1. What is a corporation?

·        Artificial by operation of law the right of succession, powers, attributes and properties expressly
authorized by law or incident to its existence.
2. What are the attributes of a corporation?
a. Right of succession
b.created by operation of law
c. artificial being with separate and distinct personality
d. powers, attributes and properties expressly authorized by law or incident to its existence.
3. What are the classifications of corporations under the Corporation Code?
a. Stock
b. Non-stock
4.What is a stock corporation?
 Capital stock divided into shares authorized to distribute to the holders of such shares, dividends or
allotments of the surplus profits on the basis of the shares held. By-laws do not authorized to
distribute dividends, corporation is a stock-corporation, may still distribute dividends to its
shareholders as such power is expressly granted.
5.What is a non-stock corporation?
 No part of its income is distributable to its members, trustees or officers. Any profit be used for the
furtherance of the purpose or purposes for which the corporation was organized.
6.What are the other classifications of corporations? (pt 1)
·        A. As to organizers:
a. Public
b. Private
B. As to purpose:
a. Public: government or a portion of the State for the general good and welfare
b. Private
i. Government-owned or controlled corporation- created by the government, government is the
majority stockholder.
ii. Quasi-public corporation- accepted from the State grant of franchise or contract involving the
performance of public duties but which are organized for profits.
C. As to governing law
a. Public
b. Private
D. As to legal right to corporate existence
a. De jure corporation- strict or substantial conformity mandatory statutory requirements for
incorporation and the right of which to exist as a corporation cannot be successfully attacked or questioned by
any party even in a direct proceeding.
b. De facto corporation- colorable compliance with requirements of a valid law and its existence
cannot be inquired collaterally but such inquiry may be made by the Solicitor General.
c. Corporation by estoppel- Assumes to act as corporation knowing and enters into a transaction with
a third person on the strength of such appearance. Cannot be permitted to deny its existence in an action under
said transaction.
d. Corporation by prescription- for an indefinite period without interference on the part of the
sovereign.
E. As to laws of incorporation
a. Domestic corporation- formed, organized or existing under Philippine laws;
b. Foreign corporation- formed, organized or existing under any laws other than those of
the Philippines, allow Filipino citizens and corporations to do business in its own country or state.
What are the other classifications of corporations? (pt 2)
6. As to whether they are open to the public or not:
a. Open- open to any person who may wish to become a stockholder or member thereto.
b. Close- shares of stock are held by limited number of persons.

7. As to relationship of management and control

a. Holding corporation- controls another as a subsidiary by power to elect management. Holds stocks in other
companies for purposes of control rather than for mere investment.
b. Subsidiary Corporation- such other corporation could elect the majority of its directors either directly or
indirectly, always controlled.
c. Affiliate- subject to common control of a mother or holding company and operated as part of a system.
d. Parent and Subsidiary corporation- controlling financial interest in one or more corporations.

8. As to number of persons who compose them.

a. Aggregate corporation- consisting of more than one person or member.
b. Corporation sole- consisting of only one person or member

9. As to whether they are for religious purposes or not

a. Ecclesiastical corporation- organized for religious purposes
b. Lay corporation- a purpose other than for religion
10. As to whether they are for charitable purposes or not
a. Eleemosynary corporation- for or devoted to charitable purposes or those supported by charity
b. Civil Corporation- established for business or profit.
What is the place of incorporation test?
A corporation is a national of the country under whose laws has been organized and registered. Is the principal
test of nationality of a corporate entity.
What is the control test?
Nationality of the majority of the stockholders on whom equity control is vested based on the theory that they
would be able to elect the majority of the Board of Directors.
When is the control test applied?
Exploitation of natural resources, owning and operating public utilities, mass media, advertising industry in
times of war.
What is the grandfather rule?
Percentage of Filipino equity in corporation engaged in nationalized and/or partly nationalized areas of
activities computed. Corporate shareholders are present in he situation attributing the nationality of the second
or even subsequent tier of ownership determine the nationality of the corporate shareholder.
What is the doctrine of separate judicial personality?
·        A juridical entity with legal personality separate and distinct from those acting for and in its behalf and
obligations its sole liabilities.
When is the corporation liable for torts committed by its officers or agents?
Tortious act is committed by an officer or agent express direction or authority stockholders or members,
directors as the governing body. Corporate officer or officers who caused the tortious act to be committed is
also personally liable
Can a corporation be held criminally liable?
·        Mere legal fiction, it does not have the essential element malice, EXCEPT express provision of law
(e.g. Anti-Dummy Law and Anti-Money Laundering Act) corporation is held criminally liable; responsible
officers would be criminally liable. Difficulty, if not the impossibility, of imposing the penal sanction of
imprisonment.
Who shall be held liable for the criminal acts done on behalf of a corporation?
Officers, only where the law directly requires the corporation to do an act in given manner and the same law
makes the person who falls to perform such act the prescribed manner criminally liable. Directly imposed on a
corporation, the responsible officer who performed the act must be the one to assume criminally liability.
Can a corporation recover moral damages in a suit?
As a general rule, is not entitled to recover moral damages, cannot experience physical sufferings, mental
anguish, fright, serious, anxiety, and wounded feelings.
What is the limitation with respect to the merger or consolidation of corporations?
Bona fide business not solely for the purpose of escaping the burden of taxation.
When are the effects of merger or consolidation?
1. Automatic assumption of the liabilities.

2. absorbed or constituent corporations are ipso facto dissolved without necessity of any further act or deed. No
winding up or liquidation.

3. Transfer of the assets.

4. Exchanges of properties, in exchange for securities in the new or surviving corporation.

5. Dissolution cannot be made to retroact date prior to the ratification of the stockholders, the transfer of the
assets and liabilities.

6. Consent of the creditors not necessary.

Is there an instance when a corporation recovers moral damages?
May claim for moral damages arising from libel expressly authorizes the recovery of moral damages libel,
slander, any other form of defamation, does not qualify a natural person.
Can a corporation file a criminal complaint of libel and claim for moral damages even though it is a
juridical person?
Yes, a juridical person such as a corporation can validly complain for libel or any other form of defamation and
claim for moral damages. The SC had ratiocinated that Art 2219 (7) does not qualify whether the plaintiff is a
natural or a juridical person.
What is the doctrine of piercing the corporate veil?
A corporation is looked upon as a legal entity but when notion of legal entity is used to defeat public
convenience, justify wrong or defend crime.
When is the corporate veil pierced?
·        1. Defeat public convenience
2. Justify wrong
3. Protect fraud
4. defend a crime
What are the different classifications of piercing the corporate veil cases?
·        1. Fraud Cases- defeat public convenience, justify wrong, protect fraud or defend crime; used as a shield
to confuse the legitimate issues; merely an adjunct, a business conduit or an alter ego of another corporation.
The corporation will be considered as a mere association of persons. Stockholders or to the other corporation.
2. Alter Ego Cases- defeat public convenience a mere force, is merely the alter ego, business conduit or
instrumentality of person or another entity.

