Legend:

Doctrines

Latin terms

OUTLINE OF CORPORATION

Corporation concept

I. It is an artificial being

i. Separate juridical personality

1. debt of corporation not debt of stockholders

2. assets of corporation not assets of stockholders

3. corporate property and affairs separate from stockholders

EXCEPT: Doctrine of piercing the veil

In situations where corporation’s actions intend to:

1. defeat public convenience

2. protect the wrong

3. justify fraud

4. defend crime

Ex: dodging payment of obligations

It is based on alter ego theory

3 elements:

1. Control of corporation

2. Fraud or fundamental unfairness to plaintiff

3. Harm or damage caused to plaintiff

Effect: Separate personality is disregarded. Officers/stockholders = corporation.

Liabilities of corporation pierce officers and stockholders.

The veil of corporate fiction may be pierced when made as a shield o perpetrate
fraud/or confuse legitimate issues.

II. Created by operation of law

- Not by mere agreement

III. Right of succession

- Exists for as long as the period exists for which it has been formed
 IV. Has the powers, attributes, and properties expressly authorized by law or incidental to its
existence

Doctrine of limited capacity

1. expressly

2. implied

3. incidental

Acts exercised outside its limited capacity is considered ultra vires. or beyond the powers.

INCORPORATION

1. Verification of the name with the SEC

2. Drafting and executing the articles of incorporation signed by the incorporators. Treasurer-In-
Trust must secure an affidavit that 25% of authorized capital stock is subscribed and 25% of the
subscribed capital stock is paid. If paid in money, secure a certificate of bank deposit evidencing the
same.

3. Filing the articles of incorporation with the SEC. Requirements:

- AOI

- verification certificate authorizing corporation to use name

- treasurer’s affidavit

- certificate of bank deposit

- undertaking to change name if similar with other corporations

- other documents required (if special corporation, endorsement by gov. agencies)

4. Issuance of certificate of incorporation by the SEC. Will grant:

- primary franchise: required for the corporation to exist

- secondary franchise: not a pre-requisite to the corporation’s existence

Contents of AOI

1. Name

2. Purpose

3. Place of principal office - Philippines

4. Term – 50 years; can be shortened or extended but must be done not earlier than 5 years prior to
expiration. If 2022 is the term to end, must amend term on or before 2018.

5. Name, nationalities, and residence of incorporators

6. Numbers, name, nationalities, residence of directors or trustees

7. Amount of authorize capital stock, number of shares it is divided into, and its each par value
amount (par value share); the number of authorized shares and the fact that it is a non par value
share (w/o par)

8. Name of subscribers, nationalities, number of shares subscribed, amount subscribed, paid-in

amount

9. Other documents not inconsistent w/ the law that the incorporators may deem necessary

10. Name of treasurer-in-trust or temporary treasurer elected

11. Notarial acknowledgement

12. Treasurer’s affidavit

Amendment of AOI

1. legitimate purpose

2. vote required:

- majority vote of directors

- 2/3 vote or written assent of outstanding capital stock (stock corp.) or 2/3 of members
(nonstock)

3. Effectivity is upon approval of SEC or 6 months after filing with the SEC and not acted upon for
causes not attributable to the corp.

After incorporation:

- Deemed dissolved if not formally organized or not commencing business transactions

within 2 years after incorporation. Formal organization involves:
 Adoption of by-laws
 Filing of by-law with the SEC
 Election of directors
 Meeting of directors to elect officers provided in by-laws
- Subsequent and continuous inoperations for 5 years after commencing its operations
can become ground for revocation of certification of incorporation and corporate
franchise

Board of directors

I. Powers

1. to exercise corporate powers

2. to conduct corporate business

3. to control or hold corporate property

II. Eligbility
 He must not have been convicted for a final judgement subject for imprisonment for more
than 6 years. Thus, allowed = less than or equal to 6 years.

He must not have violated the corporation code 5 years prior to his election. Thus, 6 years
after = he can now be elected.

III. Way of voting

Generally: other methods of voting such as raising of hands

Except: If requested, by ballots

IV. Methods of voting

1. Stock corporation

# of votes a shareholder is entitled to = # of shares owned x # of directors to be elected

# of shares required to elect the # of desired directors to be elected = [(AxB)/(C+1)]+1

Or

[(# of outstanding shares entitled to vote x # of desired directors to be elected) / (total # of

directors to be elected + 1)] +1

# of votes needed to elect each of the desired # of directors = (# of shares required to elect desired #
of directors x # of desired directors to be elected) / # of total directors to be elected

# of total votes = # of outstanding shares entitled to vote x # of total directors to be elected

# of votes to elect total # of desired directors or minority directors = # of votes needed to elect each
desired directors x 2

# of votes allotted to majority stockholders = # of total votes - # of votes to elect total # of desired
directors

2. Non-stock corporation

# of votes = as many as there are trustees to be elected

EXC: must not give more than one vote for one candidate.

