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Notes in Corporation PDF
Notes in Corporation PDF
Zarah Villanueva-Castro
INTRODUCTION:
A. Historical Background
Purposes:
1. Uniformity
2. To avoid corruption
1
A. Statutory definition of a Corporation
Section 2 of the Corporation Code: “A corporation is an
artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly
authorized by law or incident to its existence.”
B. Attributes of a Corporation
• Artificial Being
Case: Francisco v CA
2
3. The rights belonging to the corporation cannot be
invoked by the stockholders, directors and officers and
vice versa.
Exceptions:
2. Freedom to travel
3
special laws because crimes are personal in nature
requiring personal performance of overt acts. In
addition, the penalty of imprisonment cannot be
imposed.
4
*The doctrine of piercing the veil of corporate entity is the exception to
the doctrine of corporate entity.
*The users of this doctrine are: 1. Stockholder; 2. Group of
stockholders; 3. Another corporation.
Effects: 1. Stockholders, officers and corporation are in effect jointly
liable; 2. In case of two corporations, they will be treated as one
wherein they will be both solidarily liable. (Instrumentality rule)
*There is no effect on the existence of each corporation as long as their
separate entity is used for legitimate purposes.
5
*The probative factors of identity are not conclusive but may be
considered as strong evidence.
• Creature of Law
Article XII Section 16 of the 1987 Constitution: “The
Congress shall not, except by general law, provide for the
formation, organization, or regulation of private corporations.
Government-owned or controlled corporations may be
created or established by special charters in the interest of the
common good and subject to the test of economic viability.”
Concession Theory – It is a principle in the creation of
corporations, under which a corporation is an artificial
creature without any existence until it has received the
imprimatur of the State acting according to law, through the
SEC. The life of the corporation is a concession made by the
State.
• Right of Succession
A: NO
2. As to function/organizers:
7
*License is necessary for; 1. Regulation purposes and 2. Access to
local courts.
4. As to legal status:
8
*In both corporations, there must be a certificate of
registration issued.
Open Corporation – one which is open to any person who may wish
to become a stockholder or member thereto.
9
Close Corporation – those whose shares of stock are held by limited
number of persons like the family or other closely knit group. (Sec. 96)
Contractual Significance:
1. Corporate Name;
2. Purpose Clause;
3. Principal office;
4. Term of existence;
5. Incorporators;
6. Directors or trustees;
7. Capitalization;
8. Shares of stock;
10
9. Treasurer’s Affidavit.
• Corporate Name
Purpose: Identification
11
reference to an article on the market, because geographically
or otherwise descriptive, might nevertheless have been used
so long and so exclusively by one producer with reference to
his article that in that trade and to that branch of the
purchasing public, the word or phrase has come to mean that
the article was his product.
Requisites:
1. Period of use;
Procedure:
12
*The principal place of business may determine the venue of
court cases involving corporations. It may also determine if
service of summons and notices was properly made. It is also
important for tax purposes (local taxation).
Keywords:
1. Excusable delay;
14
*They exercise the powers of the corporation.
Qualifications:
1. Every director must own at least one (1) share of the capital
stock;
15
Paid-Up Capital – the portion of the authorized capital stock
which has been subscribed and actually paid.
Economic Value:
Political Value:
1. vote
Classes of Shares:
16
*The price is fixed. It is stated in the Articles of
Incorporation.
Limitations:
Exceptions:
17
1. Amendment of the articles of incorporation;
18
6. Preferred Shares- shares which enjoy preference as to
dividends or assets upon dissolution as stated in the
Articles of Incorporation.
Kinds:
Limitations:
19
2. The terms and conditions affecting said shares must be
stated both in the certificate of stock representing such
share;
22
the vote or written assent of at least 2/3 of the members if it be a
non-stock corporation.”
23
A. Levels of Corporate Control
1. By Stockholders/Shareholders;
2. By Corporate Officers;
3. By Directors/Trustees
B. Board of Directors/Trustees
• General Powers of the Board
1. Corporate Powers;
25
*They must also be of legal age.
2. Non-voting stocks;
3. Treasury Shares.
Methods of Voting:
27
1. Straight Voting – every stockholder may vote such number
of shares for as many persons as there are directors to be
elected.
28
director, trustee or officer himself, shall immediately report
such fact to the SEC.”
• Term of Office
*The directors or trustees shall hold office for one (1) year
subject to the “hold over” principle, i.e., they continue in
office until their successors are elected and qualified.