3. Equity Cases- is necessary to achieve justice or equity; has become the “dumping ground” where no fraud or
ego circumstances can be culled to warrant piercing.
What are the elements to be considered in fraud cases?
·        1. Fraud or evil motive in the affected transaction there mere proof of control of the corporation by itself
would not authorize piercing.
2. enforcement of pecuniary claims pertaining to the corporation against corporate officers or stockholders, vice
versa.
3. corporate entity has been used in the perpetuation of the fraud
Note: always an element of malice or evil motive.
Give an instance when the Alter Ego Doctrine is applicable?
Parent company-subsidiary, company, relationship however if used for legitimate functions, a subsidiary’s
separate existence shall be respected, and the liability of the parent corporation as well as the subsidiary will be
confined to those arising in their respective business.
What are the probative factors considered in alter ego cases?
·        1. Stock ownership by one common ownership
2. Identity of directors and officers
3. Manner of keeping corporate books and records
4. Methods of conducting the business.
How is the veil of corporate existence pierced?
·        1. Disregarding the separate personality of the corporation
2. holding the corporate officer liable
3. corporation as an association of persons of in case of two corporations, treat them as one, hold them liable as
such.
What are the three tests to determine whether the corporate veil should be pierced?
·        1. Control, not mere majority or complete stock control, but complete dominion, not only of finances
policy and business.
2. used by the defendant to commit fraud
3. proximately cause
Who is a promoter?
·        Acting alone or with others, initiative in founding and organizing the business, receives consideration.
What are promoter’s contracts?
Entered into in behalf of a corporation the process of organization and incorporation, acknowledged essential
ingredient in the process of perfection.
What are instances to which the promoter is personally liable?
·        Subscribers- money is already paid to the promoters by a subscriber for shares in a projected corporation
according to the prospectus abandon the enterprise. Exception to each other occupy the position of partners
inter se should be implied only to do justice between parties.
What is the liability of a corporation to the promoter?
·        For and in behalf of a proposed corporation unless and until ratified, expressly or impliedly, by its Board
of Directors/Trustees. The corporation shall only be liable to the promoter after it has incorporated.
How many incorporators are required in order to establish a corporation?
·        Not less than five (5) but not more than fifteen however,
1. non-stock may be more than 15 in number as may be fixed in their articles of incorporation or by-laws.
2. Close corporations all the corporation’s issued stock of all classes, exclusive of treasury shares, shall be held
of record by not more than a specified number of persons, not exceeding 20.
3. Educational institutions, not be less than 5 nor more than 15 provided, in multiples of 5.
Enumerate the required qualifications of incorporators
·        1. Of legal age
2. a majority of whom must be residents of the Philippines
3. Own or be a subscriber to at least 1 share of the capital stock of the corporation.
What is the limitation in the use of the corporate name?
Is identical or deceptively or confusingly similar patently deceptive, confusing or contrary to existing laws.
What is the importance of the corporate name?
It cannot change name except in the manner provided by law and by that name alone it is authorized to transact
business.
What is the corporate term as prescribed by the law?
A period not exceeding 50 years date of incorporation unless sooner dissolved is extended.
Can the corporate term be extended? What is the period of extension?
Periods not exceeding 50 years in any single instance by amendment of the articles of incorporation in no
extension earlier than 5 years prior to the original or subsequent expire date(s) unless justifiable reasons for an
earlier extension as may be determined by the Securities and Exchange Commission.
·        Shall not be required to have any minimum authorized capital stock except otherwise specifically paid-up
capital cannot be lower than P5,000.00.
What is the requirement minimum subscribed capital stock?
·        At least 25% must be subscribed and at least 25% must be paid.
What is the numerical value for the minimum authorized, subscribed and paid-up capital stock?
·        1. Paid—up capital stock
2. Subscribed capital stock- P5,000.00 as the word used in Sec. 13 “at least 25%”.
3. Authorized capital stock – P5,000.00 valid to subscribe to the whole 100% .
Define Outstanding Capital Stock?
Total shares of stock issued to subscribers or stockholders, or not fully or partially paid except treasury shares.
Define the term “Articles of Incorporation”.
Basic contract document in corporate law, defining the charter of the corporation contractual relations State and
the corporation, the stockholders and the State, corporation and the stockholders.
What are the different contracts embodied in the articles of incorporation?
·        1. State and the corporation
2. stockholders and the State
3. corporation and its stockholders
What are the different contract law doctrines that can be applied in describing the nature of the
articles of incorporation?
Mutuality of contracts there can be an alteration or amendment of the articles if the stockholders the State give
their consent. Obligatory force of contracts.
What are the special types of corporations that must submit together with the Articles of
Incorporation a favorable recommendation from the appropriate agencies supervising such
corporations?
·        1. Banks
2. Public Utilities
3. Insurance Companies
What are the contents of the Articles of Incorporation?
·        File with the Securities Exchange Commission in any official languages duly signed and acknowledged
substantially following matters, except otherwise prescribed
1. PLACE principal office

2. NUMBER directors or trustees shall not be less than 5

3. NAME of the corporation

4. TERM which the corporation is to exist

5. NAMES nationalities and residences of the incorporators

6. PURPOSE where a corporation has more than one stated purpose, the articles of incorporation shall state
which is the primary purpose and which is/are the secondary purpose or purposes. Non-stock may not include a
purpose which would change or contradict nature as such.

7. NAMES shall act as directors or trustees

8. CAPITAL names nationalities and residences of the contributors

9. OTHERS

10. AUTHORIZED capital stock

Explain the Treasurer’s Affidavit.
Shall not accept the articles unless a sworn statement of the Treasurer at least 25% of the authorized capital
stock of the corporation has been subscribed, at least 25% of the total subscription has been fully paid to him.
Paid-up capital being not less than P5,000.00
You have been asked to incorporate a new company to be called FSB Savings & Mortgage Bank,
Inc. List the documents that you must submit to the Securities and Exchange Commission (SEC) to
obtain a certified of incorporation for FSB Savings & Mortgage Bank, Inc.
·        The documents to be submitted to the Securities and Exchange Commission (SEC)
1. Articles of Incorporation

