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San Beda College of Law: Corporation Code
San Beda College of Law: Corporation Code
85
MEMORY AID IN COMMERCIAL LAW
CORPORATION CODE
(B.P. Blg. 68, effective May 1, 1980)
6. Effect of mismanagement
can command its transfer to his name II. INCORPORATION AND ORGANIZATION
from the issuing corporation.
14. CONVERTIBLE SHARE STEPS IN THE CREATION OF A
A share that is changeable by the CORPORATION
stockholder from one class to another at a. PROMOTION – a number of business
a certain price and within a certain operations peculiar to the commercial
period. world by which a company is generally
15. FRACTIONAL SHARE brought into existence. (18 Am. Jur. 2d
A share with a value of less than one 647, cited in de Leon p. 116)
full share. b. INCORPORATION
Steps:
DOCTRINE OF EQUALITY OF SHARES 1. Drafting and execution of Articles of
Where the articles of incorporation do Incorporation by the incorporators and
not provide for any distinction of the other documents required for
shares of stock, all shares issued by the registration of the corporation
corporation are presumed to be equal 2. Filing with the SEC of the articles of
and enjoy the same rights and privileges incorporation
and are also subject to the same 3. Payment of filing and publication fees
liabilities. (Sec. 6) 4. Issuance by the SEC of the certificate
of incorporation
DEFINITION OF TERMS: c. FORMAL ORGANIZATION AND
1. CAPITAL STOCK OR LEGAL STOCK OR COMMENCEMENT OF THE TRANSACTION
STATED CAPITAL - The amount fixed in OF BUSINESS
the corporate charter to be subscribed These are conditions subsequent,
and paid in cash, kind or property at the which may be satisfied by substantial
organization of the corporation or compliance in order that a corporation
afterwards and upon which the may legally continue as such.
corporation is to conduct its operation. Formal organization:
2. CAPITAL – The value of the actual 1. Adoption of By-Laws and filing of the
property or estate of the corporation same with the SEC;
whether in money or property. Its net 2. Election of board of
worth (or stockholder’s equity) is its directors/trustees, and officers;
assets less liabilities. 3. Establishment of principal office;
3. AUTHORIZED CAPITAL STOCK - The 4. Providing for subscription and
capital stock divided into shares with par payment of capital stock.
values. Par value stocks are required in
the case of corporations issuing TERM OF CORPORATE EXISTENCE
preferred shares, as well as in the case Limitations:
of banks, trust companies, insurance a. The term shall not exceed 50 years in
companies, building and loan any one instance.
associations, and public utilities. It is the b. The amendment is effected before
total amount in the charter, which may the expiration of corporate term, for
be raised by the corporation for its after dissolution by expiration of the
operations. corporate term there is no more
4. SUBSCRIBED CAPITAL STOCK - The corporate life to extend.
total amount of the capital stock c. The extension cannot be made earlier
subscribed whether fully paid or not. than 5 years prior to the expiration date
5. OUTSTANDING CAPITAL STOCK - The unless there are justifiable reasons as
portion of the capital stock issued to determined by the SEC.
subscribers except treasury stocks.
