TT TT TT ————— sis eri Partnership to work, the element of rust isessential and is more important han the resources oF sls tha he pariner actualy bring into the busines. For corporations, good governance and transparency wise of public trust. (Professor Frank Cavico, Nova Southeastern University) Case of Invest and Divest Strategy _ Marky Olivarez, a popular young actor-model, decided to plunge into entrepreneurship by opening a series of business ventures ~ a casual dining restaurant and bar, a fitness gym, a travel agency, and a fashion boutique, He has a different set of partners in each of these firms. Marky has'not contributed anything to these businesses except his name, hoping F that his popularity will drap the right market into these businesses. The other partners were not hands-on entrepreneurs and relied heavily on ‘managers hired for each company. Each of these businesses showed signs of losing money in the first 12 months until only one business remained operational beyond 15 months. Marky has charged many of his personal F expenses from these companies. Meanwhile, all the partners were not able to recover their investment in these business ventures with Marky. If the businesses were losing money, shouldn't Marky share also in the losses f even if he did not contribute money or tangible assets to the companies? Is it right for Marky to charge his personal expenses to the companies? How F would you assess Marky's entrepreneurial competency? What went wrong F in this partnership? Are celebrities good business partners? Can you give examples of celebrities wo have become really successful entrepreneurs? What are the most important factors in choosing a business partner? What ‘measures can partners in a partnership or stockholders in a corporation have to protect their investment in the business? Learning objectives «Differentiate the various kinds of partnerships ‘and corporations and the responsibilities of partners and incorporators «Tent the requirements in the formation and dissolution of partnerships and corporations rism sector, it is imperative that it strictly complies ¢ as a legitimate business. Start-up operations must ‘and in order to have a strong foundation, you must start with a strong business organization. Forming a partnership or a corporation is a better choice in forming business ‘organizations in order to enter a competitive industry, like the tourism industry. This chapter will present an overview of a partnership and a corporation asa business organization. overned by the Civil Code of the Philippines, while the Law ‘The Law on Partnership is g on Corporation is governed by Batas Pambansa Blg. 68, Corporation Code of the Philippines. Ina high-level industry like the tou! with legal requirements in order to operat have a strong foundation,Law on Partnership ‘The Law Article 1767. By the contract of partnership two or more persons bind themselves tg Cputribute money, property or industry to a common fund, with the intention of dividing the profits among themselves Discussion of the Law A partnership is an association of two or more persons to carry on as co-owners of business for profit. The definition of a partriership does not include religious associat; conjugal partnerships and others of a similar nature because a partnership as defined by ayy tefers only to associations the Purpose of which is to obtain profits to be distributed amon, Partners. A partnership contract is based on trust and confidence. Hence, the fiduciary relation i a partnership stems from the principle of delectus personae, wherein no one can become a Partner in a partnership without the consent of all the partners. The essential requisites of a partnership are: (1) An. ‘Agreement to contribute money, property, industry to a common fund. This is. ‘complied, with if: (@) each one of the partners brings or is obliged to bring something to the partnership, and (b) . that which is brought becomes common property. (2) _ Intent to divide the profits among themselves. This is complied with if: (2) partnership is established to obtain Profits; (b) _ profit must be common to all the parties; and (©) __ profit or loss must be divided among the partners, ‘Advantages of forming a partnership: 1. Easy to form 2. Improved growth possibilities 3. Freedom from bureaucracy Disadvantages of forming a Partnership: 1. Instability 2. _ Difficulty in obtaining large sums of capital 3. Firm is tied to the acts and judgment of one partner as agent 4, Difficulty in severing partnership ties Classification of Partnerships (1) According to subject matter: (a) Universal partnership ~ a partnership where all of the partners contribute all of their properties to the common fund and speaks of no particular purpose or subject matter, as Jong as the purpose in forming a partnership is to obtain profits and is not contrary to law, morals, public order and public policy. Nowadays, seldom if none do you experience business establishments forming a universal partnership.