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Ust Golden Notes Corporation Law
Ust Golden Notes Corporation Law
CORPORATION LAW
MERCANTILE LAW TEAM:
110 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
b. Open‐ one which is open to any Q: What are the requisites of a de facto
person who may which to become corporation?
a stockholder or member thereto
A:
8. As to their relation to another 1. Organized under a valid law.
corporation
a. Parent or Holding‐ one which is 2. Attempt in good faith to form a
related to another corporation that corporation according to the
it has the power either, directly or requirements of the law.
indirectly to, elect the majority of
the director of such other Note: The Supreme Court requires that
corporation Articles of Incorporation have already
been filed with the SEC and the
b. Subsidiary‐ one which is so related corresponding certificate of incorporation
to another corporation that the is obtained.
majority of its directors can be
elected either, directly or 3. Use of corporate powers.
indirectly, by such other
corporation Note: The corporation must have
performed the acts which are peculiar to a
corporation like entering into a
9. As to whether they are corporations in
subscription agreement, adopting by‐laws,
a true sense or only in a limited sense: and electing directors.
a. True‐ one which exists by statutory
authority Q: How is the status of a de facto corporation
attacked?
b. Quasi‐ one which exist without
formal legislative grant. A: The existence of a de facto corporation shall
not be inquired into collaterally in any private suit
i. Corporation by prescription‐ one to which such corporation may be a party. Such
which has exercised corporate inquiry may be made by the Solicitor General in a
powers for an indefinite period quo warranto proceeding. (Sec. 20)
without interference on the part of
the sovereign power and which by Note: However, as long as it exists, a de facto
fiction of law, is given the status of corporation enjoys all attributes of a corporation
a corporation; until the State questions its existence.
ii. Corporation by estoppel‐ one In comparison with a corporation by estoppel where
which in reality is not a the stockholders are liable as general partners,
corporation, either de jure or de stockholders in a de facto corporation are liable as a
facto, because it is so defectively de jure corporation. Hence, up to the extent of their
formed, but is considered a share holdings.
corporations in relation to those
only who, by reason of theirs acts Q: Distinguish de facto corporation from
or admissions, are precluded from corporation by estoppel.
asserting that it is not a
corporation. A:
DE FACTO CORPORATION BY
10. As to whether they are for public CORPORATION ESTOPPEL
(government) or private purpose: There is no existence in
There is existence in law
a. Public‐ one formed or organized for law
the government or a portion of the The dealings among the The dealings among the
State parties on a corporate parties on a corporate
basis is not required basis is required
When requisites are It will be considered a
b. one formed for some provate
lacking, it can be corporation in any shape
purpose, benefit or end
corporation by estoppel or form
U N I V E R S I T Y O F S A N T O T O M A S
111
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
112 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
114 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
116 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
U N I V E R S I T Y O F S A N T O T O M A S
117
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
118 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
120 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
122 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
124 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
U N I V E R S I T Y O F S A N T O T O M A S
125
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
126 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
Q: What are the specific powers of a 4. Copy of the amended AOI shall be
corporation? submitted to the SEC for its approval;
and
A: 5. In case of special corporation, a
1. Power to extend or shorten corporate favorable recommendation of
term. (Sec. 37) appropriate government agency. (Sec.
2. Increase or decrease corporate stock. 37)
(Sec. 38)
3. Incur, create, or increase bonded Note: The extension must be done during the
indebtedness. (Sec. 38) lifetime of the corporation not earlier than 5 years
4. Deny pre‐emptive right. (Sec. 39) prior to the expiry date unless exempted. The
5. Sell, dispose, lease, encumber all or extension must not exceed 50 years.
substantially all of corporate assets.
(Sec. 40) After the term had expired without extension, the
6. Purchase or acquire shares. (Sec. 41) corporation is dissolved. The remedy of the
stockholders is reincorporation.
7. Invest corporate funds in another
corporation or business for other
Any dissenting stockholder may exercise his
purpose other than primary purpose appraisal right in case of shortening or extending
.(Sec. 42) corporate term (Sec. 37).
8. Declare dividends out of unrestricted
retained earnings. (Sec. 43) (b) POWER TO INCREASE OR DECREASE CAPITAL
9. Enter into management contract with STOCK
another corporation (not with an
individual or a partnership – within Q: What are the procedural requirements in
general powers) whereby one increasing or decreasing capital stock?
corporation undertakes to manage all A:
or substantially all of the business of the 1. Majority vote of the BOD;
other corporation for a period not 2. Ratification by stockholders
longer than five (5) years for any one representing 2/3 of the outstanding
term. (Sec. 44) capital stock;
10. Amend Articles of Incorporation. (Sec.
16) 3. Written notice of the proposed increase
or diminution of the capital stock and of
(2) SPECIFIC POWERS the time and place of the stockholder’s
meeting at which the proposed increase
(a) POWER TO EXTEND OR SHORTEN or diminution of the capital stock must
CORPORATE TERM be addressed to each stockholder at his
place of residence as shown on the
Note: May be used as means to voluntarily dissolve a books of the corporation and deposited
corporation
to the addressee in the post office with
postage prepaid, or served personally
Q: What are the procedural requirements in
extending/shortening corporate term?
4. A certificate in duplicate must be signed
by a majority vote of the directors of
A:
the corporation and countersigned by
1. Majority vote of the BOD or BOT;
the chairman and the secretary of the
2. Ratification by 2/3 of the SH
stockholder’s meeting, setting forth:
representing outstanding capital stock
or by at least 2/3 of the members in
a. That the foregoing requirements
case of non‐stock corporation;
have been complied with;
3. Written notice of the proposed action
b. The amount of increase or
and of the time and place of the
diminution of the capital stock;
meeting shall be addressed to each
c. If an increase of the capital stock,
stockholder or member at his place of
the amount of capital stock or
residence as shown on the books of the
number of shares of no par stock
corporation and deposited to the
actually subscribed, the names,
addressee in the post office with
nationalities and residences of the
postage prepaid, or served personally;
persons subscribing, the amount
U N I V E R S I T Y O F S A N T O T O M A S
127
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
128 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
130 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
Q: What are the instances where corporation 3. In case of stock dividend, resolution of
may acquire its own shares? the board with the concurrence of votes
representing 2/3 of outstanding capital.
A:
1. To eliminate fractional shares out of Q: What are unrestricted retained earnings?
stock dividends;
2. To collect or compromise an A: These are retained earnings which have not
indebtedness to the corporation, arising been reserved or set aside by the board of
out of unpaid subscription, in a directors for some corporate purpose.
delinquency sale and to purchase
delinquent shares sold during said sale; Q: Who are entitled to receive dividends?
