto corporation but which
Q: Are rights and obligation of directors etc. are considered as corporations in relation only to
of a de jure corporation same as in a de facto those who cannot deny their corporate existence
corporation? Yes, the same law applies. A de due to their agreement, admission, or conduct.
facto corporation is, in all respects, similarly
situated with a de facto corporation except that
the State may question its existence in a direct -‐ serious defects in its incorporation or
proceeding.
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The mere fact that one contracts or otherwise Chiang Kai Shek School vs. CA
deals with an association or its agents will not
estop that person from denying that it is a Persons who have continuously and for
corporation, especially if that person does not a long period misrepresented themselves as a
know that it claims to be a corporation, but corporation as estopped from denying such
rather supposes that it be doing business as an personality to defeat claims against it.
unincorporated association.
Asia Banking Corp. vs. Standard Products
Doctrine of corporation by estoppel applies Co., Inc
against a third party only when he tries to
escape liability on a contract from which he has XPN 2: In the absence of fraud, a person who
benefited on the irrelevant ground of defective has contracted or dealt with an association in
corporation. such a way as to recognize and in effect admit
its legal existence as a corporate body is
Lozano vs De los Santos thereby estopped to deny its corporate existence
in an action leading out of or involving such
Jeepney driver’s association case contract or dealing, unless the existence is
attacked for causes which have arisen since
Corporation by estoppel is founded on making the contract or other dealing relied
principle of equity and is designed to prevent on as an estoppel.
injustice and unfairness. It applies when persons
assume to form a corporation and exercise International Express Travel & Tours
corporate functions and enter into business Services, Inc. vs. CA
relations with third persons. Where there is no
third person involved and the conflict arises only XPN2: The doctrine of estoppel applies to a third
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ORGANIZATION AND
COMMENCEMENT OF BUSINESS
CORPORATE ORGANIZATION
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Rustan Pulp and Paper Mills, Inc. vs. IAC crime, confuse legitimate issues, or to
circumvent the law or perpetuate deception, or
The president and manager of a corporation an alter-ego, adjunct or business conduit for the
who entered into and signed a contract in his sole benefit of a stockholder or a group of
official capacity, cannot be made liable stockholders or another corporation.
thereunder in his individual capacity in the
absence of stipulation to that effect due to the Palacio vs Fely Transportation
personality of the corporation being separate
and distinct from the person composing it. Calingsan and defendant transportation is
regarded as one person. It is evident that
(Corporations are juridical person and operate Calingsan’s main purpose in forming the
through its officers. Officers only act on behalf of corporation is to evade his subsidiary civil
corporation and can’t be held liable for debts of liability resulting from the conviction of his driver.
corporation)
This is one case where the defendant
Cruz vs Dalisay corporation should not be heard to say that it
has a personality separate and distinct from its
A corporation has a personality distinct and members when to allow it to do so would
separate from its individual stockholders or sanction the use of the fiction of corporate entity
members. The mere fact that one is president of as a shield to further an end subversive of
a corporation does not render the property he injustice.
owns and possesses the property of the
corporation, since the president, as an
individual, and the corporation are separate
entities. Marvel Building Corpo vs David
(Final judgment against corporation can’t be The fact that twenty-five certificates were
held against stockholder even if they are signed by the president of the corporation, for no
president or the majority stockholder) justifiable reason, the fact that two sets of
certificates were issued, the undisputed fact that
Palay Inc. vs. Clave Maria B. Castro had made enormous profits
and, therefore, had a motive to hide them to
Mere ownership by a single stockholder or by evade the payment of taxes, the fact that the
another corporation of all or nearly all of the other subscribers had no incomes of sufficient
capital stock of a corporation is not, of itself, magnitude to justify their big subscriptions, the
sufficient ground for disregarding the separate fact that the subscriptions were not receipted for
corporate personality. and deposited by the treasurer in the name of
the corporation but were kept by Maria B. Castro
Soriano vs. CA herself, the fact that the stockholders or the
directors never appeared to have ever met to
In a right of action against the corporation, the discuss the business of the corporation, the fact
officers may not be held personally liable as long that Maria B. Castro advanced big sums of
as they act within the scope of their authority. money to the corporation without any previous
arrangement or accounting, and the fact that the
books of accounts were kept as if they belonged
to Maria B. Castro alone — these facts are of
patent and potent significance. What are their
necessary implications? Maria B. Castro would
not have asked them to endorse their stock
PIERCING THE VEIL OF certificates, or be keeping these in her
CORPORATE FICTION possession, if they were really the owners. They
never would have consented that Maria B.