Requisites:
30
2. There must be previous notice to the stockholders or
member of the intention to remove;
1. Justifiable cause;
31
General Rule: Power to elect directors is vested in the
stockholders
Exceptions:
Categories:
Exceptions:
33
who has in good faith dealt with it through such agent, be
stopped from denying the agent’s authority.
Exceptions:
34
Case: David v Construction Industry
*In Carag v NLRC, the Supreme Court held that not any
violative of law, the Code means that violation must have a
corresponding penalty. Patently unlawful act means that a law
declares an act unlawful and that such law provides penalty for
that unlawful act.
• Self-Dealing Directors/Officers
Example:
Requisites:
36
Interlocking Directors – those who have been elected as
directors in 2 or more different corporations.
Example:
A: NO.
Exceptions:
38
E. Executive Committee
Keyword: BY-LAWS
39
General Rule: The executive committee may act on specific
matters within the competence of the board as may be delegated
to it in the by-laws or on a majority vote of the board.
Exceptions:
CORPORATE POWERS:
Ultra Vires Acts – an act committed outside the object for which
a corporation is created as defined by the law of its organization
and therefore beyond the power conferred upon it by law.
40
B. Classes of Corporate Powers
1. Express
2. Implied
3. Incidental
• Express – those expressly authorized by the Corporation
Code and other laws, and its Articles of Incorporation or
Charter.
• Implied – those that can be inferred from or necessary for the
exercise of the express powers.
• Incidental – those that are incidental to the existence of the
corporation.
42
*In Tan v Sycip, the Supreme Court held that in case of a non-
stock corporation, membership is personal and non-
transferrable unless the by-laws provides otherwise. The
deceased member is not entitled to vote.
43
capital stock, or the incurring, creating or increasing of any
bonded indebtedness. Written notice of the proposed increase
or diminution of the capital stock or of the incurring, creating,
or increasing of any bonded indebtedness and of the time and
place of the stockholders’ meeting at which the proposed
increase or diminution of the capital stock or the incurring or
increasing of any bonded indebtedness is to be considered ,
must be addressed to each stockholder at his place of
residence as shown on the books of the corporation and
deposited to the addressee in the post office with postage
prepaid, or served personally. xxx.”
A: YES. The SEC ruled that the 25% applies to the increase
amount.
44
* Similar to Right of First Refusal
Purposes:
Requirements:
3. The sale does not bring about the illegal combinations and
monopolies.
*No need for the approval of the SEC.
Tests:
1. Quantitative Test – no statutory test; pertains to the
disposition of all assets
2. Qualitative Test – there is a statutory test; pertains to the
disposition of substantially all of its assets.
46
*The provision is so strict because the law wants the
corporation will reach its expiration term.
Q: With the sale of all the assets of the corporation, will the
same result to its dissolution?
A: NO. Possession or continued possession of corporate
properties is not a condition for the existence of a corporation.
Corporation still exists despite the disposition of all its
properties and assets.
Exceptions:
47
eliminate fractional shares arising out of stock dividends; 2. To
collect or compromise an indebtedness to the corporation,
arising out of unpaid subscription, in a delinquency sale, and
to purchase delinquent shares sold during said sale; and 3. To
pay dissenting or withdrawing stockholders entitled to
payment for their shares under the provisions of this Code.”
Requisites:
Trust Fund Doctrine – The capital stock, property and other assets of
the corporation are regarded as equity in trust for the payment of the
corporate creditors. The subscribed capital stock of the corporation is
a trust fund for the payment of debts of the corporation which the
creditors have the right to look up to satisfy their credits. Corporation
may not dissipate this and the creditors may sue stockholders directly
for the unpaid subscription.
• Investment of Corporate Funds
48
the post office with postage prepaid, or served personally:
Provided, That any dissenting stockholder shall have
appraisal right as provided in this Code: Provided, however,
That where the investment by the corporation is reasonably
necessary to accomplish its primary purpose as stated in the
articles of incorporation, the approval of the stockholders or
members shall not be necessary.”
Requisites:
49
*This section is exclusive to stock corporations.
*The fact that the corporation has surplus earning does not
mean that it is mandated to declare dividends; it is still upon
the sound discretion of the board of directors.