3. To pay dissenting or withdrawing
stockholders (in the exercise of the A: The stockholders of record date in so far as the
stockholder’s appraisal right); corporation is concerned; if there is no record
4. To acquire treasury shares; date, the stockholders at the time of declaration
5. Redeemable shares regardless of of dividends (not at the time of payment).
existence of retained earnings;
6. To effect a decrease of capital stock; Note: In case of transfer, dividends declared before
7. In close corporations, when there is a the transfer of shares belong to the transferor and
deadlock in the management of the those declared after the transfer belongs to the
business. transferee.
(g) INVEST CORPORATE FUNDS IN ANOTHER Q: Who are entitled to receive dividends in case
CORPORATION OR BUSINESS FOR OTHER of mortgaged or pledged shares?
PURPOSE OTHER THAN PRIMARY PURPOSE
A:
Q: What are the requirements? GR: The mortgagor or the pledgor has the
right to receive the dividends.
A:
1. Approval by the majority vote of the XPN: When the mortage or pledge is
BOD or BOT recorded in the books of the corporation, in
2. Ratification by stockholders such a case then the mortgagee or pledgee is
representing at least 2/3 of the entitled to receive the dividends.
outstanding capital stock or by at least
2/3 of the members in case of non‐ Q: What are the forms of dividends?
stock corporation
3. Ratification must be made at a meeting A:
duly called for the purposes, and 1. Cash
4. Prior written notice of the proposed
investment and the time and place of Note: Cash dividends due on delinquent
stock shall first be applied to the unpaid
the meeting shall be made addressed to
balance on the subscription plus cost and
each stockholder or member by mail or
expenses.
by personal service.
2. Stock
Note: Investment of a corporation in a business
which is in line with its primary purpose requires
Note: Stock dividends are withheld from the
only the approval of the board.
delinquent stockholder until his unpaid
subscription is fully paid.
Any dissenting stockholder shall have appraisal right.
3. Property
(f) POWER TO DECLARE DIVIDENDS OUT OF
UNRESTRICTED RETAINED EARNINGS (URE) Note: Stockholders are entitled to dividends
PRO‐RATA based on the total number of
Q: What are the requirements? shares and not on the amount paid on
shares.
A:
1. Existence of unrestricted retained
earnings
2. Resolution of the board
U N I V E R S I T Y O F S A N T O T O M A S
131
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
132 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
Q: May stock dividends be issued to a person Q: What is the allowed period for every
who is not a stockholder in payment of services management contract entered into by the
rendered? corporation?
A: No. Only stockholders are entitled to payment A:
of stock dividends. (Nielson & Co., Inc. v. Lepanto GR: Management contract shall be entered
Consolidated Mining Co., G.R. No. 21763, Dec. 17, into for a period not longer than 5 years for
1966). any one term.
(h) POWER TO ENTER INTO MANAGEMENT XPN: In cases of service contracts or operating
CONTRACT agreements which relate to the exploitation,
development, exploration or utilization of
Q: What is a management contract? natural resources, it may be entered for such
periods as may be provided by the pertinent
A: It is any contract whereby a corporation laws or regulations.
undertakes to manage or operate all or
substantially all of the business of another (i) ULTRAVIRES ACTS
corporation, whether such contracts are called
service contracts, operating agreements or Q: What are ultra vires acts?
otherwise. (Sec. 44)
A: Those powers that are not conferred to the
Note: Sec. 44 refers only to a management contract corporation by law, by its AOI and those that are
with another corporation. Hence, it does not apply not implied or necessary or incidental to the
to management contracts entered into by a exercise of the powers so conferred. (Sec 45)
corporation with natural persons.
Q: What are the types of ultra vires acts (UVA)?
Q: What are the requirements?
A:
A: 1. Acts done beyond the powers of the
1. Contract must be approved by the corporation (through BOD)
majority of the BOD or BOT of both 2. Ultra vires acts by corporate officers
managing and managed corporation; 3. Acts or contracts which are per se illegal
2. Ratified by the stockholders owning at as being contrary to law.
least the majority of the outstanding
capital stock, or members in case of a Q: When does the act of the officers bind the
non‐stock corporation, of both the corporation?
managing and the managed
corporation, at a meeting duly called for A:
the purpose 1. If it is provided in the by‐laws
3. Contract must be approved by the 2. If authorized by the board
stockholders of the managed 3. Under the doctrine of apparent
corporation owning at least 2/3 of the authority
outstanding capital stock entitled to 4. When the act was ratified
vote, 2/3 members when:
a. Stockholders representing the Q: What is the doctrine of apparent authority?
same interest in both of the
managing and the managed A: If a corporation knowingly permits one of its
corporation own or control more officers, or any other agent, to act within the
than 1/3 of the total outstanding scope of an apparent authority, it holds him out
capital stock entitled to vote of the to the public possessing the power to do those
managing corporation; acts; and thus, the corporation will, as against
b. Majority of the members of the anyone who has in good faith dealt with it
BOD of the managing corporation through such agent, be estopped from denying
also constitute a majority of the the agent’s authority.
BOD of the managed corporation.
Q: When is the corporation estopped to deny
ratification of contracts or acts entered by its
officers or agents?
U N I V E R S I T Y O F S A N T O T O M A S
133
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
134 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
corporation and they can also vote on g. To adopt/amend/repeal the by‐
important matters that are still reserved laws or adopt new by‐laws. (Secs.
to them by the Corporation Code. 46, 48)
(Aquino, 2006)
2. Proprietary rights
2. By the Board of Directors – The Board of a. To transfer stock in the corporate
Directors is primarily responsible for the book. (Sec. 63)
governance of the corporation. Their b. To receive dividends when
primary duty is to set the policies for declared .(Sec. 43)
the accomplishment of the corporate c. To the issuance of certificate of
objectives. (Art. 3, Revised Code of stock or other evidence of stock
Corporate Governance). They elect the ownership. (Sec. 63)
officers who carry out the policies that d. To participate in the distribution of
they have established. corporate assets upon dissolution.
(Sec. 118, 119)
3. By the Officers – They are elected by e. To pre‐emption in the issue of
the Board of Directors tasked to carry shares. (Sec. 39)
out the policies laid down by the Board,
the articles of incorporation and the by‐ 3. Remedial rights
laws. a. To inspect corporate books. (Sec.
74)
H. STOCKHOLDERS AND MEMBERS b. To recover stock unlawfully sold
for delinquency. (Sec. 69)
Q: How does one become a shareholder in a c. To demand payment in the
corporation? exercise of appraisal right. (Secs.
41, 81)
A: A person becomes a shareholder the moment d. To be furnished recent financial
he: statements or reports of the
1. Enters into a subscription contract with corporation’s operation (Sec. 75);
an existing corporation (he is a e. To bring suits (derivative suit,
stockholder upon acceptance of the individual suit, and representative
corporation of his offer to subscribe suit).
whether the consideration is fully paid
or not), (2) PARTICIPATION IN MANAGEMENT
2. Purchase treasury shares from the
corporation, or (a) PROXY
3. Acquires shares from existing
shareholders by sale or any other Q: What is a proxy?
contract.