Piercing the veil of the corporate fiction is Castro keep the funds without receipts or
resorted to only in cases where the corporation accounting, nor that she manages the business
is used or being used to defeat public without their knowledge or concurrence, were
convenience, justify wrong, protect fraud, defend they owners of the stocks in their own rights.
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While the mere ownership of all or payment of private respondent's claim is not
nearly all of the capital stock of a corporation is supported by the facts. Philsa's corporate
a mere business conduit of the stockholder, that personality therefore remains inviolable.
conclusion is amply justified where it is shown,
as in the case before us, that the operations of Thus, at the time Philsa allowed its
the corporation were so merged with those of license to lapse in 1985 and even at the time it
the stockholders as to be practically was delisted in 1986, there was yet no judgment
distinguishable from them. To hold the latter in favor of private respondent. An intent to evade
liable for the corporation's obligations is not to payment of his claims cannot therefore be
ignore the corporation's separate entity, but implied from the expiration of Philsa's license
merely to apply the established principle that and its delisting.
such entity can not be invoked or used for
purposes that could not have been intended by
Neither will the organization of Philsa
the law that created that separate personality. International Placement and Services Corp. and
its registration with the POEA as a private
Tan Boon Bee vs Jarencio employment agency imply fraud since it was
organized and registered in 1981, several years
A Corporation can only hold properties before private respondent filed his complaint
that are necessary to its business (Doctrine of with the POEA in 1985.
Limited Liability).
For the separate juridical personality of a
Cease vs CA corporation to be disregarder, the
wrongdoing must be clearly and
The Board of Directors and stockholders convincingly established.
belong to one family the head of which Forrest
L. Cease always retained the majority stocks Indophil textile mill union vs Calica
and hence the control and management of its
affairs. The fact that the businesses of private
respondent and Acrylic are related, that some of
the employees of the private respondent are the
The accounts of the corporation and
same persons manning and providing for
therefore its operation, as well as that of the
auxilliary services to the units of Acrylic, and that
family appears to be indistinguishable and
the physical plants, offices and facilities are
apparently joined together. As admitted by the
situated in the same compound, it is our
defendants the corporation 'never' had any
considered opinion that these facts are not
account with any banking institution or if any
sufficient to justify the piercing of the corporate
account was carried in a bank on its behalf, it
veil of Acrylic.
was in the name of Mr. Forrest L. Cease.
The legal corporate entity is disregarded
only if it is sought to hold the officers and
stockholders directly liable for a corporate debt
WHEN PIERCING THE CORPORATE or obligation. In the instant case, petitioner does
FICTION IS NOT JUSTIFIED not seek to impose a claim against the members
of the Acrylic.
Remo, JR vs. IAC
Hence, the Acrylic not being an
Corporate fiction cannot be disregarded in extension or expansion of private respondent,
the absence of intent to defraud in corporate the rank-and-file employees working at Acrylic
transactions. should not be recognized as part of, and/or
within the scope of the petitioner, as the
Del Rosario vs NLRC bargaining representative of private respondent.