@) Parca partnership — a particular partnership has for its object determinate things, = Ee oe fruits, or a specific undertaking, or the exercise of a profession or (2) According to liability: (a) General partnership ~ composed of general partners where liabilities extend to their personal properties (b) Limited partnership — (usually attaches the word “Ltd” or-"Limited” at the end of the company name), one formed by two or more persons having as members one or more general partners and one or more limited partners, where the liability of the latter to third persons is limited to their capital contribution? (3) According to duration: (a) Partnership for a fixed term ~is one in which the term of its existence has been agreed upon expressly (as when there is a definite period) or impliedly, (as whena particular enterprise or transaction is undertaken). The expiration of the term thus fixed or the accomplishment of the particular undertaking specified will cause the automatic dissolution of the partnership. ? Forms of Partnership A partnership can be in any form, even if not recorded at the Office of the Securities and. Exchange Commission, except: (1) when itis stipulated; (2) when immovable property or real rights are contributed, in which case there must be a public instrument to which is attached an inventory of the immovable properties and signed by the parties, otherwise the partnership is void.* (3) Incase of limited partnership, the parties must: (a) sign and swear to a certificate which shall state, among others the name of the partnership adding the word “Limited,” and the character of the business; (b) file for record the certificate in the Office of the Securities’ and Exchange Commission Failure to comply with the foregoing formal requirements will only make the partnership General Partnership. ‘The succeeding pages show a sample each of the Article of Partnership for both a general partnership and a limited partnership. (Articles of Partnership - General Partnership) RTI FP, SI of * avila 1783, Cl Code ofthe Philippines. 2 price 1843, Cl Code of the Philippines. 2 Aricle 1785, Atle 1830 [1,2], Civ Code ofthe Philipines. “eles 1771, 1773, Chil Code of the Phipps. 5 pscle 1044, cw Code ofthe Pippnes.KNOW ALL MEN BY.THESE PRESENTS: : That we, _ Partner 1, (single/marsied/ widow), and Partner 2 2 (single Matrgg) widow), and Partner3_, ingle /married /widow), all Filipinos, of IF ages, and reside, widow) yma ema this day, covenanted to establish a partnership" : accordance with the laivs of the Republic of the Philippines; AND WE HEREBY CERTIFY: 1. That the names and addresses of the respective partners are as follows: Name Address Poe NE es oye The 2. That the name of this partnership shallbe and it shay exist for (__) years from the execution of this instrument, unless the partners mutually agree in writing to a shorter period. Should the partnership ty terminated by unanimous vote, the assets and cash of the partnership shall be useq to pay all creditors, with the remaining amounts to be distributed to the partners according to their proportionate share. 3. . That the capital of this partnership shall be . ), Philippine Currency, broken down, in contributions, as follo Name of Partner Contribution P P P The partnership shall maintain a capital a¢count record for each partner; should any partner's capital account fall below the agreed to amount, then that partner shall (1) have his share of partnership profits then due and payable applied instead to his capital account; and (2) pay any deficiency to the partnership if his share of partnership profits is not yet due and payable or, if it is, his share is insufficient to cancel the deficiency. 4. That the purpose(s) for which this partnership is established (is/are) as follows: 5. The partners shall provide their full-time services and best efforts on behalf of the partnership. No partner shall receivea salary for services rendered to the partnership. Each partner shall have equal rights to manage and control the partnership and its business. Should there be differences between the partners concerning ordinary business matters, a decision shall be made by unanimous vote. It is understood that the partners may elect one of the partners to conduct the day-to-day business of the partnership; however, no partner shall be able to bind the partnership. by act or contract to any liability exceeding Pesos: Pw Philippine Currency, without the prior written consent of each partner. 