C A S H S T O C K
DIVIDENDS DIVIDENDS
does not require Requires
stockholders’ stockholders’
approval approval
The stockholders The stockholders
receive cash receive stocks
Creditor-debtor No creditor-
relationship debtor
relationship
1. Board approval
50
Q: Why stockholders’ ratification is necessary in the
declaration of stock dividends?
A: Because the earnings are capitalized. It is considered to be a
corporate assets.
Q: May the board be compelled to declare dividends?
A: General Rule: NO.
Exception: Stock corporations are prohibited from retaining
surplus profits in excess of 100% of their paid-in capital stock.
Exceptions to the Exception:
1. Corporate expansion
2. Pursuant to loan agreement
3. Special circumstances/contingent liabilities
Q: Are the stock dividends considered as watered stocks
because the stockholder concerned does not pay anything
therefor?
A: NO. The unrestricted retained earnings are considered to
be a consideration thus dividends received through stocks are
not watered stocks.
*The source of payment is the unrestricted retained earnings.
Q: Are delinquent stockholders entitled to receive dividends?
A: YES. But only in terms of cash dividends.
Q: Who are entitled to receive dividends?
A: Stockholders
*In Nielson case, the SC held that dividends cannot be given
to non-stockholders.
*If there is date of record – Dividends may be received by
those persons who are holders of stocks as of date of record.
*If there is no date of record – dividends may be received by
those persons who are holders of stocks as of the declaration.
Q: When the corporation declares stock dividends, would it
likewise create a creditor-debtor relationship between the
corporation and the stockholder?
A: NO. Stock dividends will not bring about a creditor-debtor
relationship. When it comes to shareholdings, the one holding
the shares are considered investors; risk-takers.
Q: Will legal compensation possible to occur?
51
A: NO. The parties are not mutually creditor-debtor of each
other. The requisites under the Civil Code on legal
compensation are not present.
• Management Contract
Sec. 44 of the Corporation Code states that: “No corporation
shall conclude a management contract with another
corporation unless such contract shall have been approved by
the board of directors and by stockholders owning at least the
majority of the outstanding capital stock, or by at least a
majority of the members in the case of a non-stock
corporation, of both the managing and the managed
corporation, at a meeting duly called for the purpose:
Provided, That 1. Where a stockholder or stockholders
representing the same interest of both the managing and the
managed corporations own or control more than 1/3 of the
total outstanding capital stock entitled to vote of the
managing corporation; or 2. Where a majority of the members
of the board of directors of the managing corporation also
constitute a majority of the members of the board of directors
of the managed corporation, then the management contract
must be approved by the stockholders of the managed
corporation owning at least 2/3 of the total outstanding
capital stock entitled to vote, or by at least 2/3 of the members
in the case of a non-stock corporation. No management
contract shall be entered into for a period longer than 5 years
for any one term. The provisions of the next preceding
paragraph shall apply to any contract whereby a corporation
undertakes to manage or operate all or substantially all of the
business of another corporation, whether such contracts are
called service contracts, operating agreements or otherwise:
Provided, however, That such service contracts or operating
agreements which relate to the exploration, development,
exploitation or utilization of natural resources may be entered
into for such periods as may be provided by the pertinent
laws or regulations.”
Requisite:
52
Exception: 2/3 of the OCS
CORPORATE BY-LAWS:
ARTICLES OF BY-LAWS
INCORPORATION
External affairs Internal Affairs
53
Affects the status of Does not affect the
existence of the s t a t u s o f t h e
corporation existence but has
impact on the
existence; failure to
submit is a ground
f o r
disenfranchisement
Joint decision of the General Rule: joint
board a n d decision
stockholders E x c e p t i o n :
Delegates the
power to amend
the By-Laws to the
Board
*In Sawadjaan v CA, the SC held that meanwhile when the By-
Laws is not yet submitted, the corporation, at that time, and the
very least, may be considered as a De Facto Corporation and
therefore, its right to exist as such cannot be inquired into or
cannot be collaterally attacked in a private suit. It is for the State
to initiate a proceeding questioning the existence, on the ground
of its non-submission of By-Laws, within the prescribed period.
55
D. Contents of By-Laws; Requisites of a Valid By-Law Provision
Requisites:
E. Amendment to By-Laws
CORPORATE MEETINGS:
57
Sec. 49 of the Corporation Code provides that: “Meetings of
directors, trustees, stockholders, or members may be regular or
special.”