2. Treasurer’s Affidavit

3. Certificate of Authority from the Monetary Board

4. Verification slip records of the SEC has already been adopted by another corporation, partnership or
association

5. Letter undertaking to change the proposed name

6. Bank certificate of deposit concerning the paid-up capital

7. to examine the bank records regarding the deposit of the paid-up capital

8. Registration sheet
How are the Articles of Incorporation amended?
Unless otherwise prescribed Code by special law, legitimate purposes, any provision may be amended by a
majority vote of the board of directors or trustees vote written assent of the stockholders representing at least
2/3 of the outstanding capital stock, without prejudice appraisal right of dissenting stockholders.
What are the required documents to be submitted to the SEC in case of an amendment to the Articles
of Incorporation?
All provisions required by law to be set out in the articles of incorporation underscoring the change or changes
made, copy thereof duly certified under oath by the corporate secretary and a majority of the directors or
trustees stating the fact that said amendment or amendments have been duly approved.
When shall the amendment take effect?
Upon their approval the Securities Exchange Commission or from the date of filing with the said Commission
if not acted upon within 6 months from the date of filing.
What are the non-amendable items in the Articles of Incorporation?
·        1. Incorporators
2. Incorporating directors/trustees
3. Original subscribers to the capital stock of the corporation
4. Treasurer-in-trust elected by the original subscribers
5. Members who contributed
6. Witnesses and the acknowledgement thereof.
When does corporate existence commence?
From the date the Securities and Exchange Commission issues a certificate of incorporation under its official
seal; thereupon shall constitute a body politic and corporate under the name stated in the articles of
incorporation for the period of time mentioned therein, unless extended or the corporation is dissolved in
accordance with law.
What are By-Laws?
For its internal government regulation of conduct, and prescribe the rights and duties of its stockholders or
members towards itself among themselves in reference to the management of its affairs.
What is the contractual significance of By-Laws?
As internal rules, cannot prejudice third persons who deal in good faith with the corporation unless they have
knowledge of the same strangers are not bound to know the by-laws.
Can a corporation exist despite the lack of by-laws?
Be no automatic corporate dissolution simply because the incorporations failed to abide the required filing of
by-laws.
What is the effect of lack of by-laws
The corporation may be considered a de facto corporation right to exercise corporate powers may not be
inquired into collaterally.
When there is a conflict between the Articles of Incorporation and the By-Laws, which shall prevail?
Articles of Incorporation shall prevail.
Discuss the required number of votes for the adoption of the By-laws.
·        Time when the by-laws were adopted:
1. PRIOR to incorporation- approved by all the incorporators and filed with the SEC together with the articles
of incorporation

2. filed AFTER incorporation (be within 1 month after receipt of official notice of the issuance of its certificate
of incorporation by the SEC) Affirmative vote of the stockholders representing at least a majority or of least a
majority of the members shall be necessary.
Are by-laws required to be registered in the SEC?
Copy thereof duly certified majority of the directors or trustees and counter-signed filed with the SEC which
shall be attached to the original articles of incorporation.
What are the requisites of valid by-laws?
·        1. Law nor with the Corporation Code
2. morals and public policy
3. impair obligations and contracts
4. general and uniform in their operation not directed against particular individuals
5. consistence with the charter or articles of incorporation
6. reasonable, not arbitrary or oppressive.
At the annual stockholders’ meeting of MS Corporation, the stockholders unanimously passed a
resolution authorizing the Board of Directors to amend the corporate by-laws so as to disqualify any
stockholder who is also a director or stockholder of a competing business from being elected to the
Board of Directors of MS Corporation. The by-laws were accordingly amended. GK, a stockholder
of MS Corporation and a majority stockholder of a competitor, sought election to the Board of
Directors of MS Corporation His nomination was denied on the ground that he was ineligible to run
for the position. Seeking a nullification of the offending disqualification provision, GK consults you
about its validity under the Corporation Code of the Phils. What would your legal advice be?
He cannot serve both, but must betray one or the other.
What are the binding effects of the corporation’s by-laws?
·        1. As to members and shareholders
a. force a contract between the members themselves
b. conclusive presumption know the provisions of the corporate by-laws by the fact of their being such is
charged with notice of by-laws.

2. As to Corporate Directors and its officers

a. bound by it and must comply with unless and until they changed.
b. with actual knowledge not bound
Are third persons absolutely not bound the corporation’s by-laws?
With actual notice of the by-laws may expressly exclude the by-laws so that his contract will not be affected
otherwise he is bound thereby.
How are the by-laws amended?
·        1. Majority of the board of directors or trustees and the owners of at least a majority of the outstanding
capital stock, or at least a majority of members of a non-stock corporation, at a regular or special meeting duly
called for the purpose amend or repeal.