6. STATED CAPITAL – The capital stock CAPITAL STOCK REQUIREMENT
divided into no par value shares. General Rule: No minimum authorized
7. PAID-UP CAPITAL – The amount paid capital stock as long as the paid-up
by the stockholders on subscriptions capital is not less than P5,000.00
from unissued shares of the corporation. Except:
a. as provided for by special law
3. Cannot exercise powers not possessed the duties enjoined on them by law and
by the corporation. (The Corporation the by-laws (Sec. 25)
Code of the Philippines Annotated, 2. Duty of Diligence
Hector de Leon, 2002 ed.) Legal Basis: Directors or trustees who
willfully and knowingly vote for or assent
NATURE OF POWERS OF BOARD OF to patently unlawful acts of the
DIRECTORS/TRUSTEES (The Corporation corporation or who are guilty of gross
Code of the Philippines Annotated, negligence or bad faith in directing the
Hector de Leon, 2002 ed.) affairs of the corporation shall be liable
a. Under the Theory of Original Power, jointly and severally for all damages
the powers of the board of directors or resulting therefrom suffered by the
trustees are ORIGINAL and corporation, its stockholders or members
UNDELEGATED. The stockholders or and other persons (Sec. 31)
members do not confer, nor can they 3. Duty of Loyalty
revoke those powers. Legal Basis: Directors or trustees who
b. They are DERIVATIVE only in the sense acquire any pecuniary or personal
of being received from the State in the interest in conflict with their duty as
act of incorporation. such directors or trustees shall be liable
jointly and severally for all damages
BUSINESS JUDGMENT RULE resulting therefrom. (Sec. 31)
A resolution or transaction pursued When a director or trustee
within the corporate powers and attempts to acquire or acquires in
business operations of the corporation, violation of his duty, any interest
and passed in good faith by the board of adverse to the corporation in respect of
directors, is valid and binding, and any matter which has been reposed in
generally the courts have no authority to him in confidence as to which equity
review the same and substitute their imposes a liability upon him to deal in
own judgment, even when the exercise his own behalf, he shall be liable as
of such power may cause losses to the trustee for the corporation and must
corporation or decrease the profits of a account for all the profits which
department. (Philippine Corporate Law, otherwise would have accrued to the
Cesar Villanueva, 2001 ed.) corporation (Sec. 31, 2nd par.)
Where a director, by virtue of his
Consequences: office, acquires for himself a business
a. Resolutions and transactions entered opportunity which should belong to the
into by the Board within the powers of corporation, thereby obtaining profits
the corporation cannot be reversed by which should belong to the corporation,
the courts not even on the behest of the he must account to the latter for all such
stockholders. profits by refunding the same (Sec. 34)
b. Directors and officers acting within
such business judgment cannot be held ELECTION OF DIRECTORS/TRUSTEES
personally liable for such acts. Limitations:
(Philippine Corporate Law, Cesar a. At any meeting of stockholder or
Villanueva, 2001 ed.) members called for the election of
directors or trustees, there must be
THREE-FOLD DUTIES OF DIRECTORS: present either in person or by
(Philippine Corporate Law, Cesar representative authorized to act by
Villanueva, 2001 ed.) written proxy, the owners of the
1. Duty of Obedience majority of the outstanding capital stock
To direct the affairs of the or majority of the members entitled to
corporation only in accordance with the vote.
purposes for which it was organized. b. The election must be by ballot if
Legal Basis: The directors or trustees requested by any voting member or
and officers to be elected shall perform stockholder.
capital stock, or 2/3 of the member in such person to exercise the voting rights
of the members in non-stock of the former.
case of non-stock corporation b. Unless otherwise provided in the
corporations proxy, it shall be valid only for the
Power to Power to amend or meeting for which it is intended.
amend/repeal articles repeal by-laws or
cannot be delegated adopt new by-laws
c. No proxy shall be valid and effective
by the stockholders/ may be delegated for a longer period than five years at any
members to the board by the 2/3 of the one time. (Sec. 58)
of directors/ trustees outstanding capital The right to vote by proxy may be
stock or 2/3 of the exercised in any of the following
members in the instances:
case of non-stock 1. Election of the board of directors or
corporation trustees;
2. Voting in case of joint ownership of
VI. MEETINGS stock;
3. Voting by trustee under voting trust
STOCKHOLDERS/MEMBERS MEETING agreement;
4. Pledge or mortgage of shares;
WHEN: 5. As provided for in its by-laws.
1. REGULAR - held on the date fixed Note: Stockholders or members may
in the by-laws or if not fixed on any attend and vote in their meetings by
date in April;and proxy (Sec. 58); directors cannot do so.