Kinds:
a. Stockholders/Members:
1. Regular meeting
2. Special meeting
b. Directors/Trustees:
1. Regular meeting
2. Special meeting
Sec. 50 of the Corporation Code provides that: “Regular
meetings of stockholders or members shall be held annually on a
date fixed in the by-laws, or if not so fixed, on any date in April
of every year as determined by the board of directors or trustees:
Provided, That written notice of regular meetings shall be sent to
all stockholders or members of record at least 2 weeks prior to
the meeting, unless a different period is required by the by-laws.
Special meetings of stockholders or members shall be held at any
time deemed necessary or as provided in the by-laws: Provided,
however, That at least 1 week written notice shall be sent to all
stockholders or members, unless otherwise provided in the by-
laws. Notice of any meeting may be waived, expressly or
impliedly, by any stockholder or member. Whenever, for any
cause, there is no person authorized to call a meeting, the SEC,
upon petition of a stockholder or member on a showing of good
cause therefor, may issue an order to the petitioning stockholder
or member directing him to call a meeting of the corporation by
giving proper notice required by this Code or by the by-laws.
The petitioning stockholder or member shall preside thereat
until at least a majority of the stockholders or members present
have been chosen one of their number as presiding officer.”
*Regular meeting of stockholders/members shall be held
annually on a date fixed in the by-laws or if not so fixed, on any
date in April of every year. Written notice of regular meetings
58
shall be sent 2 weeks prior to the meeting unless a different
period is required by the by-laws.
** Special meeting of stockholders/members shall be held at any
time deemed necessary or as provided in the by-laws. Written
notice shall be sent to all stockholders or members at least one
week or unless otherwise provided in the by-laws.
Sec. 53 of the Corporation Code provides that: “Regular
meetings of the board of directors or trustees of every
corporation shall be held monthly, unless the by-laws provide
otherwise. Special meetings of the board of directors or trustees
may be held at any time upon the call of the president or as
provided in the by-laws. Meetings of directors or trustees of
corporations may be held anywhere in or outside of the
Philippines, unless the by-laws provide otherwise. Notice of
regular or special meetings stating the date, time and place of the
meeting must be sent to every director or trustee at least 1 day
prior to the scheduled meeting, unless otherwise provided by
the by-laws. A director or trustee may waive this requirement,
either expressly or impliedly.”
*Regular meetings of directors/trustees shall be held monthly
unless the by-laws provide otherwise.
*Special meetings of directors/trustees may be held at any time
upon the call of the president or as provided in the by-laws.
*Meetings of directors or trustees may be held anywhere in or
outside of the Philippines unless the by-laws provide otherwise.
*Notice of regular or special meetings stating the date, time and
place of the meeting must be sent to every director or trustee at
least 1 day prior to the scheduled meeting unless otherwise
provided by the by-laws.
B. Requirements of a Meeting
59
5. There must be a quorum.
Sec. 51 of the Corporation Code provides that: “Stockholders’ or
members’ meetings, whether regular or special, shall be held in
the city or municipality where the principal office of the
corporation is located, and if practicable in the principal office of
the corporation: Provided, That Metro Manila shall, for purposes
of this section, be considered a city or municipality. Notice of
meetings shall be in writing, and the time and place thereof
stated therein. All proceedings had and any business transacted
at any meeting of the stockholders or members, if within the
powers or authority of the corporation, shall be valid even if the
meeting be improperly held or called, provided all the
stockholders or members of the corporation are present or duly
represented at the meeting.”
*Applies to both stock and non-stock corporations.
General Rule: The meeting must be held in the city or
municipality where the principal office is located.
Exception: Sec. 93 on non-stock corporations, the By-Laws may
provide different venue for their meeting.
*A casual reading of section 51 would say that a corporation
cannot provide any other place for the meeting of stockholders.
But in case of a non-stock corporation, Section 93 of the
Corporation provides that the by-laws could provide any place
for the meeting of its members provided that it is within the
Philippines and proper notice has been given.
Q: Is there a conflict between Section 51 and Section 93?
A: YES. There is conflict but this conflict may be reconciled. As a
rule, the by-laws may provide a different place of meeting
provided that it is within the Philippines and notice has been
given. As an exception, if the by-laws is silent of the place of the
meeting, section 51 applies.
Sec. 52 of the Corporation Code provides that: “Unless
otherwise provided for in this Code or in the by-laws, a quorum
shall consist of the stockholders representing a majority of the
outstanding capital stock or a majority of the members in the
case of non-stock corporations.”