A: Proxy is a written authorization, empowering
(1) FUNDAMENTAL RIGHTS another person (proxy) to represent a
shareholder and vote in his stead in the
Q: What are the rights of stockholders? stockholder’s meeting.
A: Q: What are the requirements for a valid proxy?
1. Management Right
a. To attend and vote in person or by A:
proxy at a stockholders’ meetings. 1. Proxies shall be in writing and shall be
(Secs. 50, 58) signed by the stockholder or member
b. To elect and remove directors. concerned
(Secs. 24, 18) 2. The proxy shall be filed before the
c. To approve certain corporate acts. scheduled meeting with the corporate
(Sec. 58) secretary;
d. To compel the calling of the
meetings. (Sec. 50) Note: For public companies, the SEC
e. To have the corporation voluntarily requires that proxy forms be submitted at
dissolved. (Sec. 118, 119) least 5 days before the meeting.
f. To enter into a voting trust
agreement. (Sec. 59)
U N I V E R S I T Y O F S A N T O T O M A S
135
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
136 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
U N I V E R S I T Y O F S A N T O T O M A S
137
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
138 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
140 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
(6) MEETINGS
A:
Q: When will stockholders/members meeting be 1. It must be held in the proper place;
held? 2. It must be held at the stated date and at
the appointed time or at a reasonable
A: time thereafter;
REQUIRED WRITTEN
3. It must be called by the proper person:
DATE OF MEETING a. The person or persons designated
NOTICE
in the by‐laws have authority to
Regular meeting call stockholders’ or members’
1. Annually on date meeting
fixed in the by‐ b. In the absence of such provision in
laws; or 1. Within the the by‐laws it may be called by a
2. If there is no date period provided director or trustee or by an officer
in the by‐laws – in the by‐laws entrusted with the management of
any date in April 2. In the absence the corporation
as determined by of provision in c. A stockholder or member may
the board. the by‐laws – 2
make the call on order of the SEC
weeks prior to
whenever for any cause there is no
Venue: In the city or the meeting.
municipality where the
person authorized to call a meeting
principal office is located d. The special meeting for the
removal of directors or trustees
Special meeting
may be called by the secretary or
1. Within the by stockholder or member.
1. Any time deemed
period provided
necessary; or 4. There must be a previous notice
in the by‐laws
2. As provided in the 5. There must be a quorum
2. If no provision
by‐laws
in the by‐laws –
Q: What are the rules on meeting or voting
1 week prior to
Venue: Principal office which are applicable to certain kinds of shares?
the meeting
Q: What is the required quorum in a stock A:
corporation? 1. Delinquent shares shall not be entitled
to vote
A: 2. Treasury shares have no voting rights
GR: Shall consist of the stockholders representing while they remain in the treasury (Sec.
majority of the outstanding capital stock or a 57)
majority of the actual and living members with 3. Fractional shares shall not be entitled to
voting rights, in the case of non‐stock vote
corporation. (Tan v. Sycip, G.R. No. 153468, Aug. 4. Escrow shares shall not be entitled to
17, 2006) vote before the fulfillment of the
condition imposed thereon
XPN: 5. Unpaid shares, if not delinquent, are
1. A different quorum may be provided for entitled to all the rights of a stockholder
in the by‐laws including the right to vote
2. The corporation code provides for 6. Sequestered shares
certain resolutions that must be As a rule, the right to vote remains on
approved by at least 2/3 of the the shareholder and the entity making
outstanding capital stock, in which case, the sequestration may not exercise the
majority of the outstanding capital right to vote
stock is insufficient to constitute a
quorum, presence of the stockholders XPN: The Two‐Tiered Test
representing 2/3 of the outstanding a. Whether there is a prima facie
capital stock is necessary for such evidence showing that the said
purpose. shares are ill‐gotten and thus
belong to the State
Q: What are the requirements for a valid b. Whether there is an immediate
meeting whether stockholders/members or the danger of dissipation thus
board? necessitating their continued
U N I V E R S I T Y O F S A N T O T O M A S
141
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
142 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
Note: All other companies not covered are Q: What are the common qualifications of a
encouraged to have independent directors on their director and trustee?
board.
A:
(2) TENURE, QUALIFICATIONS AND 1. Majority of the directors/trustees must
DISQUALIFICATIONS OF DIRECTORS be residents of the Philippines (Sec. 23)
2. He must not have been convicted by
Q: What is the term of office of BOD/BOT? final judgment of an offense punishable
by imprisonment for period exceeding 6
A: years or a violation of the Corporation
GR: The regular director shall hold office for Code, committed within 5 years prior to
1 year. the date of his election (Sec. 27)
3. He must be of legal age
XPN: If no election is held, the directors and 4. Other qualifications as may be
officers shall hold position under a hold‐over prescribed in special laws or regulations
capacity until their successors are elected or in the by‐laws of the corporation
and qualified. This is applicable to a going
concern where there is no break in the Q: What are the grounds for disqualification of a
exercise of the duties of the officers and director?
directors. (SEC Opinion, Dec. 15, 1989).
A:
Q: What are the qualifications of a director? 1. Conviction by final judgment of an
offense punishable by imprisonment
A: exceeding 6 years
1. Must own at least 1 share of the capital 2. Violation of the Corporation Code
stock; committed within 5 years prior to his
election or appointment (Sec 27)
Note: Ownership of stock shall stand in his
name on the books of the corporation. Note: Please read Art 3. [E] of the Revised Code of
A person who does not own a stock at the Corporate Governance.
time of his election or appointment does
not disqualify him as director if he (3) ELECTIONS
becomes a shareholder before assuming
the duties of his office. (SEC Opinions,
Q: What are the different method of voting?
Nov. 9, 1987 & Apr. 5, 1990)
A:
2. Must be a natural person;
1. Straight voting – every stockholder may
Note: What is material is the legal title,
vote such number of shares for as many
not beneficial ownership of the stock as persons as there are directors to be
appearing on the books of the elected.
corporation.
2. Cumulative voting for one candidate – a
Q: What are the additional qualifications stockholder is allowed to concentrate
provided by the Revised Code of Corporate his votes and give one candidate, as
Governance? many votes as the number of directors
to be elected multiplied by the number
A: A director should have the following: of his shares shall equal.
1. College education or equivalent 3. Cumulative voting by distribution – a
academic degree stockholder may cumulate his shares by
2. Practical understanding of the business multiplying the number of his shares by
of the corporation the number of directors to be elected
3. Membership in good standing in and distribute the same among as many
relevant industry, business or candidates as he shall see fit.
professional organizations
4. Previous business experience (Art 3. [D], Note: Cumulative voting in case of non‐stock
RCCG) corporations only if it is provided in the AOI.