2. SPECIAL - held at any time Directors must always act in person.
deemed necessary or as so provided (Sec. 25).
in the by-laws. EXTENT OF AUTHORITY
WHERE: a. GENERAL PROXY – confers a general
In the city or municipality where the discretionary power to attend and vote
principal office of the corporation is at annual meeting.
located, and if practicable, in the b. LIMITED PROXY – restrict the authority
principal office of the corporation. to vote to specified matters only and
However, in the case of non-stock may direct the manner in which the vote
corporations, the by-laws may shall be cast
provide that meetings may be held
at any place even outside the VOTING TRUST
principal place of the corporation. An agreement whereby one or more
(Sec. 93) stockholders transfer their shares of
stocks to a trustee, who thereby
BOARD MEETING (Sec. 53) acquires for a period of time the voting
WHEN: rights (and/or any other rights) over such
1. REGULAR - held monthly, unless shares; and in return, trust certificates
otherwise provided in the by-laws; are given to the stockholder/s, which
and are transferable like stock certificates,
2. SPECIAL - held at any time upon subject, however, to the trust
the call of the president. agreement.
WHERE: Limitations:
May be held anywhere in or outside of a. Cannot be entered into for a period
the Philippines. exceeding 5 years at any one time
except when it is a condition in a loan
PROXY agreement or for the purpose of
Limitations: circumventing the law against
a. It must be in writing and signed by monopolies and illegal combinations
the stockholder or member (as principal) b. The agreement must not be used for
and filed before the scheduled meeting purposes of fraud
with the corporate secretary, and given c. It must be in writing and notarized
to another person (as agent) authorizing and specify the terms and conditions
thereof
may be bound to honor the certificate certificate in favor of the transferee and
(if duly signed and released by its cancel the former certificate.
authorized officers) in the hands of a Only absolute transfers need be
holder in good faith, reserving a right registered. The pledge or mortgage itself
of recourse that an aggrieved party need not be recorded in the stock and
may pursue against the culpable or transfer book, but a chattel mortgage
unjustly enriched party. must comply with the Chattel Mortgage
Law, and a pledge would require the
shares to be placed in the possession of
the creditor/pledgee. The agreement
CAPITAL STOCK SHARES OF STOCK must appear in a public instrument to
Amount paid in or Interest or right take effect against third persons.
secured to be paid which the (Chemphil vs. CA, 251 SCRA 257)
in by the stockholder has in
stockholders upon the management of EFFECTS OF UNREGISTERED TRANSFER
which the the corporation, and
OF SHARES
corporation is to its surplus profits,
conduct its and upon a a. It is valid and binding as between the
operation. It is the dissolution, in all of transferor and the transferee
property of the its assets remaining b. It is invalid as to the corporation
corporation itself after payment of except when notice is given to the
(monetary value). corporate debts. corporation for purposes of registration
c. It is invalid as against corporate
SHARES OF STOCK CERTIFICATE OF creditors and the transferor is still liable
STOCK to the corporation
Unit of interest in a Evidence of the d. It is invalid as to the attaching or
corporation holder’s ownership executing creditors of the transferor, as
of the stock and of well as subsequent purchasers in good
his right as a faith without notice of the transfer.