General Rule: Majority of the OCS or Majority of the members
60
Exception: Unless otherwise provided by the Code or by the By-
Laws.
*In Tan v Sycip, deceased member is not entitled to vote
Sec. 54 of the Corporation Code provides that: “The president
shall preside at all meetings of the directors or trustees as well as
of the stockholders or members, unless the by-laws provide
otherwise.”
1. Delinquent shares
2. Treasury shares
3. Fractional shares
4. Escrow shares
• Rules on:
1. Delinquent Shares
A: YES.
Q: Shares not yet fully paid but not yet delinquent, are they
entitled to vote?
A: YES.
2. Escrow Shares
3. Unpaid Shares
4. Sequestered Shares
62
administrator, it should only perform acts of administration
and not acts of ownership.
Requisites:
63
A: General Rule: No. The right to vote remains to the
owner thus, it is the pledgor/mortgagor that can exercise it.
Case: Calapatia
*Proxy is a representative.
*Relationship: Principal-Agent.
64
Sec. 58 of the Corporation Code provides that: “Stockholders
and members may vote in person or by proxy in all meetings of
stockholders or members. Proxies shall be in writing, signed by
the stockholder or member and filed before the scheduled
meeting with the corporate secretary. Unless otherwise provided
in the proxy, it shall be valid only for the meeting for which it is
intended. No proxy shall be valid and effective for a period
longer than 5 years at any one time.”
Requisites:
1. Must be in writing
65
Revocable Irrevocable
General Rule: 5
years
Exception: If
coupled with
interest
66
provisions of said agreement. No voting trust agreement shall be
entered into for the purpose of circumventing the law against
monopolies and illegal combinations in restraint of trade or used
for purposes of fraud. Unless expressly renewed, all rights
granted in a voting trust agreement shall automatically expire at
the end of the agreed period, and the voting trust certificates as
well as the certificates of stock in the name of the trustee or
trustees shall thereby be deemed cancelled and new certificates
of stock shall be reissued in the name of the transferors. The
voting trustee or trustees may vote by proxy unless the
agreement provides otherwise.”
Consequence: The stockholder entering into a voting trust
agreement ceases to be a stockholder of record.
*In case of Lee v CA, the SC held that the stockholder concerned
loses his legal title to the shares so that if the stockholder is, at
the same time, a director of the corporation, automatically he is
disqualified to continue performing the duties of a director
because the law requires each and every director to have legal,
not beneficial title to at least one share.
Q: Why derivative?
A: From the word derive. The one bringing the suit derives the
cause of action from the corporation.
67
Q: Are we in violation of the Code?
A: No. Because the power to sue lies on the board thus when the
board refuses to take action in order to protect the corporation
derivative suit may be allowed.
SUBSCRIPTION CONTRACT:
68
1. Subscription contract with the corporation.
C. Kinds of Subscription
2 Fold Characteristics:
69
b. May be regarded as continuing offer on the part of the
subscriber concerned which the corporation may accept
upon acquisition of juridical personality.
70
stockholders representing at least a majority of the outstanding
capital stock at a meeting duly called for the purpose.”
1. Cash
2. Property
E. Payment of Subscription
2. By judicial action.
F. Certificate of Stock
Example:
G. Transfer of Shares
74
other information and evidence which he may deem necessary;
2. After verifying the affidavit and other information and
evidence with the books of the corporation, said corporation
shall publish a notice in a newspaper of general circulation
published in the place where the corporation has its principal
office, once a week for 3 consecutive weeks at the expense of the
registered owner of the certificate of stock which has been lost,
stolen or destroyed. The notice shall state the name of said
corporation, the name of the registered owner and the serial
number of said certificate, and the number of shares represented
by such certificate, and that after the expiration of 1 year from
the date of the last publication, if no contest has been presented
to said corporation regarding said certificate of stock, the right to
make such contest shall be barred and said corporation shall
cancel in its books the certificate of stock which has been lost,
stolen or destroyed and issue in lieu thereof new certificate of
stock, unless the registered owner files a bond or other security
in lieu thereof as may be required, effective for a period of 1 year,
for such amount and in such form and with such sureties as may
be satisfactory to the board of directors, in which case a new
certificate may be issued even before the expiration of the 1 year
period provided herein: Provided, That if a contest has been
presented to said corporation or if an action is pending in court
regarding the ownership of said certificate of stock which has
been lost, stolen or destroyed, the issuance of the new certificate
of stock in lieu thereof shall be suspended until the final decision
by the court regarding the ownership of said certificate of stock
which has been lost, stolen or destroyed. Except in case of fraud,
bad faith, or negligence on the part of the corporation and its
officers, no action may be brought against any corporation which
shall have issued certificate of stock in lieu of those lost, stolen or
destroyed pursuant to the procedure above-described.”