2. owners 2/3 of the outstanding capital stock or 2/3 of the members a non-stock corporation may delegate
power to amend or repeal.
Can the power to amend the by-laws be delegated by the stockholders or members to the board of
directors or trustees?
Provided considered as revoked whenever stockholders owning or representing a majority of the members in
non-stock, shall so vote at a regular or special meeting.
What are the kinds of corporate powers?
·        1. Express- expressly authorized by the Corporation Code Articles of Incorporation or Charter.
2. Incidental- incidental to the existence of the corporation
3. Implied- inferred from or necessary for the exercise of the express powers.
What are the general powers of a corporation?
·        1. Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and deal with real and
personal property, securities and bonds
2. Stock corporations: Issue and sell stocks to subscribers and treasury stocks; for non-stock corporations, admit
members
3. Merger or consolidation
4. establish Pension, retirement
5. Sue and be sued
6. make reasonable Donations
7. Other powers essential or necessary
8. Of Succession
9. To adopt and use of Corporate seal
10. To amend its Articles of Incorporation
11. Adopt its By-laws
How is the corporate term extended or shortened?
·        1. A majority vote of the board of directors/trustees
2. Written notice of the proposed action time and place
3. Ratification by the stockholders at least 2/3 of the outstanding capital stock
4. A copy of the amended articles.
What are the ways to increase or decrease authorized capital stock?
·        1. Increasing/decreasing the number of shares and retaining the par value.
2. increasing/decreasing the par value of existing shares without increasing/decreasing the number of shares.
What are the requirements for the increase or decrease of authorized capital stock?
·        1. The majority vote of the board of directors
2. stockholders holding or representing at least 2/3 of the outstanding capital stock
3. Prior written notice the time and place of meeting by mail or personal service.
4. Certificate in duplicate signed by a majority of the directors countersigned by the chairman and the secretary.
5. increase in capital stock, 25% of such increased capital must
6. decrease in capital stock, the same must not prejudice the right of the creditors
7. Filing of the certificate with the SEC
8. Approval thereof by the SEC
What is Bonded Indebtedness?
Obligation to pay a definite sum of money at a future time at a fixed rate of interest, secured or unsecured
written debt instrument called a bond or debenture
What are the requirements in order to increase, decrease, or incur bonded indebtedness?
The same as in an increase or decrease in capital stock.
What is the purpose of the pre-emptive right?
Retain his proportionate control retain his equity in the surplus. Maintain the existing ration of the shareholder’s
interest and voting power in the corporation
When may the corporation deny the pre-emptive right of its stockholders?
·        1. To comply with laws requiring stock offering or minimum stock ownership by the public
2. being reoffered by the corporation after they were initially offered together with all the shares
3. In good faith in exchange for property needed for corporate purposes
4. payment of previously contracted debts
5. right is denied in the Articles of Incorporation
6. Waiver
7. Non-stock corporations
What are the requirements in order to sell or dispose corporate assets?
·        1. Majority vote of the board of directors
2. ratification by the stockholders holding or representing at least 2/3 of the outstanding capital stock at a
meeting duly called for that purpose
3. Prior written notice of the proposed increase or decrease of the capital.
4. subject to the provisions of existing laws on illegal combinations and monopolies and bulk sales law
5. dissenting stockholder shall have the option to exercise his appraisal
6. vote of the majority be sufficient
Is the SEC approval required before there can be a sale or disposition of all or substantially all of the
corporate assets?
NOT required such power affects the business enterprise level of corporate set-up.
When is a sale or disposition considered to cover substantially all the corporate assets?
·        1. Rendered INCAPABLE of continuing the business
2. incapable of accomplishing the purpose for which it was incorporated
What are the instances when the sale or disposition of corporate assets does not require the
ratificatory vote from stockholders?
·        1. Necessary in the usual and regular course of business
2. be appropriated for the conduct of the remaining business
3. does not cover all or substantially all of the assets
What are the instances when the corporation can acquire its own shares?
·        1. Eliminate fractional shares out of stock dividends
2. collect or compromise indebtedness
3. pay dissenting or withdrawing stockholders
4. acquire treasury shares
5. redeemable shares regardless of existence of retained earnings
6. a decrease of capital stock
7. a deadlock in the management
What are the conditions before the corporation can acquire its own shares?
·        1. Capital is not impaired
2. legitimate and proper corporate purpose
3. unrestricted retaining earnings
4. in good faith without prejudice
5. conditions of corporate affairs warrant it.
Does a corporation have the power to invest corporate funds in another corporation?
May be invested in another corporation to further its own purpose or for purposes other than its primary
purpose. Must be among those enumerated as secondary purposes and must further comply with the
requirements of Section 42 investment of money, investment of property.
What are the rules for the investment of corporate funds in another corporation as imposed by SEC?
·        1. Property is not presently used by the company, leasing not made on a regular basis
2. it will make it productive instead of allowing them to remain idle
3. no express restrictions
4. not used as a scheme to prejudice corporate creditors
5. compliance with the requirements
What are the requirements to invest corporate funds in another corporation?
·        1. Resolution by the majority of the board of directors or trustees
2. stockholders representing at least 2/3 of the outstanding
3. made at a meeting duly called for the purposes
4. prior written notice of the proposed investment time and place of the meeting.
What is the remedy of the stockholders who do not agree with the investment in another corporation?
·        Because he will be exposed to a line of business which is not being pursued when he invested in the
company.
Can a corporation engage in a business not enumerated in its purpose clause?
A corporation is not allowed to engage in a business distinct from those enumerated in the articles of
incorporation without amending the purpose clause. However, reasonably necessary to accomplish its primary
purpose AOI, no need for stockholders approval.
Do passive investments in another corporation require the ratification of the stockholders?
·        Section 42 does not cover passive investment in shares. General power to purchase securities.
What are the requirements for the corporation to declare dividends?
·        1. Unrestricted retained earnings
2. Resolution of the board
3. resolution of the board with concurrence 2/3 of outstanding capital
What are Unrestricted Retained Earnings?
·        Amount of accumulated profits and gains realized out of normal operations which is
1. Not appropriated for corporate expansion
2. Not converted by a restriction under a loan agreement
3. Not required to be retained under special circumstances.
What is the remedy of the other stockholders who do not want to extend or shorten the term?
May exercise his appraisal right.
What is an article of merger or consolidation and what are its contents?
·        After approval by the stockholders or members of the plan or merger or consolidation, the articles of
merger or articles consolidation shall be executed by each of the constituent corporations, signed by the
president or vice-president certified by the secretary or assistant secretary of each corporation
1. plan
2. stock corporations, number of shares outstanding, number of members
3. number of shares or members voting for and against such plan.
Charter of the surviving corporation.
What is the procedure for the merger or consolidation of corporations?
·        1. Approval plan
2. Submission to stockholders or members for approval
3. Execution of formal contract- Articles of Merger or Consolidation each of the constituent corporations
signed or certified.
4. Submission to SEC for approval- four copies submitted to the SEC
5. Conduct of hearing by SEC- reason to contrary to the inconsistent with the provisions of this Code or
existing laws.
When is the merger of consolidation deemed effective?
·        1. Not inconsistent with the provisions of this CODE and existing laws, issue a certificate of merger or
consolidation
2. is contrary to or inconsistent with the provisions of this Code or existing laws, a hearing
What are the kinds of dividends?
·        1. Cash dividends- payable in cash
2. Property dividends- distributed to the stockholders, real or personal
3. Stock dividends- in unissued or increased or additional shares of the corporation instead of cash or property
out of the unrestricted retained earnings
Note: shares of stock coming from stock dividends are payable only to stockholders not to strangers or non-
stockholders because only shareholders are entitled to dividends
4. Optional dividends- an option to receive cash or stock dividend
5. Composite dividends- partly in cash and partly in stocks
6. preferred or preferential dividends is payable to one class of stockholders-
7. cumulative dividends- contracted to be paid at a certain rate at, stated times
8. Scrip dividends- in the form of a writing or certificate
9. Liquidating dividends- are actually distributions of assets of the corporation upon dissolution or winding up
the same
Can the corporation retain surplus profits without declaring dividends?
·        A general rule, surplus profits in excess of 100% of their paid-up stock cannot be retained by the
corporation without declaration of dividends. However, several exceptions
1. clearly shown that such retention is necessary
2. corporation is prohibited under any loan agreement with any financial institution or creditor
3. definite corporate expansion projects
What is a management contract?
To manage or operate all or substantially all of the business of another corporation.
Can a corporation enter into a management contract with a natural person?
Refers only to a management contract with another corporation. It does not apply to management contracts
entered into by corporation with natural persons.
What is the term of the management contract?
Not be longer than 5 years for any 1 term except those contracts which relate to the exploration, development,
exploitation or utilization of natural resources.
Can a corporation enter into a management contract with a neutral person?
·        Refers only to a management contract with another corporation. It does not apply to management
contracts entered into by a corporation with natural persons.
What is the term of the management contract?
Not be longer than 5 years for any 1 term except those contracts which relate to the exploration, development,
exploitation nor utilization of natural resources.
What are the requirements in order that a management contract be valid?
·        1. A majority of the quorum of the board of directors

2. the stockholders owning at least majority of the outstanding capital stock or the members of BOTH the
managing and the managed corporations.