In this regard we find the NLRC's (Atty. Ladia- La campana an Indophil has
decision wanting. The conclusion that Philsa same issues but different facts. In La campana,
allowed its license to expire so as to evade 2 corporations are located in the same
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There being not the least indication that Steps to be followed for an effective amendment
the second corporation is a dummy or of the articles of incorporation:
serves as a client of the first corporation, the
fiction of separate and distinct corporate i. Resolution by at least a majority of the board
entities cannot be disregarded and brushed of directors or trustees.
aside.
ii. 2. Vote or written assent of the stockholders
The genuine nature of the sale to Twin representing at least 2/3 of the outstanding
Ace is evidenced by the fact that Twin Ace was capital stock or 2/3 of the members in case of
only a subsequent interested buyer. At the time non-stock corporation.
when termination notices were sent to its
employees, TDI was negotiating with the First iii. Submission and filing of the amendments with
Pacific Metro Corporation for the sale of its the SEC as follows:
assets. Only after First Pacific gave up its efforts
to acquire the assets did Twin Ace or Tanduay a. The original and amended
Distillers come into the picture. Respondents- articles together shall contain all
employees have not presented any proof as to the provisions required by law to
communality of ownership and management to be set out in the articles of
support their contention that the two companies incorporation. Such articles, as
are one firm or closely related. The doctrine of amended, shall be indicated by
piercing the veil of corporate entity applies when underscoring the change or
the corporate fiction is used to defeat public changes made.
convenience, justify wrong, protect fraud, or
defend crime or where a corporation is the mere b. A copy thereof, duly certified
alter ego or business conduit of a person. To under oath by the corporate
disregard the separate juridical personality of a secretary and a majority of the
corporation, the wrong-doing must be clearly directors or trustees stating the
and convincingly established. It cannot be fact that such amendments
presumed. have been duly approved by the
required vote of the
stockholders or members.
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Q: Do you include non-voting shares? – Yes, Is the business act performed in April 8
Sec 6 of Corpo Code an “ultra vires act”?
C- 200k
No, because that is under special The action undertaken under Section
amendment. In that case, ratification in 37 & 38 must be voted upon at a duly
meeting is needed. Meeting duly called for constituted meeting. Special amendment is also
that purpose. subject to the approval of the SEC and may be
rejected or disapproved on grounds provided for
by section 17.
b. From the date of filing with the SEC if It is an Ultra vires act because
not acted upon with 6 months from the approval of SEC is still needed.
date of filing for a cause not attributable
to the corporation. (Note: not applicable
to special amendments because in Sp.
Amendment SEC must approve and PROVISIONS SUBJECT TO
issue Articles) AMENDMENT
Amendment filed in Jan. 31, 2014 GR: Section 16 “Unless otherwise provided by
the Code or by special law, any provision or matter
It performed a business act on April 8, stated in the articles of corporation is subject to
2014 amendment.”
The Sec did not act upon it. XPN: Matters which are fait accompli are not
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Corporation is bound by the acts of its Where a corporate contract has been effected
corporate officers if they act within the scope of with the approval of the board of directors, a
the five classification of powers of corporate resolution adopted at a meeting of stockholders
agents refusing to recognize the contract or repudiating
it is without effect.
1. Those expressly conferred or those
granted by the articles of incorporation, Barreto vs. La Previsora
the by-laws or by official act of the board
of directors Contracts between a corporation and third
persons must be made by or under the authority
2. Those that are incidental or those acts of its board of directors and not of it
as are naturally and ordinarily don which stockholders.
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2. Other disqualifications under applicable Detective and Protective Bureau vs. Cloribel
special laws.
If no election is conducted or no qualified
Section 23 & 27 are merely minimum candidate is elected, the incumbent director
requirement shall continue to act as such in a hold-over
capacity until the election is held and a qualified
Section 45-additional requirement for candidate is so elected.
member of Board
Valle verde vs Africa
Q: May there be a governing board of
directors created in Phil consisting solely of TERM TENURE
foreigners? Yes, provided majority are
residents in Philippines. However, we need the time during represents the term
to consider our nationalization law which which the officer may during which the
mentions on up to what extent can claim to hold the incumbent actually
office as of right, and holds office
foreigners subscribe in the business.
fixes the interval after
Otherwise, they will violate the Anti Dummy
which the several
Act. incumbents shall
succeed one another.