75
office a record of all business transactions and minutes of all
meetings of stockholders or members, or of the board of
directors or trustees, in which shall be set forth in detail the time
and place of holding the meeting, how authorized, the notice
given, whether the meeting was regular or special, if special its
object, those present and absent, and every act done or ordered
done at the meeting. Upon the demand of any director, trustee,
stockholder or member, the time when any director, trustee,
stockholder or member entered or left the meeting must be
noted in the minutes; and on a similar demand, the yeas and
nays must be taken on any motion or proposition, and a record
thereof carefully made. The protest of any director, trustee,
stockholder or member on any action or proposed action must
be recorded in full on his demand. The records of all business
transactions of the corporation and the minutes of any meetings
shall be open to inspection by any director, trustee, stockholder
or member of the corporation at reasonable hours on business
days and he may demand, writing, for a copy of excerpts from
said records or minutes, at his expense. Any officer or agent of
the corporation who shall refuse to allow any director, trustee,
stockholder or member of the corporation to examine and copy
excerpts from its records or minutes, in accordance with the
provisions of this Code, shall be liable to such director, trustee,
stockholder or member for damages, and in addition, shall be
guilty of an offense which shall be punishable under Section 144
of this Code: Provided, That if such refusal is made pursuant to a
resolution or order of the board of directors or trustees, the
liability under this section for such action shall be imposed upon
the directors or trustees who voted for such refusal: and
Provided, further, That it shall be a defense to any action under
this section that the person demanding to examine and copy
excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or of
any other corporation, or was not acting in good faith or for a
legitimate purpose in making his demand. Stock corporations
must also keep a book to be known as the “stock and transfer
book,” in which must be kept a record of all stocks in the names
76
of the stockholders alphabetically arranged; the installments
paid and unpaid on all stock for which subscription has been
made, and the date of payment of any installment; a statement of
every alienation, sale or transfer of stock made, the date thereof,
and by and to whom made; and such other entries as the by-laws
may prescribe. The stock and transfer book shall be kept in the
principal office of the corporation or in the office of its stock
transfer agent and shall be open for inspection by any director or
stockholder of the corporation at reasonable hours on business
days. No stock transfer agent or one engaged principally in the
business of registering transfers of stocks in behalf of a stock
corporation shall be allowed to operate in the Philippines unless
he secures a license from the SEC and pays a fee as may be fixed
by the Commission, which shall be renewable annually:
Provided, That a stock corporation is not precluded from
performing or making transfer of its own stocks, in which case
all the rules and regulations imposed on stock transfer agents,
except the payment of a license fee herein provided, shall be
applicable.”
4. Books of Proceedings
77
Rationale: Right of inspection would be futile. Right of
inspection would not be exercised.
• Limitations on the Right of Inspection
Examples:
A+B=B
A+B+C=C
A+B+C=A
A+B+C=B
Examples:
78
A+B=C
A+B+C=D
A + B + C = ABC
A + B + C = XYZ
3. Approval of SEC
Cases: Associated Bank v CA; Polyan v CA
Procedure:
1. The Board of each corporation shall draw up a plan of
merger/consolidation.
1. All property, real or personal, and all receivables due to, and
all other interest of each constituent corporation, shall be
deemed transferred to and vested in such surviving or
consolidated corporation without further act or deed.
RIGHT OF APPRAISAL:
Requisites:
81
value thereof as of the day prior to the date on which the vote
was taken, excluding any appreciation or depreciation in
anticipation of such corporate action. If within a period of 60
days from the date the corporate action was approved by the
stockholders, the withdrawing stockholder and the corporation
cannot agree on the fair value of the shares, it shall be
determined and appraised by 3 disinterested persons, one of
whom shall be named by the stockholder, another by the
corporation, and the third by the two thus chosen. The findings
of the majority of the appraisers shall be final, and their award
shall be paid by the corporation within 30 days after such award
is made: Provided, That no payment shall be made to any
dissenting stockholder unless the corporation has unrestricted
retained earnings in its books to cover such payment: and
Provided, further, That upon payment by the corporation of the
agreed or awarded price, the stockholder shall forthwith transfer
his shares to the corporation.”