The members of non‐stock corporations may
cast as many votes as there are trustees to be
U N I V E R S I T Y O F S A N T O T O M A S
143
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
144 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
4. When a BOD/BOT becomes entitled to both Schiera and Jaz are directors. Malyn also
compensation other than reasonable found that Schiera and Jaz, on behalf of Patio
per diems Investments, had obtained a loan of P500,
000.00, from PBCom Bank, for the purpose of
Q: What is the limitation on the compensation of opening Fort Patio Cafe. This loan was secured
directors? by the assets of Patio Investments and
personally guaranteed by Schiera and Jaz.
A: In no case shall the total yearly compensation
of directors, as such directors exceed 10% of the Malyn then filed a corporate derivative action
net income before income tax of the corporation before the Regional Trial Court of Makati City
during the preceding year. (Sec. 30) against Schiera and Jaz, alleging that the two
directors had breached their fiduciary duties by
(7) DISLOYALTY misappropriating money and assets of Patio
Investments in the operation of Fort Patio Cafe.
Q: What is doctrine of corporate opportunity?
Did Schiera and Jaz violate the principle of
A: Where a director, by virtue of his office, corporate opportunity? Explain.
acquires for himself a business opportunity which
should belong to the corporation, thereby A: Shciera and Jaz violated the principle of
obtaining profits to the prejudice of such corporate opportunity, because they used Patio
corporation: Investments to obtain a loan, mortgaged its
assets and used the proceeds of the loan to
A director shall refund to the corporation all the acquire a coffee shop through a corporation they
profits he realizes on a business opportunity (Sec. formed. (Sec. 34) (2005 Bar Question)
34) which:
1. The corporation is financially able to (8) BUSINESS JUDGMENT RULE
undertake;
2. From its nature, is in line with Q: What is business judgment rule?
corporations business and is of practical
advantage to it; and A: GR: Courts will not interfere in the decisions
3. The corporation has an interest or a made by the BOD as regards the internal affairs of
reasonable expectancy. the corporation
Note: The rule shall be applied notwithstanding XPN: Unless such contracts are so unconscionable
the fact that the director risked his own funds in and oppressive as to amount to a wanton
the venture. destruction of rights of the minority. (Ingersoll v.
Malabon Sugar Co., G.R. No. L‐16977, Apr. 21,
If such act is ratified by a vote of the stockholders 1922)
representing at least 2/3 of the outstanding
capital stock, the director is excused from Q: What are the consequences of business
remitting the profit realized. judgment rule?
Q: Malyn, Schiera and Jaz are the directors of A:
Patio Investments, a close corporation formed to 1. Resolutions and transactions entered
run the Patio Cafe, an al fresco coffee shop in into by the Board within the powers of
Makati City. In 2000, Patio Cafe began the corporation cannot be reversed by
experiencing financial reverses, consequently, the courts not even on the behest of
some of the checks it issued to its beverage the stockholders.
distributors and employees bounced.
2. Directors and officers acting within such
In October 2003, Schiera informed Malyn that business judgment cannot be held
she found a location for a second cafe in Taguig personally liable for such acts.
City. Malyn objected because of the dire
financial condition of the corporation. (9) SOLIDARY LIABILITY FOR DAMAGES
Sometime in April 2004, Malyn learned about Q: What are the instances when directors or
Fort Patio Cafe located in Taguig City and that its trustees are solidary liable with the corporation?
development was undertaken by a new
corporation known as Fort Patio, Inc., where
U N I V E R S I T Y O F S A N T O T O M A S
145
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
146 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
(14) INSIDE INFORMATION with respect to the corporation in which he has
nominal interest.
Q: What is inside Information?
Where any of the first two conditions is absent,
A: Information not known to the public that one said contract must be ratified by the vote of the
has obtained by virtue of being an insider like a stockholders representing at least 2/3 of the
director (Miriam Webster Dictionary, 2006). outstanding capital stock or 2/3 of the members
in a meeting called for the purpose, provided:
(15) CONTRACTS 1. That full disclosure of the adverse
interest of the director/ trustee
Q: Give the rules on contracts entered into by involved is made at such meeting
directors/trustees of or officers. 2. The contract is fair and reasonable
under the circumstances.
A:
1. Contracts which are entered by one or Q: Suppose that the by‐laws of X Corporation, a
more of the corporate mining firm, provides that "The directors shall be
directors/trustees, or officers (Sec. 32) – relieved from all liability for any contract
Voidable at the option of the entered into by the corporation with any firm in
corporation, unless: which the directors may be interested." Thus,
director A acquired claims which overlapped
a. The presence of such with X's claims and were necessary for the
director/trustee in the board development and operation of X's mining
meeting approving the contract properties. Is the by‐law provision valid? Why?
was not necessary to constitute a
quorum; A: No. It is in violation of Sec. 32 of the
b. The vote of such director/trustee Corporation Code.
in the board meeting approving
the contract was not necessary for Q: What happens if director "A" is able to
the approval of the contract; consummate his mining claims over and above
c. The contract is fair and reasonable that of the corporation's claims?
under the circumstances;
d. In the case of an officer, there was A: "A" should account to the corporation for the
previous authorization by the profits which he realized from the transaction. He
board of directors. grabbed the business opportunity from the
corporation. (Sec. 34) (2001 Bar Question)
Note: Even if stockholders representing
2/3 of the outstanding capital stock (16) EXECUTIVE COMMITTEE
authorizes the contract, the 3rd element
(contract is fair and reasonable) cannot be Q: What is an executive committee?
dispensed with if the transaction is to be
valid and enforceable. A: A body created by the by‐laws and composed
of not more than three members of the board
2. Contracts entered into between which, subject to the statutory limitations, has all
corporations with interlocking directors the authority of the board to the extent provided
(Sec. 33) – Valid, provided that: in the board resolution or by‐laws. The
a. The contract is not fraudulent; and committee may act by a majority vote of all of its
b. The contract is fair and reasonable members (Sec. 35).
under the circumstances.
Note: An executive committee can only be created
Q: What is the effect if the interlocking director’s by virtue of a provision in the by‐laws and that in the
interest in nominal in one corporation and absence of such by‐law provision, the board of
substantial in another? directors cannot simply create or appoint an
executive committee to perform some of its
A: If the interlocking director’s interest in one functions. (SEC Opinion, Sept. 27, 1993)
corporation or corporations is “nominal” (not
exceeding 20% of the outstanding capital stock) A person not a director can be a member of the
and in the other substantial, then all the first 3 executive committee but only in a
conditions prescribed in Sec. 32 must be present recommendatory or advisory capacity.