GR: Foreigner can be a D/T
term is fixed by statute tenure may
XPN: Foreigners can’t sit and it does not change be shorter (or, in case
simply because the of holdover, longer)
XPN to XPN Art. 16 of the Constitution, office may have than the term for
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become vacant, nor reasons within or Q: What is the term of office of members of
because the beyond the power of Board?
incumbent holds over the incumbent.
in office beyond the GR: They shall serve for one year until his
end of the term due to successor is qualified and duly elected. This 1
the fact that a year period is only applicable to stock
successor has not corporation because trustees has no
been elected and has determinate time.
failed to qualify.
XPN: 1. Close Corporation
3. Non-stock- 3 years
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I- 50k
________
The election may be adjourned if, for any
reason, no election is held, or if the required total 1M
quorum is not obtained. However, it may not be
adjourned indefinitely. A-E are siblings and holds majority o the
stock
Candidates receiving the highest number of
votes shall be declared elected. The reason why a cumulative voting
is right granted by law is to allow the minority to
Cumulative Voting have rightful representation in the BOD.
Q: What is quorum? Majority of the outstanding 2.Treasurer, who may or may not be a director
capita stock (person or proxy)
3.Secretary, who shall be a resident and citizen
Q: Do you include non-voting shares? No, of the Philippines
they are not entitled to vote and its not included
in Section 6 4.Such other officers as may be provided for in
the by-laws.
A-200k
Any two or more positions may be held
B-200k concurrently by the same person at the
same time except the president-
C-200k secretary or president-treasurer.
D-100k
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General rule: the quorum requirement for a third persons dealing in good faith with such
valid board meeting is the majority of the officers or agents.
number of the directors or trustees as fixed in
the articles of incorporation. This apparent authority may result
from (1) the general manner by which the
Exception: The articles of incorporation or the corporation holds out an officer or agent as
by-laws may provide for a greater majority. having power to act or, in other words, the
apparent authority with which it clothes him to
General rule: To have a valid corporate act, the act in general, or (2) the acquiescence in his
decision of at least a majority of the directors or acts of a particular nature, with actual or
trustees present at a meeting at which there is a constructive knowledge thereof, whether within
quorum is required. or without the scope of his ordinary powers.
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A corporate officer entrusted with the general by the secretary, on order of the president or
management and control of its business, has on the written demand of the stockholders
implied authority to make any contract or do any representing a majority of the outstanding
other act which is necessary or appropriate to capital stock, or a majority of the members
the conduct of the ordinary business of the entitled to vote. Should the secretary fail or
corporation. refuse to call the special meeting upon such
demand or fail or refuse to give notice, or if
As such officer, he may, without any special there is no secretary, the call for the meeting
authority from the Board of Directors, perform all may be addressed directly to the
acts of an ordinary nature, which by usage or stockholders or members by any
necessity are incident to his office, and may bind stockholder or member signing the demand.
the corporation by contracts in matters arising in
the usual course of business. Where similar acts Q: May the stockholders or members be
have been approved by the directors as a matter remove without just cause? Qaulifiy, General
of general practice, custom, and policy, the rule: Directors or trustees may be removed with
general manager may bind the company without or without just cause.
formal authorization of the board of directors.
Exception: Removal without just cause
Buenaseda vs. Bowen & Co., Inc. may not be used to deprive minority
stockholders or members of the right of
Lack of repudiation, acquiescence and representation to which they may be entitled
acceptance of benefits are equivalent to an under Sec. 24.
implied ratification by the Board of Directors and
binds the corporation even without formal PD 902-A grants the court the power and
resolution passed and recorded. authority to remove or oust a director and it can
do so, even motu propio by the appointment of a
Express ratification: through formal board management committee.
action.
I n case of a deadlock in a close corporation,
Implied ratification: Silence or acquiescence; the SEC is authorized to issue an order
Acceptance and/or retention of benefits; or By cancelling, altering, or enjoining any resolution
recognition or adoption. (Lopez realty by or other act of the corporation or its board of
Estoppel) directors or directing or prohibiting any act of the
corporation or the board of directors thereby
REMOVAL AND FILLING UP OF effectively taking away the rights of the directors
VACANCIES to act as managers of the corporation.