6. Thatthe profitsand losses shalll be divided among the partners pro rata, in proportio" to their respective contributions. — % —_ hn7. Intheeventa partner withdraws or retires from the partnership for any reason, including death, the remaining partners may continue to operate the partnership using the same name. A withdrawing partner shall be obligated to give days prior written notice of (his/her) intention to withdraw or zetire and shall be obligated to sell (his/her) interest in the partnership. 8. No partner shall transfer interest in the partnership to any other party without the written consent of the remaining partner(s). The remaining partner(s) shall pay the withdrawing or retiring partner, or to the legal representative of the deceased or disabled partner, the value of his interest in the partnership, or (a) the sum of his capital account, (b) any unpaid loans due him, (c) his proportionate share of accrued net profits remaining undistributed in his capital account, and (d) his interest in any prior agreed appreciation in the value of the partnership property over its book value. 9. Apartner who retires or withdraws from the partnership shall not directly or indirectly engage in a business which is or which. would be competitive with the existing or then anticipated business of the partnership for a period of (__)years within the City /Province of where the partnership is currently doing or planning to do business. IN WITNESS WHEREOE, we have hereunto set our hands this at____, Philippines (SIGNATURES OF PARTNERS) SIGNED IN THE PRESENCE OF: REPUBLIC OF THE PHILIPPINES) CITY/MUNICIPALITY OF ss. ACKNOWLEDGMENT BEFORE ME, a Notary Public for and in the (Province/City /Municipality) of rsonally appeared the following persons, with their respective Community Tax —— F Certificates as follows: Name C.T.C. No. Date Place Issued 1 2 3, me known to be the same persons who executed the foregoing ae eaao ene which they acknowledged to me to be their free and voluntary. act and deed, consisting of only ____ __) page/s, including this page in which this Acknowledgment is written, duly signed by them and their instrumental witnesses on each and every page hereof. all known to me and to WITNESS MY HAND AND SEAL this at Philippines. — 37 —NOTARY PUBLIC Doc. No. : Page No. Book No. . Series of z of Partnership - Limited Partnership) RTICLES OF PARTNE! of a (Articles LTD. KNOW ALL MEN BY THESE PRESENTS: ‘That we, Co-Pariner 1 (single/married/ widow), and Co-Partner 2, (single/mare widow), and Co-Pariner 3, (ingle/ married /widow), all Filipinos, of legal ages, and pred of Philippines, have on this day, covenanted to establish a limited partnersh in accordance with the laws of the Republic of the Philippines, under the following terms : conditions: a 1. That the name of this Co-Partnership shall be Ltd. and it shall exist ( years from the execution of this instrument, with the right of for transfer or retirement of any partner provided written notice and approval are made to and by the others; 2, That the names and addresses of the respective co-partners are as follows: Name Address © (General Partner) (Limited Partner) (Limited Partner) ‘tal of this Co-Partnership shall be broken down, in contributions, as follows: Contribution 3. That the ‘initial capit Philippine Currency, Name of Co-Pattner Se, BE eee Tee — cer eather ue PS Pris es 4.» That the puxpose(s) for which this partnership is established (is/are) as follows: ated as the General Manager of the Partnership, who shall tions as may be necessary, in the name of the 1.1 shall be design: ‘and who shall receive a monthly salary of 5. - Cos at Jerform such acts and enter into transact partnership, for the conduct of its business; PpThat the profits and losses shall be divided among the partners as follows: Name (60%) (25%) (25%) IN WITNESS WHEREOF, we have hereunto set our hands this. at Philippines (Signatures of Partners) , SIGNED IN THE PRESENCE OF: (Acknowledgment) Obligations of the Partners (a) (2) (3) (4) Where contribution is money or property. If a partner promises to contribute money during the celebration of the contract and he fails to do so, he shall pay the interest and damages from the time he should have complied without need of any demand. If a partner promises to contribute specific determinate things, he must: (a) preserve the property; (b) deliver the fruits from the time of agreement; (c) warrant against eviction and hidden effects; (d) transfer ownership on delivery to, the partnership; (e) pay