3. stockholders of the MANAGED corporation, owning at least 2/3 of the total outstanding capital stock.
a. stockholder/s representing the same interest of BOTH the managing and the managed corporations more than
1/3 of the total outstanding capital stock.
b. majority of the members
Can the management contract delegate the entire control over all officers and business of a
corporation to another?
A management contract cannot delegate the entire supervision and control over the officers and business of a
corporation to another as this will contravene Section 23 of the Corporation Code.
What is an ultra vires act?
·        Outside the object for which a corporation is created as defined by the law of its organization and
therefore beyond the powers conferred upon it by law.
What are the types of ultra vires acts?
·        1. Acts done BEYOND the powers of the corporation as provided in the law or its articles of
incorporation.

2. In behalf of a corporation by persons who have NO corporate authority is technically ultra vires acts of
officers and not of the corporation.

3. PER SE ILLEGAL
Ultra Vires acts may be committed by laws?
·        1. Corporation
2. Board of Directors
3. Corporate officers
What are the effects of an ultra vires act in executed and executor contracts?
·        1. Executed contract- will not set aside or interfere
2. Executory contracts- no enforcement
3. Partly executed and partly executory- principle of “no unjust enrichment”
4. Executory contracts
Is it possible that a power of a corporation included in the Articles of Incorporation be considered as
an ultra vires act?
Yes. Ultra vires (beyond powers) refers to an act outside or beyond corporate powers, including those that may
ostensibly be within such powers but are, by general or special laws, either prohibited or declared illegal. Thus
though the Articles of incorporation grants the corporation a certain power, such cannot be exercised if it is
prohibited or declared illegal by law.
How do shareholders exercise the powers of the corporation?
·        Requires the approval 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 non-stock corporation.
What is the remedy of the dissenting stockholders?
Acts affecting the rights of stockholders, sale of all substantially all corporate assets or investment of corporate
funds, appraisal right.
Is the approval of stockholders required before the Board of Directors issue the unissued portion of
the original authorized capital stock?
Lodged in the board of directors and no stockholders meeting is required to consider it because additional
issuance of shares of stocks does not need approval of the stockholders.
What are the powers held by the Board of Directors?
All corporate powers and all corporate business through the Board of the Directors of the corporation.
What is the consequence when the Board of Directors does not act according to its charter and law?
Should act in the manner and within the formalities, if any, prescribed by its charter or by the general law
otherwise, any action taken therein may be questioned by any objecting director or shareholder.
Are the actions of the board of directors, during a meeting which failed to abide by the requirements
of its charter or the law, subject to ratification?
An action of the board of directors during a meeting, which was illegal due to lack of notice, may be ratified
either expressly, by the action of the directors in subsequent legal meeting, or impliedly, by the corporation’s
subsequent course of conduct.
Can the corporation delegate its corporate powers to its officers?
A corporation like a natural person may authorize another to do certain acts for and in its behalf, through its
board of directors and may legally delegate some of its functions.
What is the source of the authority of officers of the corporation?
Derived from the board of directors or other governing body, unless charter of the corporation, statute, charter,
by-laws, a delegation of authority to such officer.
What is the Trust Fund Doctrine?
The subscribed capital stock of the corporation serves as trust fund for the payment of debts of the corporation
the creditors have right to look up to satisfy their credits, corporation may not dissipate. May sue the
stockholders directly for the unpaid subscription.
Discuss the applicability of the Trust Fund Doctrine.
·        1. Corporation has distributed its capital
2. payment of dividends without unrestricted retained earnings
3. released the subscribers to the capital stock
4. transferred the corporate property in fraud of its creditors
5. corporation is insolvent
Are there any exceptions to the Trust Fund Doctrine?
·        Allows distribution of corporate capital
1. to reduce authorized capital stock
2. purchase of redeemable shares
3. dissolution and eventual liquidation of the corporation
4 In close corporation be a deadlock and the SEC orders the payment of the appraised value of the
stockholder’s share.
Who exercises the corporate power?
The corporate powers of the corporation are exercised by the board of directors or trustees.
What is the Doctrine of Centralized Management?
Directly invested in the Board of Directors or Trustees rather than being delegated to the stockholders or
members
What is the rationale of the Doctrine of Centralized Management?
For efficiency in any large organization. Stockholders are too numerous, scattered and unfamiliar.
Can an individual director exercise corporate powers?
Just as a natural person may authorize another to do certain acts in its behalf, so may the board validly delegate
some of its functions to individual officers or agents. Absent such valid delegation, the declarations of an
individual director relating to the affairs of the corporation, but not in the course of, or connected with the
performance of authorized duties of such director, is held not binding on the corporation.
Are there instances when corporate powers can be exercised by persons other than the Board of
Directors?
·        1. Executive Committee duly authorized in the by-laws
2. contracted manager
3. contracted manager is another corporation
4. close corporations, stockholders may directly manage
What is the business judgment rule?
Courts cannot undertake to control the discretion of the board of directors legitimate power of action, UNLESS
contracts are so unconscionable and oppressive as to amount to a wanton destruction of the rights of the
minority. Questions of policy or management are left solely to the honest decision of the officers and directors
of a corporation, the court is without authority to substitute its judgment.
Are the directors liable for a corporate act done pursuant to a valid corporate objective but later on
became unfavorable to the corporation?
Questions of policy or management left solely to the honest decision of officers and directors courts are without
authority to substitute their judgment. The judgment of the board of directors; ;the board is the business
manager of the corporation so long as it acts in good faith its orders are not reviewable by the Courts or the
SEC.
What are the qualifications of a director?
·        1. At least one (1) share of the capital stock of the corporation in his own name, if he ceases to own at
least automatically ceases to be a director.
2. legal title, not beneficial ownership.
3. does not own a stock at the time of his election or appointment does not disqualify him as a director before
assuming the duties of his office
4. not a stockholder cannot be a director, ex officio member without voting rights
5. majority residents of the Philippines
6. Must not have been convicted by final judgment of an offense punishable by imprisonment exceeding (6)
years, violation of the Corporation Code committed within (5) years date of his election or appointment
7. Only natural persons can be elected directors/trustees
8. corporate stockholders or members, representation by making their individual representatives trustees of the
shares or membership
9. of legal age
10 other qualifications as may be prescribed
What is the term of office of directors?
Elected for a term of one year but may continue to serve until their successors are elected and qualified.
What is the holdover principle?
It states that upon failure of a quorum at any annual meeting, the directorate naturally holds over and continues
to function until another directorate is chosen and qualified. Unless the law or the charter of a corporation
expressly provides that an office shall become vacant at the expiration of the term of office for which the
officer was elected, the general rule is to allow the officer to holdover until his successor is duly qualified.
What is the required number of stockholders or members that must be present during elections?
A stock corporation, a majority of the outstanding capital stock, in person or by their authorized representative