2. The removal must be a vote of the Q: May they be removed from offices? Sec 28
stockholders representing at least 2/3 of
the outstanding capital stock or 2/3 of Q: Who will preside the meeting in removal?
the members in case of non-stock
corporations; A- D 200k/s each
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May the majority call for stockholders 2. Regular or special meeting duly called
meeting to oust E? Qualify. No, for unjust for that purpose
causes. Yes, for just causes.
3. Or in the same meeting authorizing the
Q: May the stockholders or members be increase of D/T if so stated in the notice of
remove without just cause? Qaulifiy, Yes if the meeting.
majority stockholder. No, if removal without just
cause will deprive minority stockholders or Q: When is vacancy filled up? At the same
members of the right of representation. meeting without further notice or at any
subsequent general or special meeting after
Vacancies proper notice?
Q: What are the 3 exceptions to the rule that Q: Up to when can they fill-up?
remaining member of the board may be file-
up the vacancy? Q Who will fill-up the vacancy by removal?
Vote of majority of stockholders note remaining
1.Removal
Q: If A, B, C, D calls for a meeting and holds
2.Term has expired to fill-up the vacancy by removal of F, may
they do so? Yes, because they are not acting
3. Vacancy due to removal may be filled by an as board but as stockholders.
election at the same meeting without further
notice. There are 2 meetings involved
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Section 26- Report of Election of D/T and executing duties of the office.
officers
Whether or not the court can look into
1. The secretary, or any other officer of the the reasonableness of compensation of directors
corporation shall Submit in SEC a report and officers? Gr: Court will not review the
within 30 days after the election fairness of official salaries XPN: wrongdoing,
oppression, or possible abuse of fiduciary
2. Submit the names, nationalities and position.
residences of D/T or officers elected
If there is wastage of corporate assets, the
3. Should a D/T or officers die, resign or in courts may be justified to look into the
any manner cease to hold office, his reasonableness and fairness of the
heirs in case of his death, the secretary, compensation despite the fact that the grant
or any other officer of the corporation, or thereof is authorized pursuant to the by-laws
the D/T or officer himself, shall and by the vote of the majority of the holders of
immediately report such fact to the SEC. the outstanding capital stock of the corporation.
Objective of section 26 is to give public Central Cooperative Exchange vs. Tibe, Jr.
information.
The board may not grant compensation upon
itself without authorization of the by-laws or in
contravention of the by-laws.
4. § Any change in the
constitution of the board of directors or Western Institute of Technology, Inc. vs.
trustees must be reported to the SEC. Salas
34
XPN: Personal liability of a corporate director, 2. Who are guilty of gross negligence or
trustee or officer along with the corporation may bad faith in directing the affairs of the
validly attach, as a rule, only when: corporation; (violation of diligence).
Directors are required to manage the
1.He assents (a) to a patently unlawful act of the corporate affairs with reasonable care
corporation, or (b) for bad faith, gross and prudence. This is because the
negligence in directing its affairs, or (c) for liability of directors is not limited to willful
conflict of interest, resulting in damages to the breach of trust or excess of power, but
corporation, its stockholders or other persons; extends also to negligence.
2.He consents to the issuance of watered stocks 3. Who acquire any personal property or
or who, having knowledge thereof, does not pecuniary interest in conflict with their
forthwith file with the corporate secretary his duty as such directors or trustees.
written objection thereto; (violation of loyalty)
3.He agrees to hold himself personally and Business judgment rule – directors
solidarily liable with the corporation; or are not liable for losses due to imprudence or
honest error of judgment. Questions of policy
4.He is made, by specific provision of law, to and management are left solely to the honest
personally answer for his corporate action. decision of the board of directors and the courts
(Tramat Mercantile, Inc. vs. CA) are without authority to substitute its judgment
as against the former.
Sections 31, 32, 34, 65, 74
and also 97, where a stockholder, to the extent Montelibano vs. Bacolod Murcia Milling, Co.,
that he takes an active part in the management Inc.
and operation of the business affairs of a close
corporation, is liable for corporate torts. Resolutions passed in good faith by
the board of directors are valid and binding, and
Where a check is drawn by a whether or not it will cause losses or decrease in
corporation, company or entity, the person or profits are not subject to the review of the court.
persons who actually signed the check in behalf
of such drawer shall be liable under this Act. General rule: A director is not liable for
(Sec. 1, BP 22) misconduct of co-directors or other officers.