Specific powers expressed in the corporation code

1. Power to extend or shorten corporate term

Requisite:

a. Votes required

- majority of BOD or trustees

- 2/3 of outstanding shares or 2/3 of members

b. Amendment in the AOI

A stockholder may exercise appraisal right when he dissents from certain corporate actions

2. Power to increase or decrease capital stock

 Requisite:

a. Votes required

- majority of BOD or trustees

- 2/3 of outstanding shares or 2/3 of members

b. Increase or decrease must certified in a certificate duly signed by majority of

BOD/BOT and countersigned by the chairman and secretary in the shareholders’ meeting, stating the
increase and decrease in capital stock

- if increase, state the names, nationalities, residences of addtl subscribers

c. If increase, Treasurer must execute a sworn statement that 25% of the increase in
capital stock is subscribed and 25% of this subscription is paid

d. If decrease, this must not prejudice creditors or violate the Trust Fund Doctrine

e. Approved by SEC

3. Power to incur, create, and increase bonded indebtedness

a. Votes required

- majority of BOD or trustees

- 2/3 of outstanding shares or 2/3 of members

b. Certified in a certificate duly signed by majority of BOD/BOT and countersigned by

chairman and secretary in the shareholders’ meeting

c. Approved by SEC

d. Registered by SEC; that they may have authority to determine the sufficiency of the term
of such indebtedness

4. Power to deny pre-emptive right

Available when:

- Amended or denied in the AOI

- The law requires stock offerings or minimum stock ownership from the public
- When approved by 2/3 of the outstanding shares that shares will be issued in good faith
for the purpose of:
o Exchange of property for corporate purposes
o Payment of past contractual debts

5. Power to sell, lease, exchange, mortgage, pledge, or other disposition of all or substantially all
corporate property

a. Votes required

- majority of BOD or trustees

- 2/3 of outstanding shares or 2/3 of members

 b. Abandonment of the action may be permitted w/o further action from
stockholders/members

c. Only votes of BOD sufficient if disposition of property is in the regular course of business

6. Power to acquire own shares

Requisite:

- It must be for a legitimate purpose.

o To eliminate fractional shares
o To collect indebtedness from the corporation from unpaid subscriptions,
delinquent sales, or delinquent shares
o To pay stockholders who exercised their appraisal rights
o To purchase redeemable shares
o To comply with the SEC, for close corporations, to purchase stocks of
shareholders
o To purchase treasury shares
o To decrease capital stock
- There must be an unrestricted retained earnings available, except for redeemable shares
and when commanded by SEC. (4 &5)

7. Power to invest corporate funds in another corporation

Requisite:

a. Voting requirements:

- majority of all BOD/BOT

- 2/3 of outstanding capital stock or members

b. When voting of BOD/BOT is sufficient

If the investment is deemed necessary to fulfill primary purpose

8. Power to declare dividends

Kinds of dividends:

1. cash dividends

2. stock dividends

3. bond dividends

4. scrip dividends

5. liquidating dividends

6. property dividends

7. composite dividends

Requisites:

a. Stock dividends:
 - majority of all BOD/BOT provided there is quorum

- 2/3 of outstanding capital stock or members

b. Cash dividends:

- majority of all BOD/BOT provided there is quorum

Source of dividends:

- surplus profit

- paid-in capital

- capital

9. Power to enter into a management contract

Requisite:

a. Voting requirements:

- majority of all BOD/BOT

- majority of outstanding share capital or members

Note: this applies to both managing and managed corporation

b. Where 2/3 of outstanding capital stock required from the MANAGED CORPORATION

- interlocking stockholders who owns more than 1/3 of the outstanding capital stock entitled
to vote in the managing corporation

- interlocking directors

Duration:

- Not exceeding 5 years

- For other periods stated in laws and regulations, if it relates to agreements:
o Exploration
o Development
o Exploitation or utilization of natural resources

By-laws

It is the rules of actions adopted by a corporation

Requisites:

- It must be consistent with the charter of the corporation (law or AOI)

- It must be consistent with public policy
- It must be uniform and general in application
- It must be reasonable
- It must not impair the obligations of contracts

Before incorporation

- Submitted together with AOI signed by all incorporators

After incorporation

- Submitted 1 month after receipt of the issuance of certificate of incorporation and

approved by majority of outstanding capital stock/members

When effective:

- Upon issued by SEC of a certification that it is not inconsistent with the CC

Amendment, repeal, or adoption of new by-laws

Vote required:

- Majority of BOD/BOT
- Majority of outstanding capital stock/members whether voting or non-voting in a
meeting called for the purpose

To delegate the task of amendment, repeal, or adoption of new by-laws to BOD/BOT

Vote required:

- 2/3 of outstanding capital stock or members

Effect: BOD/BOT may amend, repeal, adopt new by-laws by a majority vote of those present
provided there is a quorum.

To revoke the power delegated to the BOD/BOT

Vote required:

- Majority of the outstanding capital stock or members

Meetings

BOD/BOT Meetings

Regular meetings

- Held monthly unless otherwise stated in the by-laws

- Must notify all directors/trustees atleast 1 day prior to scheduled meeting

Special meetings

- Held anytime
- Notify atleast 1 day prior to scheduled meeting

Manner of voting

- Per head basis

- Cannot attend/vote by proxy or representative

Place

- Anywhere outside or inside the PH

Stockholders/members meetings

Regular meetings

- On any day of APRIL unless otherwise stated in the by-laws

 - Notice must be given atleast 2 weeks before scheduled meeting

Special meetings

- Anytime
- Notice must be given atleast 1 week before scheduled meeting

Requisites of a valid meeting

1. it must be in a proper place

2. it must be held in the stated date and time.

3. it must be called by the proper person

- person stated in the by-laws

- if no person stated, then director, officer, or trustee or the petitioning shareholder or

member as ordered by SEC

- secretary or shareholder/member in case of removal of director/trustee

4. a prior notice must be given

5. there must be a quorum