by written proxy. A non-stock corporation, a majority of the members entitled to vote, in person or by proxy.
What is the manner of voting in the election of directors or trustees?
A stock corporation, cumulative voting is mandatory. Is a matter of right granted by law to each stockholder
with voting rights. Non-stock corporation, cumulative voting is generally not available unless allowed by the
articles of incorporation or by-laws. Members of non-stock corporations may cast as many votes as there are
trustees to be elected but may cast not more than one vote for one candidate.
What are the methods of voting?
·        1. Straight voting- may vote such number of shares for as many persons as there are directors to be
elected.
2. Cumulative Voting for One Candidate- allowed to concentrate his votes and give one candidate, as many
votes as the number of directors to be elected multiplied by the number of his shares.
3. Cumulative Voting by Distribution- multiplying the number of his shares by the number of directors to be
elected and distribute the same among as many candidates as he shall see.
What is the limitation on cumulative voting in stock corporations?
Shall not exceed the number of shares owned by him as shown in the books of the corporation multiplied the
whole number of directors to be elected.
Can a stock corporation deprive its stockholders of their right to vote?
Stock corporations, being a statutory right, a corporation is without power to deprive the stockholders of its use
or even restrict the right to vote to only one way or method. Non-stock corporations, may be limited, broadened
or denied to the extent specified in the articles of incorporation or the by-laws.
Discuss the requisites in order for an election to be valid:
·        1. Present in person or by representation authorized to act by written proxy, the owners of a majority of
the outstanding capital stock
2. by ballot
3. statutory right
4. No delinquent stock
5. highest number of votes, quorum
6. failure to hold an election for
7. Notice
Are non-voting shares absolutely prohibited from exercising voting rights?
·        Where the articles of incorporation provides for classification of shares pursuant to Sec. 6, non-voting
shares are not entitled to vote except:
1. Incurring, creating or increasing bonded indebtedness
2. Dissolution of the corporation
3. Increase or decrease of capital stock
4. substantially all
5. Merger or consolidation
6. Amendment of the articles of incorporation
7. Investment of corporate
8. Adoption and amendment of by-laws
Enumerate the shares which do not have voting rights
·        1. Classified as preferred or redeemable
2. Fractional shares of stock
3. Treasury shares
4. declared delinquent
5. Transferee of stock cannot vote if transfer is not registered in and transfer book of the corporation.
Which court or administrative body has jurisdiction over election contests in corporations?
Regional Trial Court now has the jurisdiction over election contest or those relating to any controversy or
dispute involving title or claim to any elective office. The validation of proxies, manner and validity of
elections, the qualifications of candidates.
What is the quorum required during elections of directors or trustees?
Unless, stockholders representing a majority of the outstanding capital stock or a majority of the members in
case of non-stock corporations.
How are directors or trustees removed by the stockholders or members?
·        1. At a regular or special meeting duly called for the purpose
2. only be removed by a vote of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3
of the members.
3. a previous notice to stockholders or members intention.
4. may NOT be used to deprive minority stockholders or members of the right of representation
5. no need to follow if the director is disqualified. By operation of law, such director is disqualified to act as
director thereby creating vacancies in the Board.
6. Special meeting be called by the secretary on order or the president or on the written demand of the
stockholders.
What constitutes “Cause” as basis for removal?
Loyalty, obedience and diligence
What is the remedy of stockholders if the corporate secretary failed or refused to call a special
meeting to remove a director or trustee?
May be addressed directly to the stockholders or members by any stockholder or member of the corporation
signing the demand.
How is vacancy in board filled?
·        1. By the stockholders or members
a. vacancy results from the removal by the stockholders or members or the expiration of term.
b. OTHER than by removal or by expiration of term, death, resignation, abandonment, or disqualification,
remaining directors or trustees do NOT constitute a quorum for purpose of filling the vacancy.
c. may be filled by the remaining directors or trustees but the board refers the matter to stockholders or
members; or
d. created by reason of an increase in the number of directors or trustees.
2. By the members of the Board- at least a majority of them are empowered to fill any vacancy.
What is term of the director or trustee elected to fill the vacancy?
Shall be elected only for the unexpired term of his predecessor in office.
Are directors entitled to compensation?
·        A general rule, are not entitled to receive any compensation except for reasonable per diems. Exceptions:
1. Compensation is fixed in the by-laws
2. representing at least a majority of the outstanding capital stock, regular or special stockholders.
What is the limitation to the compensation granted to directors?
Shall NOT exceed 10% of the net income before income tax of the corporation during the preceding year.
Are the directors still entitled to such compensation amidst the absence of corporate net income?
Directors shall only be given compensation when there is a net income. To prevent the violation of the trust
fund doctrine.
What are the fiduciary duties of directors or trustees?
·        1. Duty of Obedience- perform the duties enjoined on them by law and the by-laws of the corporation
2. Duty of Diligence- guilty of gross negligence or bad faith, liable jointly and severally for all damages
resulting therefrom suffered by the corporation, its stockholders or members and other persons.
3. Duty of Loyalty- conflict of interest, self-dealing directors, interlocking directors, usurpation of corporate
business opportunity. The director owes loyalty and allegiance to the corporation, a loyalty that is undivided.
Are directors and officers solidarily liable with the corporation?
·        General rule obligations incurred by the corporation, acting its sole liabilities. However, solidary liability.
1. by specific provision of law.
2. contractually agreed or stipulated
3. director or officer has consented to the issuance of watered stocks did not forthwith file with the corporate
secretary
4.a. guilty of conflict of interest
b. act in bad faith with gross negligence
c. vote for or assent to patently unlawful acts
When is there disloyalty by a director or trustee?
Any interest adverse to the adverse to the corporation of any matter which has been reposed in him in
confidence equity imposes a liability upon him to deal in his own behalf, liable as trustee, account for all the
profits.
What is the penalty of a director or trustee who commits acts of disloyalty?
Who acquire any pecuniary or personal interest in conflict with their duty liable jointly.
Are directors and officers solidarily liable for the issuance of watered down stocks?
Consenting to the issuance of watered stocks or who, does not forthwith express his objection in writing and
file the same with the corporate secretary, solidarily liable stockholder concerned to the corporation and its
creditors for difference fair value par issued value of the same.
Define watered stock.
Less than its par value or issued value a consideration in any form other than cash, valued in excess of its fair
value.
What is the special facts doctrine?
A director does not stand in fiduciary relation to the stockholder, under legal obligation make fair and full
disclosure of pertinent official information where special circumstances exist giving rise to the obligation to
disclose such information.
When can a corporation beheld criminally liable?
By express provision of law (i.e. Anti-Dummy Law, Anti-Money Laundering Act and Trust Receipts Law).
Are officers liable for the criminal acts done on behalf of the corporation?
Only where the law directly requires the corporation to do such an act in a given manner and the same law
makes the person who fails to perform the act in the prescribed manner criminally liable.
What is an inside information?
·        Nature of “material non-public”
(a) it has not been generally disclosed to the public would likely affect the market price of the security after
being disseminated to public.
(b) would be considered by a reasonable person important determining his course of action whether to buy, sell