35
candor and fair dealing or the interest of the any interest adverse to the corporation, he is
corporation and without selfish motives. the corporation in bound to account for
respect to any matter such profits unless his
The duty of loyalty is violated in the reposed in him in act is ratified by the
following instances: confidence as to which stockholders owning or
equity imposes a representing at least
i. When a director or trustee acquires any disability upon him to 2/3 of the outstanding
personal or pecuniary interest in deal in his own behalf capital stock.
conflict with his duty as such director or is not subject to
trustee; ratification by the
stockholders.
ii. When he attempts to acquire or
acquires, in violation of his duty, any If the violation of If the acquisition is
interest adverse to the corporation in loyalty consist of merely that of a
respect to any matter which has been matter which has been business opportunity
reposed in him in confidence, as to reposed in him in which has not been
which equity imposes a disability upon confidence the same is reposed in him in
him to deal in his own behalf; and not subject to confidence, the ssme
ratification may be subject to
iii. When he, by virtue of his office, ratification of
acquires for himself a business stockhlders
opportunity which should belong to the
corporation, thereby obtaining profit to
the prejudice of such corporation.
(maybe ratified)
Forbidden Profits- Section 31 and 34 of the Realty Corporation and A is the President. A
Code makes reference to forbidden profits. BLDA company owned by Z is engage in
Forbidden in the sense that directors and PDAF. Z approach A to sold his property for
officers are fiduciary representatives of the only 100M because they are friends. A
corporation and a such they are not allowed to bought the property. Can this be ratified?
obtain any personal profit, commission, bonus or
gain for their official actions. They may also refer This is forbidden profits and violates the
to those arising from transactions of directors corporate opportunity doctrine. This may be
with third persons which may involve ratified (s. 34), he merely secure a business
misappropriation of corporate opportunities and opportunity rightfully belonging to the
disloyal diverting of business. corporation.
36
probable result of the negotiations for the sale of 4. The contract is fair and reasonable
corporate assets which may affect the price of under the circumstances.
the corporation’s stock.
Q: Assume in the Previous example that
(Buyer concealed his identity in order to BCDA is now owned by corporation. “A”
purchase the property in a lower value) offers to acquire BCDA and they agreed to
sell it. What is this situation called? SELF
SELF-DEALING DIRECTORS (loyalty) DEALING DIRECTORS
XPN to XPN* Where any of the first two Mead vs. Mc Cullough
conditions set forth in the preceding paragraph is
absent, in the case of a contract with a director or A director or officer may in good faith
trustee, such contract may be ratified, provided: and for an adequate consideration purchase
from a majority of the directors or stockholders
1. The contract is ratified by the vote of the property even of an insolvent corporation.
the stockholders representing at least
two-thirds (2/3) of the outstanding INTERLOCKING DIRECTORS
capital stock or of at least two-thirds
(2/3) of the members A director in one corporation who deals
or transact business with another corporation of
2. Such ratification is made at a meeting which he is also a director.
called for that purpose;
This may involve a violation of loyalty,
3. Full disclosure of the adverse interest since he occupies the position of a director in
of the directors or trustees involved is two corporations dealing with each other. There
made; and may be a divided allegiance.
37
Thus, the prevailing view is these construction corporation and “A” owns 22%
contracts are not voidable merely by reason of stock in Y corporation. Is there an
conflicting duties or interest as to corporations interlocking director?
represented, even when a majority or all of the
directors are common to both corporations. It is Yes, A is an interlocking director. Contract is
recognized that such a contract will be upheld if valid because it is both substantial stock.
there is no bad faith or unfairness or collusion.