shareholder
Incorporeal or Concrete and
intangible property tangible
ISSUANCE OF CERTIFICATE OF STOCK
May be issued by the May be issued only if No certificate of stock shall be issued
corporation even if the subscription is until the full amount of the subscription
the subscription is fully paid. is paid. Basis: Doctrine of Individuality
not fully paid. of Subscription that espouses that the
subscription is one, entire, indivisible,
REQUIREMENTS FOR TRANSFER OF and whole contract, which cannot be
STOCK divided into portions. (SEC Opinion)
a. In case of shares covered by a
certificate, the indorsement of the COLLECTION OF UNPAID SUBSCRIPTION
owner or his agent coupled with delivery 1. Voluntary payment
is essential a. Upon the date specified in the
b. Where no certificate has been issued subscription contract
or for some reason it is not in the b. Upon call by the Board of
possession of the stockholder, it may be Directors
transferred by means of a deed of 2. Involuntary payment
assignment duly recorded in the books of a. Extra-judicial
the corporation i. Delinquency sale
c. To be valid against the corporation ii. Application of dividends
and third persons, the transfer must be b. Judicial action
recorded in the stock and transfer book Note: The prescriptive period in case of
d. The transferee must present the subscription of shares begins to run only
indorsed certificate to the corporate from the time the board of directors
secretary who shall effect the transfer in declares that the balance are due and
the corporate books, issue a new stock payable. It does not begin to run from
the date of the subscription. (Garcia vs. No delinquency stock shall be voted
Suarez, 67 Phil. 441) for or be entitled to vote or
representation at any stockholders
DELINQUENCY meeting, nor shall the holder be entitled
1. If the subscription contract fixes the to any of the rights of a stockholder
date for payment, failure to pay on except the right to dividends in
such date shall render the entire accordance with the provisions of this
balance due and payable with Code until and unless he pays the
interest. Thirty days therefrom, if amount due on his subscription with
still unpaid, the shares become accrued interest, and the cost and
delinquent, as of the due date, and expenses of advertisement, if any. (Sec.
subject to sale, unless the board 71)
declares otherwise.
2. If no date is fixed in the subscription
contract, the board of directors can
make the call for payment, and PROCEDURE FOR THE SALE OF
specify the due date. The notice of DELINQUENT STOCKS (Sec. 68)
call is mandatory. The failure to pay 1. Call by resolution demanding
on such date shall render the entire payment of the balance. However, if
balance due and payable with the contract of subscription
interest. Thirty days therefrom, if prescribes the date of payment, no
still unpaid, the shares become call is necessary.
delinquent, as of the date of call, 2. Notice of the board resolution given
and subject to sale, unless the board to the stockholders by the corporate
declares otherwise. (Sec. 67) secretary, either personally or by
registered mail. Publication of notice
Effect: of call is not required.
A. Upon the stockholder 3. Failure of the stockholder to pay
1. Accelerates the within a grace period of 30 days from
entire amount of the unpaid the date specified in the contract of
subscription; subscription or in the call, the stocks
2. Subjects the shall be declared delinquent and
shares to interest, expenses and shall be subject to sale.
costs; 4. Notice of delinquency served on the
3. Disenfranchises subscribers either personally or
the shares from any right that registered mail and publication in a
inheres to a shareholder, except newspaper of general circulation in
the right to dividends (but which the province or the city where
shall be applied to any amount principal office is located for once a
due on said shares or, in the case week for 2 consecutive weeks.
of stock dividends, to be Notice shall state the amount due on
withheld by the corporation until each subscription plus accrued
full payment of the delinquent interest, and the date, time and
shares. (Sec. 43) place of the sale which shall not be
B. Upon the director owning delinquent less than 30 days nor more than 60
shares days from the date the stocks
1. He can continue serving in that become delinquent.
capacity unless and until said shares are 5. Sale of the delinquent shares at
totally bidded away, he continues to be public auction.