or hold security.
Can directors or trustees deal with securities using inside information?
·        No. It shall be unlawful for an insider (director or trustee) to sell or buy a security of the issuer, while in
possession of material information with respect to the issuer or the security that is not generally available to the
public.
Who are self-dealing directors, trustees or officers?
Who personally contract with the corporation directors, trustees, or officers.
What is the status of a contract entered into by a self-dealing director?
·        VOIDABLE UNLESS:
1. presence of such director/trustee in the board meeting approving the contract was NOT necessary a quorum
2. vote NOT necessary the approval
3. fair and reasonable under the circumstances
4. an officer, previously authorized by the board of directors.
What if not all of the conditions cited above are present, is there an instance that the contract will still
be valid?
FIRST two conditions is absent vote of the stockholders 2/3 of the outstanding capital stock, 2/3 or the
members provided full disclosure is made at such meeting and the contract is fair and reasonable under the
circumstances.
Who are interlocking Directors?
·        One, some or all of the directors in one corporation, a director in another corporation.
Does the law prohibit interlocking directorship?
·        By itself is not prohibited. However, by-laws may contain provisions that disallow interlocking
directorship. Two or more corporations having interlocking directors not be invalidated on that ground alone.
VALID provided:
1. is not fraud
2. contract is fair and reasonable under the circumstances
When is an interlocking director deemed to have substantial interest?
Interlocking director has substantial interest in one corporation if his equity exceeds 20%, does not exceed
20%, a nominal director.
What is an executive committee?
Body created by the by-laws composed of not less than three appointed members which all the authority of the
board extent provided in the board resolution or by-laws.
What is the authority of the executive committee?
All the authority of the board to the extent provided for in the resolution of the board or in the by-laws. A
majority vote of all of its members on such specific matters within the competence of board.
Is the decision of the executive committee subject to appeal to the board of directors?
Are not subject to appeal. However, may be ratified.
Suppose the board of directors created a body called “executive committee” and the corporate By-
Laws is silent on the power to create an executive committee. Is the said committee illegal?
Notwithstanding the silence of the corporate by-laws on the matter, cannot be held that the creation of the
executive committee by the board of directors is illegal or unlawful. Nature and functions. Should be
distinguished from other committees which are within the competency of board to create at any time and whose
actions require ratification and confirmation by the board.
What are the limitations on the powers of an executive committee?
·        1. For which stakeholders’ approval is also required;
2. Filing up of board vacancies
3. Amendment, repeal of by-laws or adoption of new by-laws
4. amendment or repeal of any resolution
5. distribution of cash dividends to shareholders.
What are the kinds of meetings of the board of directors or trustees?
·        1. Regular- monthly, unless the by-laws provide otherwise
2. Special- board at any time upon the call of the president or as provided in the by-laws
When are the meetings of the board of directors or trustees held?
·        Regular meetings, monthly, unless the by-laws provide otherwise.
Special Meetings, at any time upon the call of the president or as provided in the by-laws.
Where are the meetings of the board of directors or trustees held?
Anywhere in or outside of the Philippines, unless by-laws provide otherwise.
Discuss the required notice in order that meetings of directors or trustees by valid.
·        Meetings of Directors/Trustees
1. General Rule: at least 1 day prior
2. Exception: unless otherwise provided
Who calls the meetings of the board of directors or trustees?
·        1. Officer designated in the by-laws
2. Directors/Trustees
3. Entrusted with the management of the corporation otherwise provided by law.
How is quorum in the meeting of the board of directors or trustees determined?
A general rule, majority of the number of directors or trustees AS FIXED IN THE ARTICLES OF
INCORPORATION every decision of at least a majority of the directors or trustees present at a meeting at
which there is a quorum be valid as a corporate act, except election of officers a majority of all the members of
the board. Exception the articles of incorporation or the by-laws provide for a greater majority.
What happens in case a director or trustees failed to attend a meeting?
Abstention, general rule is counted in favor of the issue that won the majority vote; the abstaining directors are
deemed to abide by the rule of the majority acquiescence in the action of those who vote affirmatively.
Is the above-cited rule considered absolute?
Merely prima facie. Would not hold in the facie of a clear evidence to the contrary.
What are the fundamental rights of a stockholder?
·        1. Rights as to control and management
a. adopt/amend/repeal the by-laws
b. have the corporation voluntarily dissolved
c. elect & remove directors
d. attend and vote in person/proxy at stockholder’s meetings
e. enter into a voting trust agreement
f. compel the calling of meetings
g. approve certain corporate acts
2. Proprietary rights
a. pre-emption in the issue of shares
b. transfer of stock in the corporate book
c. receive dividends when declared
d. issuance of certificate of stock
e. participate in distribution of corporate assets upon dissolution
3. Remedial Rights
a. furnished recent financial statements
b. Bring suits
c. inspect corporate books
d. recover stock unlawfully sold for delinquency
e. demand payment
What is the doctrine of equity of shares?
All shares issued by the corporation are presumed to be equal and shall enjoy the same rights and privileges.
Define proxy.
·        1. Written authorization given by one person to another the latter act for the former.
2. serves as an evidence of the authority of the agent.
Is stockholder allowed to vote through proxy?
May vote in person or by proxy in all meetings 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, valid
only for the meeting for which it is intended. No proxy a period longer than 5 years at any one time.
What are the requirements for a proxy to be valid?
·        1. Filed before the scheduled meeting with the corporate secretary
2. valid and effective longer than 5 years at any one time
3. unless otherwise provided valid only for the meeting which it was intended
4. signed by the stockholder or member
5. in writing
What are the kinds of proxy?
·        1. General proxy- general discretionary power to attend and vote at annual meeting as exercise all powers
the stockholder/member could do if personally present
2. limited proxy- only to specified matters may direct the manner in which the vote shall be cast
3. Specific Proxy- merely for a particular meeting
4. Continuing Proxy- any and all regular or special stockholder’s meetings unless stockholder revokes
Who can be a proxy?
No limitation as to who may be a proxy. May appoint any person he sees fit to represent him.
Is there an instance when the right to vote by proxy is denied?
Non-stock corporations right to vote by proxy, or even the right to vote itself may be denied to members in the
articles of incorporation not discriminatory.
Why are proxy solicitations regulated by the Securities Regulation Code?
Right to vote in a stock which is a security can affect the interests involving the securities and the corporation
prevent prejudice to the investing public.
Between the SEC and RTC which body has jurisdiction over controversies regarding proxies?
Power to regulate proxies SEC could very well be exercised when stockholders vote on matters other than the
election of directors. Controversy on proxy relates to the election of directors or officers, RTC has jurisdiction.
What is a voting trust agreement?
·        The right to vote and other rights pertaining to the shares.
What are the limitations to a voting trust agreement?
·        1. For a period exceeding 5 years at any one time EXCEPT a condition in a loan agreement, automatically
expire upon full payment of the loan
2. must not be used for purposes of fraud
3. in writing and notarized specify the terms and conditions thereof
4. certified copy of the agreement must be filed with the corporation and with the SEC
5. subject to examination by any stockholder
6. Unless expressly renewed automatically expire at the end of the agreed period.
Cases when stockholders’ action is required

