ACTIVITY [BUSINESS LAW (PRIVATE ORGANIZATIONS)]

ACTIVITY CHAPTER 6

Directions: Read and answer each question carefully.

Note: Copying answers directly from your classmates or from any book and sites
from the internet will automatically get 0 points.

1. Should the stockholder be the beneficial or equitable owner of the share in order that he
may qualify to be a director? Example, the person holds the share in trust for a certain
minor, is he qualified to be a director?

Answer: To be elected as a director, one must be of legal age and an owner of at least

one share of the corporation. Therefore we assume that director must have a certain
amount of share in the company no matter how big or small it is.

2. Q for instance, for the approval of management contract, there are non-voting shares. In
the 100m shares, 20% are preferred non-voting shares. Will you include these 20m
shares in arriving at the voting requirement imposed by the code to have a valid
management contract?

Answer: Preferred Shares may be issued and the non-voting shares are necessarily. It
wasn’t stated that they are Non-Voting preferred type of share. Non-Voting Shares are
not included in determining compliance with the voting requirement to pass a valid
corporate act. Under R.A 11232 section 6 “ Except as otherwise provided in the
immediately preceding paragraph, the vote necessary to approve a particular corporate
act as provided for in the Code shall be deemed to refer only to stocks with voting
rights.” Therefore, no, because it is not listed in the code.

3. May common shareholders be validly denied the right to vote, effectively that is?

Answer: Yes, in the same article Section 7, Founders’ shares may be given certain
rights and privileges not enjoyed by the owners of other stocks. Where the exclusive
right to vote and be voted for in the election of directors is granted, it must be for a
limited period not to exceed five (5) years from the date of incorporation. Ro sum it up,
the Founder shares has a power to deny the right to votes of the stockholders.

4. Will this apply to close corporations?

Answer: Under Section 95 same article, Notwithstanding the foregoing, a corporation

shall not be deemed a close corporation when at least two-thirds (2/3) of its voting stock
or voting rights is owned or controlled by another corporation which is not a close
corporation within the meaning of this Code. Therefore, No.
5. Are the rights, liabilities, duties and obligations of the stockholders, directors, officers or
members of a “de facto” corporation—the same as those of the “de jure” corporation?

Answer: Yes, the rights, liabilities, duties and obligations are the same from he entity
mentioned above, A ‘de facto’ corporation is a defectively organized corporation, which
has all the powers and liabilities of a ‘de jure’ corporation and, except as to the State,
has a juridical personality distinct and separate from its shareholders (1) That there is an
apparently valid statute under which the corporation with its purposes may be formed;
(2) That there has been colorable compliance with the legal requirements in good faith;
and, (3) That there has been use of corporate powers, i.e., the transaction of business in
some way as if it were a corporation.