damages. for the delay without necessity of demand; and (f) bear the risk of loss before delivery. Where contribution is industry. An industrial partner (a partner who merely contributed industry or services to the common fund) cannot engage in business for himself, unless the partnership expressly permits him to do so; and ifhe should fail to do so, the capitalist, partners may either exclude him from the firm or avail themselves of the benefits which he may have obtained in violation of this provision, with a right to damages in either case” Obligation ofthe capitalist partner. Acapitalist partner (a partner who contributed money and property to the common fund) is prohibited from engaging in a business in competition with the partnership, unless there is stipulation to the contrary, otherwise all profits of such partner belong to the partnership and all losses shall be for his account. Responsibility between partriership and partner. The partnership shall be responsible to every partner for the amounts he may have disbursed on behalf of the partnership. It shall also Answer to each partner for the obligations he may have contributed in good faith in the interest of the partnership business and for risks in consequence of its management? On the other hand; the partner is liable to the partnership: (a) for interest and damages from the time of conversion for any sum of money which he may have taken from the partnership coffers and converted to his own use; (b) for damages suffered by the partnership through his fault, (c) for any benefit derived by him without the consent of the other partners from any transaction connected with the formation, conduct, or liquidation of the partnership or from any use by him ofits property.” * peice 1788, Chi Code ofthe Phipps. 7 ‘acl 789, Ci Code of he Phipps. * ‘Aticle 1908, Civil Code ofthe Philippines. * ‘pc 1796, li Code of hippines. poi 1807, Ci Code of te Phipps.(5) (6) a (8) Sharing of profit and loss among partners. The distribution of profits and Josses shall be in conformity with the agreement. If only the share in the profits is agreed upon, the share in the losses shall be in the same proportion." A stipulation which excludes one or more partners from any share in the profits or losses is void, but an industrial partner shall not be liable for losses.” In the absence of stipulation, the share in the profits and losses shall be in proportion to their respective capital contribution, except the industrial partner who shall receive a share of the profits as may be just and equitable under the circumstances. The designation of losses and profits cannot be entrusted to one of the partners but may be left to the third person whose designation is valid unless manifestly inequitable, However, it cannot be impugned by a partner who has begun to execute the same or who * fails to impugn within three months from knowledge. Property rights of a partner. A partner cannot assign his right with respect to the specific partnership property for the partner's individual debts or for legal support. However, a partner can assign his share in the profits to a third person.” The right to participate in the management is governed by stipulation of the partners; if none, all of the partners participate in the management. The powers of the managing partner appointed in the Articles of Partnership cannot be revoked despite opposition, except by partners representing controlling. interest and provided there is a just and lawful cause. ” However, powers of the managi Partner appointed after the formation of the partnership can be revoked anytime. * If two or more partners are appointed managing partners, each one may separately execute all acts of administration but if opposed, the majority among the managing partners shall prevail; if there is no majority, the partners owning controlling interest will decide.” Liability of individual partners fo third persons. All partners, including the industrial. partner, are liable pro rata with all their properties for contracts with third persons provided: (a) they were entered into in the name and for the account of the partnership; (b) under its signature; () by persons authorized to act for the partnership; (d) the partnership assets are already exhausted.” All partners are liable solidarily with the partnership” for: (a) wrongful acts and omissions causing loss to a non-partner® and (b) conversion or misappropriation of funds belonging to a stranger received in the usual course of business by partnership, Liability of the limited partner. A limited partner is liable as a general: (a) when he allows his surname to appear in the partnership name® and (b) when he takes part in the control of the business.