Requisites:
82
7. Stockholder must transfer his shares to the corporation upon
payment by the corporation.
Effects:
NON-STOCK CORPORATIONS:
84
Member may be Proxy is allowed
deprived of their
right to designate
proxies by
provisions in the
articles of
incorporation or
by-laws
Reason: To
p r o m o t e
camaraderie,
togetherness,
unity and
familiarity.
G e n e r a l l y , Election is vested
members could upon Board of
d i r e c t l y e l e c t Directors
officers. Except
unless AOI
p r o v i d e s
otherwise.
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Reason: To promote camaraderie, togetherness, unity and
familiarity.
*A member is entitled to 1 vote. However, such right may be
limited, broadened or denied in the Articles of Incorporation or
By-Laws. Thus, the By-laws of a non-stock corporation may
provide for the desired voting rights of members including the
number of votes.
Sec. 90 of the Corporation Code provides that: “Membership in
a non-stock corporation and all rights arising therefrom are
personal and non-transferable, unless the articles of
incorporation or the by-laws otherwise provide.”
General Rule: Membership is non-transferable.
Exception: If the Articles of Incorporation or the By-laws provide
otherwise.
Sec. 91 of the Corporation Code provides that: “Membership
shall be terminated in the manner and for the causes provided in
the articles of incorporation or the by-laws. Termination of
membership shall have the effect of extinguishing all rights of a
member in the corporation or in its property, unless otherwise
provided in the articles of incorporation or the by-laws.”
Rules on Place of Meeting:
General Rule: Sec. 51
Exception: Sec. 93
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transfer or conveyance by reason of the dissolution, shall be
transferred or conveyed to one or more corporations, societies or
organizations engaged in activities in the Philippines
substantially similar to those of the dissolving corporation
according to a plan of distribution adopted pursuant to this
Chapter; 4. Assets other than those mentioned in the preceding
paragraphs, if any, shall be distributed in accordance with the
provisions of the articles of incorporation or the by-laws, to the
extent that the articles of incorporation or the by-laws, determine
the distributive rights of members, or any class or classes of
members, or provide for distribution; and 5. In any other case,
assets may be distributed to such persons, societies,
organizations or corporations, whether or not organized for
profit, as may be specified in a plan of distribution adopted
pursuant to this Chapter.”
Order of distribution:
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member entitled to vote, within the time and in the manner
provided in this Code for the giving of notice of meetings to
members. Such plan of distribution shall be adopted upon
approval of at least 2/3 of the members having voting rights
present or represented by proxy at such meeting.”
Q: Would it be possible for a non-stock corporation to be
converted into a stock corporation by mere amendment of the
Articles of Incorporation?
A: NO. Because it would violate Section 87 of the Corporation
Code which prohibits distribution of income as dividends to
members.
A: YES.
Requirements:
CLOSE CORPORATIONS:
1. Membership is limited to 20
Exceptions:
2. Stock exchanges
3. Banks
4. Insurance companies
5. Public utilities
6. Educational institutions
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Open Close
Corporation Corporation
Its articles of Its articles must
incorporation contain the special
need only contain m a t t e r s
the general prescribed by
m a t t e r s Section 97 aside
enumerated in from the general
Section 14 of the matters in Section
Corporation Code 14. Failure to do
so precludes a de
jure close
corporation status
Its status as an 2/3 of its voting
o rd i n a r y s t o c k stock or voting
corporation is not rights must not be
affected by the owned or
ownership of its controlled by
voting stock or a n o t h e r
voting rights corporation which
is not a close
corporation
Its articles cannot Its articles may
classify its classify its
directors directors
Business of the Business of the
corporation is corporation may
managed by the be managed by
board of directors the stockholders if
the articles so
provide, but they
are liable as
directors
The corporate Its articles may
officers and provide that any
employees are or all of the
elected by a corporate officers
majority vote of or employees may
all the members be elected or
of the board of appointed by the
directors stockholders
90
The pre-emptive The pre-emptive
right is subject to right is subject to
the exceptions no exceptions
found in Section unless denied in
39 of the the articles
Corporation Code
The appraisal The appraisal
right may be right may be
exercised by a exercised and
stockholder only compelled against
in the cases the corporation by
provided in a stockholder for
Sections 81 and 42 any reason
of the
Corporation Code
Except as regards In case of an
redeemable arbitration of an
shares, the intracorporate
purchase by the deadlock by the
corporation of its SEC, the
own stock must corporation may
always be made be ordered to
from the purchase its own
unrestricted shares from the
retained earnings stockholders
regardless of the
availability of
unrestricted
retained earnings
Arbitration of Arbitration of
intracorporate intracorporate
deadlock by the deadlock by the
SEC is not a SEC is an
remedy in case available remedy
the directors or in case the
stockholders are directors or
so divided stockholders are
respecting the so divided
management of respecting the
the corporation. management of
the corporation.