U N I V E R S I T Y O F S A N T O T O M A S
147
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
148 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
votes in favor of the action (Sec 7211, United 2. The certificate must be sealed with the
States Corporation Code). seal of the corporation
3. The certificate must be delivered
Note: The Corporation Code is based from the 4. The par value as to par value shares, or
United States Corporation Code; annotations of the full subscription as to no par value
US Corporation Code might apply. shares must be fully paid, the basis of
which is the doctrine of indivisibility of
Q: When to Abstain? subscription
5. The original certificate must be
A: Whenever a director believes he/she has a surrendered where the person
conflict of interest, the director should abstain requesting the issuance of a certificate
from voting on the issue and make sure his/her is a transferee from the stockholder
abstention is noted in the minutes. (Robert's (Bitong v. CA., G.R. No. 123553, July 13,
Rules, 10th ed., p 394.) The other reason a 1998).
director might abstain is that he/she believes
there was insufficient information for making a Q: What are the distinctions between shares of
decision. Otherwise, directors should cast votes stock from certificates of stock?
on all issues put before them. Failure to do so
could be deemed a breach of their fiduciary A:
duties. SHARE OF STOCK CERTIFICATE OF STOCK
Evidence of the holder’s
Q: Give an example where a director needs to ownership of the stock
Unit of interest in a
abstain and of his right as a
corporation
shareholder and of his
A: To avoid “Insider Trading”, Insiders are extent specified therein.
obligated to abstain from trading the shares of his It is an incorporeal
It is concrete and
corporation. This duty to abstain is based on two or intangible
tangible
factors: property
1. The existence of a relationship giving It may be issued by
access, directly or indirectly, to the corporation It may be issued only if
information intended to be available even if the the subscription is fully
only for a corporate purpose and not subscription is not paid.
fully paid.
for the personal benefit of anyone;
2. The inherent unfairness involved when
a party takes advantage of such (A) NATURE OF THE CERTICIATE
information knowing it is unavailable to
Q: What is the nature of a certificate of stock?
those with whom he is dealing (SEC vs.
Interport Resources Corporation, G.R.
A: A certificate of stock is a prima facie proof that
No. 135808, October 6, 2008) .
the stock described therein is valid and genuine in
the absence of an evidence to the contrary.
J. CAPITAL AFFAIRS
(B) UNCERTIFICATED SHARES
(1) CERTIFICATE OF STOCK
Q: What is an uncertificated share?
Q: What is a certificate of stock?
A: An uncertificated share is a subscription duly
A: It is a paper representation or tangible recorded in the corporate books but has no
evidence of the stock itself and of various corresponding certificate of stock yet issued.
interests therein (Tan v. SEC, G.R. No. 95696, Mar.
3, 1992) Q: May a stockholder alienate his shares even if
there is no certificate of stock issued by the
Q: What are the requisites for the issuance of corporation?
the Certificate of Stock?
A: Yes. The absence of a certificate of stock does
A: not preclude the stock holder from alienating or
1. The certificate must be signed by the transferring his shares of stock.
president or vice‐president,
countersigned by the secretary or
assistant secretary
U N I V E R S I T Y O F S A N T O T O M A S
149
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
150 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
MERCANTILE LAW TEAM:
152 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
Q: May the corporation be sued for the issuance Q: When may a corporation issue a replacement
of new certificates of stock in case of lost or certificate of subscription without waiting for
destroyed certificate? the expiration of one year?
A: No, the corporation cannot be sued unless A: The registered owner shall file a bond or other
there is bad faith, fraud or negligence present. security effective for a period of one (1) year in
which case a new certificate may be issued even
Q: A stockholder claimed that his stock before the expiration of the one (1) year period.
certificate was lost. After going through with the Provided, That if a contest has been presented to
procedure for the issuance of lost certificate, and said corporation or if an action is pending in court
no contest was presented within 1 year from the regarding the ownership of said certificate of
last publication, the corporation issued a new stock which has been lost, stolen or destroyed,
certificate of stock in lieu of the supposed lost the issuance of the new certificate of stock in lieu
certificate. The stockholder immediately sold his thereof shall be suspended until the final decision
shares and endorsed the replacement certificate by the court regarding the ownership of said
to a buyer. It turned out that the original certificate of stock which has been lost, stolen or
certificate was not lost, but sold and endorsed to destroyed. (Sec. 73)
another person. (1) May the corporation be
made liable by the aggrieved party? (2) Who will (G) SITUS OF SHARES OF STOCK
have a better right over the shares, the endorsee
of the original certificate or the endorsee of the Q: Where is the situs of shares of stock?
replacement certificate?
A: The situs of shares of stock is the country
A: where the corporation is domiciled.
1. No, the corporation cannot be made
liable. Except in cases of fraud, bad Note: For purposes of execution, attachment,
faith, or negligence on the part of the garnishment or auction sale, it is not the domicile or
corporation and its officers, no action the residence of the owner of the shares but the
may be brought against any corporation domicile or residence of the corporation, which is
which have issued certificates of stock the place of its principal business, which determines
in lieu of those lost, stolen, or destroyed the situs of the shares of stock.
pursuant to the procedure prescribed
by law. (2) WATERED STOCK
2. The endorsee of the replacement (A) DEFINITION
certificate has a better right to the
shares. After expiration of 1 year from Q: What is a watered stock?
the date of the last publication, and no
contest has been presented to said A: A stock issued in exchange for cash, property,
corporation regarding said certificate, share, stock dividends, or services lesser than its
the right to make such contest has been par value.
barred and said corporation already
cancelled in its books the certificate Watered Stocks include stocks:
which have been lost, stolen, or 1. Issued without consideration (bonus
destroyed and issued in lieu thereof share)
new certificate. 2. Issued for a consideration other than
cash, the fair valuation of which is less
Q: What if there are oppositions on the issuance than its par or issued value (discount
of new certificates, what may the corporation share)
do? 3. Issued as stock dividend when there are
no sufficient retained earnings to justify
A: The corporation may file an interpleader it
proceeding to compel the parties to litigate 4. Issued as fully paid when the
among themselves. corporation has received a lesser sum
of money than its par or issued value
Note: “Water” in the stock represents the difference
between the fair market value at the time of the
issuance of the stock and the par or issued value f
U N I V E R S I T Y O F S A N T O T O M A S
153
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
154 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
A: A call is made in a form of board resolution 1. Resolution – the board shall issue
that unpaid subscription to the capital stock are resolution ordering the sale of
due and payable and the same or such delinquent stock
percentage thereof shall be collected, together 2. Notice – notice of said sale, with a copy
with all accrued interest, on a specified date and of the resolution, shall be sent to every
that if no payment is made within 30 days from delinquent stockholder either
said date, all stocks covered by said subscription personally or by registered mail
shall thereupon become delinquent and shall be 3. Publication – the notice shall
subject to public auction sale. furthermore be published once a week
for two consecutive weeks in a
Q: Is the call of the board of directors always newspaper of general circulation in the
necessary to collect payment for unpaid province or city where the principal
subscription? office of the corporation is located
4. Sale – the delinquent stock shall be sold
A: No. A call is not necessary where the at the public auction to be held not less
subscription contract specifies the date of than 30 days nor more than 60 days
payment. from the date stocks become
delinquent;
(B) NOTICE REQUIREMENT 5. Transfer – the stock so purchased shall
be transferred to such purchaser in the
Q: What is the notice requirement in case there books of the corporation and a
is a call of the board of directors for payment of certificate for such stock shall be issued
subscription? in his favor; and
6. Credit remainder – the remaining
A: The notice of the call has to be served on the shares, if any, shall be credited in favor
stockholders concerned in the manner prescribed of the delinquent stockholder who shall
in the call, which may either be by registered mail likewise be entitled to the issuance of a
and/or personal delivery and publication. certificate of stock covering the same
(Aquino, Philippine Corporate Law
(4) SALE OF DELINQUENT SHARES Compendium, 2006).