*In this case, he shall have all the rights and powers and be subject to all the restrictions of a general partner except that as to the other partners, he shall be preferred as to the return in his contribution and share in the profits ™ pricie 1797, par. 1, Cl Code of the Philppines. * price 1799, Ci Code of th Pipes. * Atle 1797, pat. 2, Ci Code ofthe Philicines tei, 18 ‘pti 1788, Chil Code of the Pilipies * pric 1810, Ci Codoof the Pipines Aaticle 1800, at. Chl Code ofthe Phipns. ticle 1800, par. 2, Chl Code ofthe Philippines. 1 ‘ticle 1801, Chi Code ofthe Philipines. 2 prile 1816, Cv Code ofthe Philippines. 2 price 1824, Cv Code ofthe Phiippines. 2 patie 1822, Civ Code ofthe Phippins. * prtile 1846, par. 2, Cl Code ofthe Pilipines, 24 prtile 1948, Cv Code of the Philipines, 25 price 1853. Civil Code of the Philipines.Application of the Law Case: Sometime in June 1986, Fernando Sandoval and Naomi Reyes were introduced to each other by Mely Ziobal regarding a lending business venture proposed by Naomi-It was verbally agreed that Fernando will act as financier while Naomi and Mely take charge of solicitation of members and collection of loan payments. The venture was launched on June 13, 1986, with the understanding that Fernando would receive 70% of the profits while Naomi and Mely would earn 15% each. In July 1986, Naomi introduced Cesar Santos to Fernando. Cesar Santos, as Chief Financial Officer of Discovery Hotel and Suites, Inc. sought short-term loans for the members of the corporation. In this regard Fernando Sandoval and Cesar Santos executed an agreement providing funds for the members of Discovery Hotel and Suites. Under the agreement, Discovery Hotel and Suites, represented by Cesar Santos, was entitled to Php 1.31 commission per thousand paid daily to Fernando Sandoval. Naomi kept the books as representative of Fernando Sandoval in doing business for Discovery Hotel and Suites. Fernando Sandoval and Naomi Reyes later discovered that their partner Mely engaged in the same lending business in competition with their partnership. Mely was thereby expelled from the partnership. 1) Who are the partners in the lending business venture? How are they classified? 2) Was Fernando and Naomi correct in expelling Mely from the lending business venture? Legal Opinion: 1) The.partners in the lending business venture are: (a) Fernando Sandoval, a capitalist partner who acted as financier of the partnership; (b) Naomi Reyes, an industrial partner ‘who contributed services by taking charge in the solicitation of members and collection of loan payments; and (¢) Mely Ziobal, also an industrial partner who contributed services by taking charge in the solicitation of members and collection of loan payments. 2) Yes, Fernando and Naomi were correct in expelling Mely from the partnership. An industrial partner like Mely (a partner who merely contributed industry or services to the common fund) cannot engage in business for herself, otherwise the capitalist partners (ie, Fernando) may exclude her from the firm” Dissolution and Winding Up of a Partnership The Law Article 1830. Dissolution is caused: (1) Without violation of the agreement between the partners: (a) By the termination of the definite term or particular undertaking specified in the agreement; (b) By the express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified; (c) By the express will ofall the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified ierm or particular undertaking: (d) By the expulsion of any partner for the business bona fide in accordance with ‘such power conferred by the agreement between the partners; 2 See Ferando Sains vs Spouses Arsenio and Neves Reyes, GR. No, 135819, Ober 25, 2001, 7 ‘Axtcle 1789, Chil Code ofthe Philippines. — 41 —(2) In contravention of the agreement between the partners, where the circumstances do not permit a dissolution under any other provision of this article, by the express will of any partner at any time; (3) By any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership; (4) When a specific thing, a partner had promised to contribute to the partnership, perishes before the delivery; in any case by the loss ofthe thing, tohen the partner who contributed it having reserved the ownership thereof, has only transferred to the partnership the se or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired the ownership thereof; (5) By the death of any partner; (6) By the insolvency of any partner or of the partnership; (7) By the civil interdiction of any partner; and (8) By decree of court under the following article. (1700a and 1701a) Article 