By a Majority Vote
·        Corporate Act: Fixing of compensations of directors
Salient Points: 1. Reasonable per diems
2. By-Laws may provide compensation
3. not more than 10% of the net income before income tax

Corporate Act: Adoption of By-Laws

Salient Points: Non-voting shares can vote

Corporate Act: Election of Directors/Trustees

Salient Points: 1. The highest number of votes get elected
2. cumulative voting
3. non-voting shares cannot vote

Corporate Act: Issued Price of No-Par value shares

Salient Points: Stockholders/Members shall vote BOD/BOT are not authorized by the articles of incorporation
and the by-laws to fix to fix the price
Cases when stockholders’ action is required

By a Two-Thirds Vote
Corporate Act: Denial of pre-emptive
Salient Points: 1. Only if the AOI or amendment thereto denies pre-emptive right
2. extends to shares issued in good faith in exchange for property needed for corporate purposes

Corporate Act: Delegation of the power to Amend, Repeal or Adopt New By-Laws
Salient Points: 1. Can be revoked by majority OCS
2. Non-voting shares cannot vote

Corporate Act: Removal of Directors/Trustees

Salient Points: 1. Notice and statement of purpose are necessary
2. in a meeting called by the secretary
a. Non-voting shares cannot vote
b. Removal without cause cannot be used

Corporate Act: Ratification of act of disloyal director

Salient Points: -
Cases when stockholders’ action is required

By Cumulative Voting Corporate Acts which require Majority Vote of the BOD and vote of
Stockholders representing Majority of the OCS
Corporate Act: Fixing the issued Price of No-Par value shares
If BOD is not authorized by the AOI

Corporate Act: Amendment or repeal of By-Laws or adoption of new By-Laws

Salient Points: may be made by the Board only after due delegation by the Stockholders

Corporate Act: Management Contract

Majority vote of BOD of both managing and managed.
Majority of OCS/members both managing and some cases 2/3 of OCS
Cases when stockholders’ action is required
Corporate Acts which require Majority Vote of the BOD and Vote of stockholders Representing 2/3
of the OCS
Corporate Act: Amendment of Articles of Incorporation
Salient Points: 1. Non-voting shares can vote
2. Appraisal right is available
3. upon approval by SEC, date of filing if not acted upon within six months
4. legitimate purpose

Corporate Act: Dissolution of Corporation

Salient Points: non-voting shares can vote

Corporate Act: Adoption of plan or distribution

Salient Points: -

Corporate Act: Merger or consolidation

Salient Points: 1. Non-voting shares can vote
2. Appraisal right is available

Corporate Act: Sale, Lease, Exchange, Mortgage, Pledge, Dispose of all or substantially all
Salient Points: 1. Majority of the board is sufficient transaction does cover all or substantially all
2. Non-voting shares can vote
3. Appraisal right is available
4. Notice is required
5. director’s action is sufficient

Corporate Act: Increase or decrease of capital stock

Salient Points: 1. Meeting is required
2. Non-voting shares can vote
3. No appraisal right
4. Notice requirement
5. Prior approval of the SEC is necessary
a. Treasurer’s sworn statement
b. No decrease of capital stock if it will prejudice the right of the creditors

Corporate Act: Incur, Create, Increase Bonded Indebtedness

Salient Points: 1. Meeting is required
2. Non-voting shares can vote
3. No appraisal right
4. Notice is required

Corporate Act: Investment of Corporate Funds in another Corporation

Salient Points: 1. Appraisal right is available
2. Notice is required
3. secondary purpose is covered
4. Stockholder’s ratification is not necessary incidental to the primary purpose.
When is there a right to receive dividends?
·        That he is a STOCKHOLDER
1. Cash Dividends- declared the pro rata shares
2. Stock Dividends- may be rescind at any time before the actual issuance of stock.
In the absence of a rule to the contrary, how shall dividends be distributed?
·        Same class always be pro rata, regardless of the time when the shares were acquired.
What is the appraisal right of stockholders?
Demand payment of the fair value of shares, dissenting from a proposed corporate action
What are the instances where appraisal right may be exercised?
·        1. Investment of corporate funds in another corporation
2. Sale, encumbrance or other dispositions of all or substantially all corporate property or assets
3. Amendment to the articles that has the effect of-
a. changing or restricting the rights
b. authorizing preferences over those of outstanding shares
c. changing the term of corporate existence
4. Merger consolidation
How is the right of appraisal exercised?
·        1. Dissenting stockholder shall make a written demand on the corporation within 30 days after the date on
which the vote was taken for the payment of the fair value of his shares
2. proposed corporate action is implemented or effected, the corporation shall pay such stockholder, surrender
of the corresponding certificate of stock within 10 days after demanding payment of his shares
3. stockholder shall transfer his shares to the corporation.
What are the conditions for the exercise of the appraisal right?
·        1. Any of the instances set forth by law must be present
2. Dissenting stockholder must have voted against the proposed action
3. Demand for payment
Within 30 days from the date vote is taken thereon
4. Price must be based on fair value prior to date on which vote was taken
5. Submission by withdrawing stockholder within 10 days from written demand
6. Only when the corporation has restricted retained earnings.
What is the obligation of the dissenting stockholder upon the payment of the corporation of his
shares?
Stockholder must transfer his shares to the corporation upon payment by the corporation.
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