91
*In San Juan Structural Steel Fabricators v CA, the SC held that
the circumstance that around 99.86% of the total share holding of
petitioner belongs to respondent would not justify classification
of the corporation as close.
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thereof in good faith. Said restrictions shall not be more onerous
than granting the existing stockholders or the corporation the
option to purchase the shares of the transferring stockholder
with such reasonable terms, conditions or period stated therein.
If upon the expiration of said period, the existing stockholders or
the corporation fails to exercise the option to purchase, the
transferring stockholder may sell his shares to any third person.”
CORPORATE DISSOLUTION/LIQUIDATION:
Modes of Dissolution:
1. Voluntary dissolution
2. Involuntary dissolution
Methods of Voluntary Dissolution:
1. Voluntary dissolution where no creditors are affected
93
3. Shortening of the corporate term by amending the articles of
incorporation
Requisites:
94
3. The notice of meeting should also be published for 3
consecutive weeks in a newspaper published in the place;
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municipality or city. Upon five (5) day's notice, given after the
date on which the right to file objections as fixed in the order
has expired, the Commission shall proceed to hear the
petition and try any issue made by the objections filed; and if
no such objection is sufficient, and the material allegations of
the petition are true, it shall render judgment dissolving the
corporation and directing such disposition of its assets as
justice requires, and may appoint a receiver to collect such
assets and pay the debts of the corporation.”
Requisites:
1. Approval of the stockholders representing at least 2/3 of
the outstanding capital stock or 2/3 of members in a
meeting called for that purpose;
2. Filing of a Petition with the SEC signed by majority of
directors or trustees or other officers having the
management of its affairs verified by President or Secretary
or Director. Claims and demands must be stated in the
petition;
3. If petition is sufficient in form and substance, the SEC shall
issue an Order fixing a hearing date for objections;
4. A copy of the Order shall be published at least once a week
for 3 consecutive weeks in a newspaper of general
circulation or if there is no newspaper in the municipality
or city of the principal office, posting for 3 consecutive
weeks in 3 public places is sufficient;
5. Objections must be filed no less than 30 days nor more than
60 days after the entry of the order;
6. After the expiration of the time to file objections, a hearing
shall be conducted upon prior 5 day notice to hear the
objections;
7. Judgment shall be rendered dissolving the corporation and
directing the disposition of assets; the judgment may
include appointment of a receiver.
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expiration of the shortened term, as the case may be, the
corporation shall be deemed dissolved without any further
proceedings, subject to the provisions of this Code on
liquidation.”
Grounds:
9. De facto status
97
C. Corporate Liquidation
98
D. Methods of Liquidation or Winding Up
1. By Board of Directors
99
Rehabilitation connotes a reopening or reorganization.
Contemplates a continuance of corporate existence in an effort to
restore the corporation to its former successful operation.
Substantive Grounds:
FOREIGN CORPORATIONS:
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whose laws allow Filipino citizens and corporations to do
business in its own country or state.
101
*Foreign Corporation is required to obtain license from the SEC
to enable them to do business in the Philippines.
Exceptions:
1. Isolated transactions
2. Infringement of trademark
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*In Japan Airlines v CA, the SC held that the selling of tickets
though there is no aircraft landing in the Philippines constitute
doing business in the Philippines.
*In Ericks v CA, the SC held that license is necessary in order the
foreign corporation may sue. In this case, the court considered
the continuity test, they found out that the foreign corporation
has the intent to continue business in the Philippines.
*Credit is obtained to maintain longer transactions.
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6. Failure to pay any and all taxes, imposts, assessments or
penalties, if any, lawfully due to the Philippine Government
or any of its agencies or political subdivision
104