1831. On application by or for a partner, the court shall decree a dissolution whenever: (D)_A partner has been declared insane in any judicial proceeding or is shown to be of unsound mind; * (2) -Apartner becomes in any other way incapable of performing his part of the partnership contract; (3) Apartner has been guilty of such conduct as tends to affect prejudicially the carrying on of the business; (4) A partner willfully or persistently commits breach of the partnership agreement, or otherwise so conducts himself in matters relating to the partnership business that itis not reasonably practicable to carry on the business in partnership with him; (5) The business of the partnership can only be carried on at a loss; and (6) Other circumstances render dissolution equitable. On the application of the purchaser ofa partner's interest under Articles 1813 or 1814: (1) After the termination of the specific term or particular undertaking; (2) Atany time the partnership was a partnership at will when the interest was assigned or when the charging order was issued. (n) Discussion of the Law In the case of a limited partnership, the same is dissolved: (1) in case of retirement, death, insolvency, insanity or civil interdiction of a general partner; (2) when asked for by a limited partner under the provisions of Article 1857, as when he rightfully but unsuccessfully demands the return of his contribution, or as when the limited partner would otherwise be entitled tothe return of his contribution but there are remaining liabilities of the partnership which have not been paid or the partnership property is insufficient for their payment. —_————— 2 pce 1960, Chil Code of he Philippines. a — 2 — \Ina limited partnership, the retirement, death, insolvency, insanity or civil interdiction of a general partner dissolves the partnership unless the business shall be continued by the remaining general partners. * In such a case, an amendment of the certificate of limited partnership shall be executed and recorded at the Securities and Exchange Commission.” On the other hand, the death of all of the limited partners shall dissolve the partnership unless a substituted limited partner will be admitted to all the rights of a limited partner who has died or has assigned his interest in the partnership,” in such a case an amendment in the certificate must also be executed for the inclusion of the substituted limited partner which must be recorded in writing at the Securities and Exchange Commission.» Take note that the amendment of the certificate of limited partnership must comply substantially with requirements set forth in Article 1844 as well as Article 1843 of the Civil Code of the Philippines. “Civil Interdiction” is defined as an accessory penalty for the commission of an offense, which deprives the offender during the time of his sentence of the rights of parental authority, or guardianship, either as to the person or property of any ward, of marital authority, of the right to manage his property and of the right to dispose of such property by any act or any conveyance inter vivos.® “Insolvency” is defined as a financial condition in which one is unable to meet his obligations as they mature in the ordinary course of business or in which one's liabilities exceed his assets at any given time. Examples of misconduct under No. 3 of Article 1831 of the Civil Code of the Philippines indude addiction to alcohol or drug abuse. Examples of other circumstances which render dissolution equitable under No. 6 of Article 1831 of the Civil Code of the Philippines are abandonment of the business, fraud in the management of the business, refusal without justifiable cause to render accounting of partnership affairs, etc: Application of the Law Case: On July 25, 1984, L} Villa, Carmen Jose and Jess Jose formed a partnership with a capital of P 750,000 for the operation of a restaurant and catering business under the name “Aqua Food House and Catering Services.” Ms. Villa was appointed general manager and Carmen Jose as operations manager. Donald Ramses joined as a partner in the business on September 5, 1984. His capital contribution was 250,000. After Jess Jose withdrew from the partnership on January 15, 1987, his capital contribution of 250,000 was refunded to him in cash by agreement of the partners. On February 14, 1987, the restaurant was closed down without the knowledge of Mr. Donald Ramses. Upon the closure of the restaurant, Mr. Donald Ramses was demanding for the return or his capital contribution of P250,000. When was the partnership dissolved? Is it possible for Mr. Donald Ramses to be entitled for the amount of P250,000 which is the