Q: When will the share become delinquent? Q: Who is the winning bidder in a delinquency
sale?
A: If within 30 days from expiry of the date of
payment or from the date stated in the call made A:
by the board, no payment is made, all stocks 1. The person participating in the
covered by said subscription shall thereupon delinquency sale who offers to pay the
become delinquent and shall be subject to full amount of the balance of the
delinquency sale unless the BOD orders subscription together with the accrued
otherwise. interest, costs of advertisement and
expenses of sale, for the smallest
Note: “Call” means the resolution or formal number of shares;
declaration of the board that the unpaid 2. If there is no bidder as mentioned
subscriptions are due and payable. above, the corporation may bid for the
same, and he total amount due shall be
Q: What are the remedies of corporations to credited as paid in full in the books of
enforce payment of stocks? the corporation. Such shares shall be
considered as treasury shares.
A:
1. Extra‐judicial sale at public auction (Sec. Note: The board is not bound to accept the highest
67) bid unless the contrary appears. This is for the
2. Judicial action (Sec. 70) reason that in public sale, the bidder is the one
making the offer to purchase which the corporation
Q: What is the procedure for the sale of is free to accept or reject.
delinquent stocks?
A:
U N I V E R S I T Y O F S A N T O T O M A S
155
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
156 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
has unrestricted earnings to cover the 2. To afford the corporation the
amount. opportunity to object or refuse its
consent to the transfer in case it has
Q: How do you determine the highest bidder in any claim against the stock and
an auction sale?
3. To avoid fictitious and fraudulent
A: Given the total amount due, the highest bidder transfer
is determined by the smallest number of shares
or a fraction of a share that the bidder is willing to (A) ALLOWABLE RESTRICTIONS ON THE SALE OF
buy for said total amount. SHARES
Q: May the sale of delinquent share in public Q: Can a stockholder dispose of his shares
auction be questioned? without any restriction?
A: The sale at public auction of delinquent share A: Shares of stock are regarded as personal
is absolute and not subject to redemption. property of the stockholder and as a general rule,
However, an action may be filed to question the he may dispose of them as he sees fit unless the
sale, the requisites for which are: corporation has been dissolved, or unless the
right to do so has been restricted in the articles of
1. There should be allegation and proof of incorporation and in the stock certificate or the
irregularity or defect in the notice of owner’s right of disposing his shares has been
sale or in the sale itself. hampered by his own actions.
2. The party filing the action must first pay Q: Can the corporation provide regulations to
the party holding the stock the sum for the sale/transfer of the shares of stockholders?
which the stock was sold with legal
interest from the date of sale. A: Yes, but the authority granted to a corporation
to regulate the transfer of its stock does not
3. The action is filed within 6 months from empower it to restrict the right of a stockholder
the date of sale. to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and
Q: Does the action to question a delinquency procedure to be followed in effecting transfer
sale prescribe? (Thomson vs. CA, G.R. No. 116631, October
28, 1998).
A: Yes. The action prescribes 6 months from such
sale. Q: What are the requisites for a restriction to be
valid?
(5) ALIENATION OF SHARES
A: To be valid, restrictions on the sale/transfer of
Q: Is the registration of the corporation of the shares must be:
transfer of shares required for the alienation to
be valid? 1. Provided in the articles of incorporation
and
A: As between the parties to the contract of sale, 2. it must be printed at the back of the
registration of the transfer of shares is not certificate of stock.
required for the sale to be valid but until it has
been recorded in the books of the corporation, Note: The latter requirement is needed to bind third
the transferee will not be considered as a persons who may buy or deal with the shares of
stockholder of the corporation. stock.
Q: What are the reasons for the recordal of the (B) SALE OF PARTIALLY PAID SHARES
alienation of shares?
Q: May a shareholder sell his shares if the
A: The reasons for the recordal are: payment of his subscription is incomplete?
1. To enable the corporation to know at all A: Yes. The incomplete payment of the
times their actual stock holders. subscription does not preclude the subscriber
from alienating his shares of stock. Since in this
case, there is still no stock certificates that can be
U N I V E R S I T Y O F S A N T O T O M A S
157
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
158 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
U N I V E R S I T Y O F S A N T O T O M A S
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ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
160 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
Q: What are the consequences if the liquidation A: No. The appointment of a receiver operates to
is not terminated within the 3‐year period? suspend the authority of a corporation and of its
directors and officers over its property and
A: effects, such authority being reposed in the
1. Pending suits for or against the receiver (Yam v. CA, G.R. No. 104726 Feb 11,
corporation which were initiated prior 1999).
to the expiration of the 3‐year period
shall continue. (Gelano v. CA, G.R. No. Q: When may the Commission appoint a receiver
L‐39050, Feb. 24, 1981) to undertake the winding up and liquidation of a
2. New actions may still be filed against corporation?
the trustee of the corporation even
after the expiration of the 3‐year period A: Where the application for dissolution of a
but before the affairs of said corporation is upon application, affecting rights of
corporation have been finally liquidated creditors, or involuntarily initiated by verified
or settled by the trustee. (Republic v. complaint, the Commission may appoint a
Marsman, G.R. No. L‐18956 Apr. 27, receiver to undertake the winding up rather than
1972) entrust the responsibility to directors and
3. A corporation which has a pending corporate officers.
action which cannot be finished within
the 3‐year period is authorized to Q: What is the effect if the corporation appoints
convey all its property, including a trustee and convey all its property to him for
pending choses of action, of a trustee to the benefit of stockholders, members, creditors
enable it to prosecute and defend suits and other persons in interest?
by or against the corporation beyond
the 3‐year period. Where no trustee is A: After such conveyance to the trustee, all
appointed, its counsel who prosecuted interest which the corporation had in the
and represented the interest of the property terminates and the legal interests vests
corporation may be considered as in the trustee, subject to the beneficial interest of
trustee of said corporation, at least with stockholders, members, creditors or other
respect to the matter in litigation persons in interest.