the owner thereof and in the interim he
is not disqualified. HIGHEST BIDDER IN A DELINQUENCY
2. A delinquent stockholder seeking to SALE
be elected as director may not be a a. The person participating in the
candidate for, nor be duly elected to, delinquency sale who offers to pay the full
the board. amount of the balance of the subscription
together with the accrued interest, costs
for a period or periods totaling apart from their common business in the
180 days or more; sense that there is no intention to
c) Participating in the engage in a progressive pursuit of the
management, supervision or purpose and object of business
control of any domestic business, transaction. (Eriks Pte.Ltd vs. CA, 267
firm or entity or corporation in SCRA 567)
the Philippines; and 2. In Pari Delicto Rule
d) Any other act or acts that imply In the case of Top-Weld Manufacturing
a continuity of commercial vs. ECED, S.A., the Court denied the
dealings or arrangements, and relief prayed for by petitioner when it
contemplate to that extent the ruled that the very purpose of the law
performance of acts or works, or was circumvented and evaded when the
the exercise of some of the petitioner entered into the said
functions normally incident to, agreements despite the prohibition
and in progressive prosecution contained in the questioned law. The
of, commercial gain or of the parties were considered as being in pari
purpose of the business delicto because they equally violated
organization. R.A. 5455
2. Implementing Rules of R.A. No. 7042 3. Estoppel Rule
Acts not constituting “doing A party is estopped from questioning
business”: the capacity of a foreign corporation to
a) Mere investment as a institute an action in our courts where it
shareholder in a domestic had obtained benefits from its dealings
corporation and/or the exercise with such foreign corporations and
of rights as such investor; thereafter committed a breach or sought
b) Appointing a representative or to renege on its obligations. (European
distributor domiciled in the Resources vs. Ingnieburo)
Philippines which transacts
business in its own name and for
its own account; EFFECTS OF LACK OF LICENSE
c) Publication of a general A. On suits
advertisement through any print 1. Foreign corporation doing business in
or broadcast media; the Philippines:
d) Maintaining a stock of goods in a) may not sue or intervene in any
the Philippines solely for the action in any court or
purpose of having the same administrative agency of the
processed by another entity in Philippines; but
the Philippines; b) may be sued on any valid cause of
e) Consignment by the foreign action recognized in the
corporation of equipment with a Philippines (under the doctrine of
local company to be used in the quasi-estoppel by acceptance of
processing of products for benefits). (Sec. 133)
export; 2. Foreign corporation not doing business
f) Collecting information in the in the Philippines:
Philippines; and a) Generally, it may not sue and be
g) Performing services auxiliary to sued in any court or
an existing isolated contract of administrative agency of the
sale which are not on a Philippines;
continuing basis. b) However, it may sue and be sued
for isolated transactions, as well
C. Jurisprudential Rules as for those which are casual or
1. Doctrine of Isolated Transactions incidental thereto.
Foreign corporations, even B. On contracts
unlicensed ones, can sue or be sued on a The contracts contemplated are those
transaction or series of transactions set that satisfy the “contract test” or those
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
San Beda College of Law
123
MEMORY AID IN COMMERCIAL LAW
Nature: in rem, summary, and non- d. direct the creditors to file their
adversarial verified comment or opposition
Applicability: These Rules apply to not later than 10 days before the
petitions for rehabilitation filed by initial hearing; their failure to do
corporations, partnerships and so would bar them from any
associations pursuant to P.D. 902-A participating in the proceedings.
Steps: 4. Publication of the stay order in a
1. Filing verified petition with the newspaper of general circulation once a
appropriate RTC by: week for 2 consecutive weeks;
a. corporate debtor who foresees 5. Referral of rehabilitation plan to
the impossibility of meeting its rehabilitation receiver;
debts when they respectively fall 6. Meetings between corporate debtor
due; or with creditors. Discussions on the
b. creditors holding at least 25% of rehabilitation plan;
the debtor’s total liabilities; 7. Submission of final rehabilitation plan
2. The following shall be annexed to the to the RTC for approval;
petition: 8. The petition shall be dismissed (which
a. audited financial statements at results into the automatic lifting of the
end of its last fiscal year; stay order unless RTC ordered otherwise)
b. interim financial if no rehabilitation plan is approved
statement; after 180 days from initial hearing;
c. schedule of debts and 9. Approval or disapproval of the
liabilities; rehabilitation plan by RTC.
d. inventory of assets;
e. rehabilitation plan; REHABILITATION RECEIVER
f. schedule of payments A person appointed by the RTC, in
and disposition of assets effected behalf of all the parties for the purpose
within 3 months preceding the of preserving and conserving the
filing of the petition; property and preventing its possible
g. schedule of cash flow for destruction or dissipation, if it were left
the last 3 months’ in the possession of any of the parties.