Without such a rule, contracts between a What if 18% and 20%?
corporation and its subsidiaries would usually be
impossible. X company Y company
GR: Valid
DERIVATIVE SUIT
XPN: Void if there if fraud, unfair and
unreasonable Suits that stockholders may bring
against erring directors or officers:
XPN to XPN: If however, the interest of the
interlocking director in one corporation is 1. Individual or personal suit – one
substantial (more than 20%) and merely nominal brought by the shareholders for direct
in the other, the contract becomes voidable. injury to his rights, such as denial of his
right to inspect corporate books and
In effect, a director who owns a substantial records or pre-emptive right;
interest in one corporation dealing with another
where he has a nominal interest is a regarded 2. Representative of class suit - ; and
as a self-dealing director in so far as the latter
corporation is concerned. 3. Derivative suit – an action based on
injury to the corporation – to enforce a
Q: Is there an instance that it is merely corporate right – wherein the
voidable? If interlocking director has substantial corporation is joined as a necessary
and nominal share it will be under sec 31 which party, and recovery is in favor of the
is generally voidable. corporation.
38
can not maintain a derivative suit unless such In a derivative suit, the injury complained of is
transactions continue and are injurious to the primarily to the corporation, so that the suit for
stockholder, or affect him specifically in some the damages claimed should be by the
other way. (Pascual vs. Orozco, et al.) corporation rather than by the stockholders. The
stockholders may not directly claim those
When the board is under the damages for themselves for that would result in
complete control of the principal defendants in the appropriation by, and the distribution among
the case, demand upon such board to institute them of part of the corporate assets before the
action and prosecute the same is not required. dissolution of the corporation and the liquidation
The law does not require litigants to do useless of its debts and liabilities. (Evangelista vs.
acts. (Everett vs. Asia Banking Corporation) Santos)
The stockholders in a derivate suit cannot An executive committee may be created when
allege or vindicate their own individual interests authorized by the by-laws.
or prejudice. (Gamboa vs. Victoriano, et al.)
39
40
13. Power to incur, create or increase authorized. (E.B. Villarosa & Partner Co., LTD.
bonded indebtedness (Sec. 38) vs. Benito)
14. Power to deny pre-emptive right (Sec. When you make a special appearance in
39) court on behalf of the corporation it does not
mean that you are the in-house counsel
15. Power to sell or dispose corporate because he was only employed for that specific
assets (Sec. 40) purpose.
16. Power to acquire own shares (Sec. 41) This rule on Summons applies only if
corporation is sued by third party because if intra
17. Power to invest corporate funds in corporate case, another law. (See appendix)
another corporation or business or for
any other purpose (Sec. 42) 1.
41
Exception: Corporations created by special law. Real or personal properties must be acquired,
However, Congress may repeal or amend it held or conveyed as the transaction of the lawful
charter. business of the corporation may reasonably and
necessarily require. Furthermore, it shall be
POWER TO ADOPT BY-LAWS. subject to the limitations imposed by law and the
Constitution.
A corporation, once formed is required
to adopt its by-laws, not contrary to law, morals Luneta Motors Co. vs. A.D. Santos, Inc.
or public policy, within one month from receipt of
official notice of the issuance of certificate of A corporation cannot undertake acquisition of
incorporation or registration. property which would have no purpose and
would have no necessary connection with its
POWER TO ISSUE OR SELL STOCKS legitimate business.
AND ADMIT MEMBERS
Govt. vs. El Hogar (?)
The power of a corporation to issue or
sell stock is an inherent right except only as it A corporation whose business may properly
may be regulated by law or by the articles of conducted in a populous center may acquire an
incorporation. (e.g Where it sells or issues appropriate lot and construct thereon an edifice
stocks of other corporation, Securities with facilities in excess of its own immediate
Regulation Code). requirements.
42
43
Teresa Electric Power Co., Inc. vs. PSC stockholder or member at his place of
residence, either by mail or personal
Operation and maintenance of an service;
electric plant for a cement factory.