(Gelano v. CA, G.R. No. L‐39050, Feb. 24,
1981). The directors may also be L. OTHER CORPORATIONS
permitted to continue as trustees to
complete the liquidation. (Clemente v. (1) CLOSED CORPORATION
CA, G.R. No. 82407, Mar. 27, 1995)
4. The creditors of the corporation who Q: What is a close corporation?
were not paid may follow the property
of the corporation that may have A:
passed to its stockholders unless barred 1. Whose articles of incorporation provide
by prescription or laches or disposition that:
of said property in favor of a purchaser a. All the corporation’s issued stock
in good faith. of all classes, exclusive of treasury
shares, shall be held of record by
Q: What is the rationale behind the 3‐year not more than a specified number
period? or persons not exceeding twenty
(20);
A: The continuance of a corporation’s legal b. All the issued stock of all classes
existence for three years for the purpose of shall be subject to one or more
enabling it to close up its business is necessary to specified restrictions on transfer;
enable the corporation to collect the demands c. The corporation shall not list in any
due it as well as to allow its creditors to assert the stock exchange or make any public
demands against it. offering of any of its stock of any
class.
Q: May the corporation, through its president 2. Whose stocks, at least 2/3 of the voting
condone penalties and charges after it had been stocks or voting rights of which are
placed under receivership? owned or controlled by another
corporation which is a close
corporation.
U N I V E R S I T Y O F S A N T O T O M A S
161
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
162 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
4. All the directors have express or implied Q: What is the remedy in case of deadlocks in a
knowledge of the action in question and close corporation?
make no prompt objection thereto.
A: The SEC may be asked to intervene and the SEC
(E) PRE‐EMPTIVE RIGHT may perform such actions that may be necessary
under the circumstances including the
Q: What is the difference between pre‐emptive appointment of a provisional director who, as an
right in an ordinary corporation and in a close impartial person will have all the powers of a duly
corporation? elected director.
A: In an ordinary corporation, the pre‐emptive
right extends only to new issues out of the (2) NON‐STOCK CORPORATION
increased capital stock. In a close corporation,
pre‐emptive right extends to all stock, including (A) DEFINITION
treasury stock.
Q: What is the concept of a non‐stock
(F) AMENDMENT TO THE ARTICLES OF corporation?
INCORPORATION
A: It is one where no part of its income is
Q: Corporation A, a close corporation, amended distributable as dividends to its members.
its articles of incorporation and removed the
provision that all shares of stock, exclusive of Even if there is a statement of capital stock, for as
treasury stock, shall be held by a specified long as there is no distribution of unrestricted
number of shareholders not exceeding 20. retained earnings to its members, the corporation
is non‐stock.
What is the effect of such amendment to
Corporation A? Any profit which it may obtain as an incident to
its operations shall whenever necessary or
A: It is a special feature of a close corporation proper, be used in furtherance of the purpose or
that its shares of stock exclusive of treasury purposes for which it was organized.
shares shall be held by not more that 20 stock
holders. The deletion of such special feature Note: They are governed by the same rules
would render Corporation A, no longer a close established for stock corporations, subject however,
corporation. to special provisions governing non‐stock
corporations.
Q: What is the required number of vote for the
deletion of such special feature? Q: What are the characteristics of a non‐stock
corporation?
A: The amendment by deletion of said special
feature and of the provision reducing a quorum A:
or voting requirements requires the vote of 2/3 of 1. It does not have capital stock divided
all outstanding shares, regardless of their into shares
classifications, restrictions or voting rights. All
other matters may be amended by an ordinary 2. No part of its income during its
vote by stockholders constituting a quorum. existence is distributable as dividends to
its members, trustees, or officers
(G) DEADLOCKS
(B) PURPOSES
Q: What is deadlock in a close corporation?
Q: For what purposes may a non‐stock
A: It is when the directors or stockholders are so corporation be organized?
divided respecting the management of the
business and affairs of the corporation that the A: Non‐stock corporation may be formed or
votes required for any corporate action cannot be organized for charitable, religious, educational,
obtained and as a result, business and affairs can professional, cultural, fraternal, literary, scientific,
no longer be conducted to the advantage of the social, civic service, or similar purposes, like trade,
stockholders generally. industry, agriculture and like chambers, or any
combination thereof.
U N I V E R S I T Y O F S A N T O T O M A S
163
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
164 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
U N I V E R S I T Y O F S A N T O T O M A S
165
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
166 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
U N I V E R S I T Y O F S A N T O T O M A S
167
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
168 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
1. Copy of its articles of incorporation and
by‐laws, certified in accordance with Q: What is the purpose of appointing a resident
law agent?
2. Their translation to an official language
of the Philippines, if necessary. A: The appointment of a resident agent is
3. The application, which shall be under required for the purpose of accepting and
oath. receiving, on behalf of the foreign corporation: a)
4. Attached to the application for license notice affecting the corporation pending the
shall be a duly executed certificate establishment of its local office and b) summons
under oath by the authorized official or and other legal processes in all proceedings for or
officials of the jurisdiction of its against the corporation.
incorporation, attesting to the fact that:
a. The laws of the country or Q: Can a resident agent sign the certificate of
state of the applicant allow non‐forum shopping?
Filipino citizens and
corporations to do business A: No, while a resident agent may be aware of the
therein actions filed against the principal, he may not be
b. The applicant is an existing aware of the actions initiated by the principal,
corporation in good standing. therefore he cannot sign the certificate of non‐
c. If such certificate is in a forum shopping that is a requirement for filing of
foreign language, a translation an initiatory pleading in court (Expert Travel &
thereof in English under oath Tours Inc. v. CA, G.R. No. 152392, May 26, 2005).
of the translator shall be
attached thereto. (C) PERSONALITY TO SUE
The application shall likewise be accompanied by Q: Do all foreign corporations have the
a statement under oath of the president or any personality to sue?
other person authorized by the corporation,
showing to the satisfaction of the SEC and other A: No.
governmental agency in the proper cases that GR: Only foreign corporations that have been
the: issued a license to operate a business in the
Philippines have the personality to sue. (Sec.133)
1. Applicant is solvent and in sound
financial condition, and XPN: Under the rule on estoppel, a party is
2. Setting forth the assets and estopped to challenge the personality of a foreign
liabilities of the corporation as of corporation to sue, even if it has no license, after
the date not exceeding one (1) having acknowledged the same by entering to a
year immediately prior to the filing contract with it.
of the application.
One who has dealt with a corporation of foreign
Note: Foreign banking, financial and insurance origin as a corporate entity is estopped to deny its
corporations shall, in addition to the above corporate existence.
requirements, comply with the provisions of existing
laws applicable to them. (D) SUABILITY OF FOREIGN CORPORATIONS
(ii) RESIDENT AGENT Q: Can a foreign corporation without any license,
engaged in doing business in the Philippines, be
Q: Who can be a resident agent? sued in the country?
A: A: Yes. While an unlicensed foreign corporation
1. An individual, who must be of good doing business in the country cannot maintain
moral character and of sound financial any action, said corporation can be sued in the
standing, residing in the Philippines; or country.
2. A domestic corporation lawfully
transacting business in the Philippines,
designated in a written power of
attorney by a foreign corporation
authorized to do business in the
Philippines.