h. statement of possible He acts in a fiduciary capacity and
claims; with impartiality towards all interested.
i. affidavit of general He does not take over the
financial condition; management and control of the debtor,
j. at least 3 nominations but shall closely oversee and monitor the
for rehabilitation receiver; operations of the debtor during the
k. certificate under oath pendency of the proceedings. (Bar
that directors and stockholders Review Materials in Commercial Law,
have irrevocably approved/ Jorge Miravite, 2002 ed.)
consented to all actions/matters
necessary under the rehabilitation POWERS AND FUNCTIONS OF
plan. MANAGEMENT COMMITTEE OR
3. The court shall issue the stay order REHABILITATION RECEIVER (Sec. 6[d],
not later than 5 days from the filing of P.D. 902-A)
the petition, which among others, shall: 1. To take
a. appoint a rehabilitation receiver; custody of, and control over, all the
b. stay all actions for claims against existing assets and property of such
the debtor, which shall cover entities under management;
both secured and unsecured 2. To
creditors; evaluate the existing assets and
c. set an initial hearing for the liabilities, earnings and operations of
petition (not earlier than 45 days such corporations, partnerships or
but not later than 60 days from other associations;
filing of the petition); and
2005 CENTRALIZED BAR OPERATIONS EXECUTIVE COMMITTEE AND SUBJECT
CHAIRPERSONS
Maricel Abarentos (Over-all Chairperson), Ronald Jalmanzar (Over-all Vice Chair), Yolanda
Tolentino(VC-Acads), Jennifer Ang(VC- Secretariat), Joy Inductivo (VC-Finance), Elaine Masukat (VC-
EDP), Anna Margarita Eres (VC-Logistics) Jonathan
Mangundayao (Political Law), Francis Benedict Reotutar (Labor Law), Romuald Padilla (Civil Law),
Charmaine Torres (Taxation Law), Mark David Martinez (Criminal Law), Garny Luisa Alegre (Commercial
Law), Jinky Ann Uy (Remedial Law), Jackie Lou Bautista (Legal Ethics)
San Beda College of Law
125
MEMORY AID IN COMMERCIAL LAW
INSIDER
A person who, with respect to a
particular security, may be any of the
following:
1. The issuer;
2. The director or officer of, or a person
controlling the issuer;
3. A person whose relationship or former
relationship to the issuer gives him
access to material information about the
issuer or the security that is not
generally available to the public;
4. A government employee, or director,
or officer of an exchange, clearing
agency and/or self-regulatory
organization who has access to material The credit extended must be for an
information about an issuer or a security amount not greater than whichever is
that is not generally available to the higher of:
public; or 1. 65% of
5. A person who learns such information current market price of the
by a communication from any of the security
foregoing insiders. (Sec. 3.8) 2. 100% of
the lowest market price of
MATERIAL NON-PUBLIC INFORMATION security during the preceding 36
(formerly Fact of Special Significance) calendar months, but not greater
a. Information about the issuer or the than 75% of the current market
security which has not been generally price. (Sec. 48)
disclosed to the public and would
likely affect the market price of the Margin
security after being disseminated to Sum of money, or its equivalent,
the public and the lapse of a placed in the hands of a broker by
reasonable time for the market to principal or persons on whose account
absorb the information; or the purchase is to be made, as a security
b. Information about the issuer or the to the former against losses to which he
security which would be considered may be exposed by a subsequent
by a reasonable person important depression in the market value of the
under the circumstances in stock.
determining his course of action to
buy, sell or hold security. (Sec. 27.2) Margin Call
Demand made by the broker on the
MARGIN TRADING investor to deposit money or securities
A kind of trading that allows a broker with the broker when a purchase is made
to advance for the customer/investor or when the investor’s equity in a margin
part of the purchase price of a security account falls below a minimum standard
and to keep it as a collateral for such set by the exchange or broker.
advance.