5. In case of extension, the same cannot
The articles provides that the be made ealier than five (5) years prior
corporation may secure form government to the original or subsequent expiry date
franchises that are necessary or related to unless there are justifiable reasons for
business. an earlier extension;
44
(Note: The SEC requires the submission or filing 1. To reduce or wipe out existing deficit
of the amended articles in any case where there where no creditors would thereby be
are changers thereto) affected;
3cways of increasing the capital stock: 2. When capital is more than what is
(decreasing also) necessary to procreate the business or
reduction of capital surplus; or
1. Increasing the par value of the existing
number of shared without increasing the 3. To write down the value of its fixed
number of shares; assets to reflect the present actual value
in case where there is a decline in the
45
value of the fixed assets of the unpaid stock subscription in order to realize
corporation. assets for the payment of its debts.
There must be a valid reason for Madrigal & Co. vs. Zamora
decreasing the capital structure. The
reasons above are not exclusive. A reduction of capital stock may not be used as
a subterfuge, a deception as it were, to
Examples of decrease in capital camouflage the fact that a corporation has been
making profits to obviate a just sharing to labor.
Trading company who wants to
engage in grocery business has a capital of A corporation which has the power to borrow
2M but their business permit was denied or raise money, to contract for labor or services,
because the Mayor owns all the grocery or otherwise contract a debt has the implied
stores in the area. Instead, they just build a power to issue bonds in payment or as a
sari-sari store. So what they will do is to security provided it violates no prohibition or
reduce capital. restriction in its charter or any other statutes.
46
Absent this right, a controlling stockholder Are there instances when such right can be
may easily strengthen his hold and control of the denied without mentioning in articles? Yes,
corporate affairs. those in exceptions.
GR: All stockholders of a stock corporation Will this exceptions apply to close
shall enjoy pre-emptive right to subscribe to all corporations?
issues or disposition of shares of any class, in
proportion to their respective shareholdings, No, XPN to XPN
unless such right is denied by the articles of
incorporation or an amendment thereto. See section 96, close corporations must
provide it first on its articles of incorporation, that
Exceptions: its articles does not really deny such pre-
emptive rights.
1. Shares to be issued in compliance with
laws requiring stock offerings or ØØ Section 102, will not apply to close
minimum stock ownership by the public; corporations
or
ØØ The right of pre-emptive rights is absolute in
2. Shares to be issued in good faith with close corporations
the approval of the stockholders
representing two- thirds (2/3) of the
outstanding capital stock, in exchange
for property needed for corporate EXAMPLE:
purposes or in payment of a previously
contracted debt. ACS 1M
2. S. 96
POWER TO SELL/DISPOSE ASSETS
The right may be lost by waiver, expressly or
impliedly by inability or failure to exercise it after Conditions for the valid exercise of this right
having been notified.
1. Resolution by the majority vote of the
The pre-emptive right covers all issues or board of directors or trustees;
disposition of share of any class. It includes new
share issued pursuant to an increase in capital
2. Authorization from the stockholders
stock, unissued shares which form part of the
representing at least 2/3 of the
original capital stock and treasury shares.
outstanding capital stock or 2/3 of the
members in case of non-stock
Q: Since it is expressly provided by law, May corporations;
this be denied?
3. The ratification must be at a meeting
Yes, Article of corporation or amendment duly called for that purpose;
thereto.
4. Prior written notice of the proposed
47
action must be made stating the time and it has a plant and sold it to third party, is
place of meeting addressed to each stockholders approval necessary? Yes,
stockholder or member at his place of because such is not in the course of business.
residence, either by mail or personal Selling the plant will render the business
service; incapable of doing business.
48
49
50
51
As to Transefer…
52
XPN: Not only majority but approval of the XPN: Unless the public or third parties are
stockholders of the managed corporation thereby prejudiced.
owning at least 2/3 of the outstanding
capital stock or 2/3 of the members in case Consequences of ultra-vires acts:
of non-stock corporations are required:
1. On the corporation itself – the proper
forum may suspend or revoke, after
1. Where a stockholder or proper notice and hearing, the franchise
stockholders representing the same or certificate of registration of the
interest of both the managing and corporation for serious
the managed corporations own or misrepresentation as to what the
control more than 1/3 of the total corporation can do or is doing to the
outstanding capital stock entitled to great damage or prejudice of the
vote of the managing corporation; general public.
53
54
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