U N I V E R S I T Y O F S A N T O T O M A S
169
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
170 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
CORPORATION LAW
U N I V E R S I T Y O F S A N T O T O M A S
171
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
172 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
U N I V E R S I T Y O F S A N T O T O M A S
173
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
174 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
Q: What are exempt transactions? IV. PROCEDURE FOR REGISTRATION OF
SECURITIES
A:
1. Any judicial sale, or sale by an executor, Q: What is the procedure for registration of
administrator, guardian, receiver or securities?
trustee in insolvency or bankruptcy
A:
2. Those sold by a pledge, mortgagee, or 1. Application – All securities required to
any other similar lien holder, to be registered shall be registered
liquidate a bona fide debt (a security through the filing by issuer with SEC, of
pledged in good faith as security for a sworn registration statement.
such debt
2. Prospectus – The registration statement
3. Those sold or offered for sale in an shall include any prospectus required or
isolated transaction, the owner not permitted to be delivered;
being an underwriter
3. Other information – The information
4. Distribution by the corporation of required for the registration of any kind
securities to its stockholders as and all securities shall include, among
dividends; others, the effect of the securities’ issue
on ownership, on the mix of ownership,
5. Sale of capital stock of a corporation to especially foreign and local ownership;
its own stockholders exclusively
4. Signatories to registration statement –
6. Bonds or notes secured by a mortgage The registration statement shall be
are sold to a single purchaser at a single signed by the issuer’s:
sale a. Executive officer
b. Principal operating officer
7. Delivery of security in exchange for any c. Comptroller
other security pursuant to the right of d. Principal accounting officer
conversion e. Corporate secretary or
persons performing similar
8. Broker’s transactions executed upon functions
the customer’s orders
Note: it shall be accompanied by a
9. Share subscriptions prior to duly verified resolution of the BoD of
incorporation or in pursuance of an the issuer
increase in its authorized capital stock
5. Written consent of expert – The written
10. Exchange of securities by the issuer consent of the expert named as having
with its existing security holders certified any part of the registration
exclusively statement or any document used in
connection therewith shall also be filed
11. Sale by issuer to fewer than 20 persons
in the Philippines during any 12 month 6. Certification by selling stockholders –
period Where the registration statement
includes:
12. Sale to banks, investment houses, a. Shares to be sold by the
insurance companies and any entities selling shareholders
ruled qualified by the SEC b. A written certification by such
selling shareholders as to the
accuracy of any part of the
registration statement
contributed by such selling
shareholders shall also be
filed
7. Fees – The issuer shall pay to the SEC;
the SEC shall prescribe by rule,
U N I V E R S I T Y O F S A N T O T O M A S
175
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
176 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
178 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
U N I V E R S I T Y O F S A N T O T O M A S
179
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
180 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
C. DISCLOSURE RULE security is traded, and to the Commission
a sworn statement containing:
Q: When does disclosure begin?
a. His personal circumstances
A: It begins at registration and continues b. The nature of such beneficial
periodically thru periodic report. ownership
c. If the purpose was to acquire control
Q: May it be suspended? of the business, any plans the
recipient may have affecting a major
A: Yes. It may be suspended when on the first day change in
of the fiscal year if it has less than 100 d. the business
shareholders (Rule 17.1, SRC IRR). e. The number of shares beneficially
owned, and the number of shares for
Q: When does the disclosure requirement end? which there is a right to acquire
f. granted to such person or his
A: associates
GR: Disclosure does not end because once a g. Information as to any agreement with
reporting company, it remains as such even a third person regarding the securities
when registration of securities has been (Sec. 18)
revoked (Rule 13 SCR IRR).
3. Persons that has beneficial ownership of
XPN: If the primary license is revoked. 10% or more:
XPN to the XPN: In case of hospitals and Every person who is directly or indirectly
educational institutions if the primary license the beneficial owner of more than 10% of
is revoked, disclosure requirement still any class of any equity security, or who is
continues because of public interest. director or an officer of the issuer of such
security, shall file:
Q: Give the reportorial requirements.
a. Statement with the SEC and, if such
A: security is listed for trading on an
1. Issuers: Exchange, also with the Exchange, of
a. Within 135 days, after the end of the the amount of all equity securities of
issuer’s fiscal year, an annual report such issuer of which he is the
which shall include, a balance sheet, beneficial owner,
profit and loss statement and b. Within 10 days after the close of each
statement of cash flows, for such last calendar month, if there is a change in
fiscal year, certified by an ownership during such month, a
independent certified public statement indicating his ownership at
accountant, and a management the close of the calendar month and
discussion and analysis of results of such changes in his ownership as have
operations; occurred during such calendar month.
b. Other periodical reports for interim (Sec. 23)
fiscal periods and current reports on
significant developments of the issuer VII. CIVIL LIABILITIES
(Sec. 17)
Q: What are the grounds for civil liability to
2. Persons Acquiring Securities: arise?
If the issuer is one that has to make a
report, any person who acquires directly A:
or indirectly the beneficial ownership of 1. False Registration Statement. (Sec. 56)
more than 5% of such class, or in excess 2. Fraud with connection to prospectus,
of such lesser per centum as the communications and reports. (Sec. 57)
Commission may prescribe, shall, within 3. Fraud in connection with security
10 days after such acquisition or such transactions. (Sec. 58)
reasonable time as fixed by the 4. Manipulation of security prices. (Sec.
Commission, submit to the issuer of the 60)
security, to the Exchange where the 5. Insider trading. (Sec. 61)
U N I V E R S I T Y O F S A N T O T O M A S
181
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
MERCANTILE LAW TEAM:
182 ADVISER: ATTY. AMADO E. TAYAG; SUBJECT HEAD: EARL M. LOUIE MASACAYAN;
ASST. SUBJECT HEADS: KIMVERLY A. ONG & JOANNA MAY D.G. PEÑADA; MEMBERS: MA. ELISA JONALYN A. BARQUEZ, ANGELI R. CARPIO,
ANTONETTE T. COMIA, ALBAN ROBERT LORENZO F. DE ALBAN, JOEBEN T. DE JESUS, CHRIS JARK ACE M. MAÑO, ANNA MARIE P. OBIETA,
RUBY ANNE B. PASCUA, FLOR ANGELA T. SABAUPAN, GIAN FRANCES NICOLE C. VILCHES
Q: What is the limitation for awarding damages?
A:
1. The court can award not exceeding
triple the amount of the transaction
plus actual damage
2. The court is also authorized to award
attorney’s fees not exceeding 30%of the
award
Q: When may the court award exemplary
damages?
A: In cases of:
1. Bad Faith
2. Fraud
3. Malevolence or
4. Wantonness in the violation of SRC or the
rules and regulations promulgated
U N I V E R S I T Y O F S A N T O T O M A S
183
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
V ICE CHAIR FOR ADMINISTRATION AND FINANCE: JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