return of his capital contribution? ° patel 1860, Ci Code ofthe Philippines. > Atle 1865, Civ Code ofthe Philippines. Atle 1859, par.6, Civil Code ofthe Philippines. vile 1865, Civ Code ofthe Philippines. ® Atle 34, Revsod Penal Code. ™ Baron's Legal Guides Law Dictonay,5* Editon. * The Lawon Partnerships and Private Corporations, by Hector S. de Leon, 1997 Edition, p. 109, —\ ruary'14, 1987 when the restaurant .d in good faith in closing down the ership at will since ng nership was dissolveq Kesal Opinion: The partnership was dissolved on Feb a losed, assuming that L] Villa and Carmen Jose acte def mn . It appears that the partnership that was formed is a partn« fe term was stated in the contract of partnership. Hence, the part on the basis of Article 1830 letter (b) of the Civil Code of the Philippines. On the other hand, Mr. Donald Ramses cannot be entitled for the amount of P250,000.00, cd only after the completion of Well settied isthe rale that ashore ina partnership canbe retume that oe carpe liquidation and winding up of the business. Since it is the partnership ina shares of the partners, the amount to be refunded is necessarily limited to all its epinecee In other words, it can only pay out what it has in its coffers, which consists of ile areta Hower, before the partners can be paid their shares, the creditors ofthe partnership Bust fie compensated "Afterall the creditors have been paid, whatever is left of the partnership seseia become a able for the payment of the partners’ shares. Evidently, in the present case, the a amount of refund equivalent to Mr. Ramses’ share in the partnership cannot ‘be determined until all the partnership assets will have been liquidated in other ‘words, sold and converted to cash and all partnership creditors, if any, paid. order of Liquidation for a General Partnership The Law “Article 1839. In settling accounts bettocen the partners after dissolution, the, following rules shall be observed subject fo any agreement to the contrary: xan. The liabilities of the partnership shall rank in order of payment, as follows: (a) Those owing to creditors other than the partners; (b) Those owing to partners other than for capital and profit; (c) Those owing to partners in respect of capital; and (a) Those owing to partners in respect of profits. (2) Discussion of the Law ‘Take note that the liquidation pro partnership. There isa different process cess under the above provision applies only to a general for the liquidation of a limited partnership. Application of the Law nngela, Boni and Chiistine formed ABC Company contributing the following: (@) 50,000; (b) Boni = 20,000; and (c) Christine = 10,000, ‘The partnership is indebted Xeres = 60,000; (b) Yangco = 20,000; and (c) Christine (partner ‘of ABC ddiccolution is P250,000. In case of liquidation, how ‘dation, how much should Yangco recover? In case (a partner of ABC Company) recover? Explain in Case: Angela to the following: (a) Company) = P10,0000. Gross capital upon much should Xeres recover? In case of liqui bf liquidation, how much should Christine detail the order of liquidation. vs Donal En C,Raiezot al, G.R No, 144214 July 14,2008 ioeLegal Opinion: Gross Capital 250,000 ‘Those owing to creditors Xeres P 60,000 Yangco -P20,000 P 80,000 P 170,000 ‘Those owing to partners other than capital and profit Christine P 10,000 10,000 : . 160,000 ‘Those owing to partners with respect their capital Angela’ 50,000 Boni P 20,000 Christine P 10,000 P 80,000 ‘ P_ 80,000 Those owing to the partners with respect to profits Angela-5/8 of P 80,000 = P 50,000 Boni-2/80f P 80,000 P 20,000 Christine-1/8 of 80,000 P 10,000 P 80,000 XXX Xeres may recover a total amount of 60,000.00. Yangco may recover a total amount of 20,000.00. Christine may recover a total amount of 30,000.00. The Law Order of Liquidation for a Limited Partnership Article 1863. In settling accounts after dissolution the liabilities of the partnership shall be entitled to payment in the following order: (D (2) (3) (4) (5) (6) Those to creditors, in the order of priority as provided by law, except those to limited partners on accotint of their contributions, and to general partners. Those to limited partners in respect to their share of the profits and other compensation bby way of income on their contributions; Those to limited partners in respect to the capital of their contributions; Those to general partners other than for capital contribution; Those to general partners in respect to profits; and Those to general partners in respect to capital.Discussion of the Law The above provision expressly provides for dissolution of a limited partnership. Those due to creditors under No. 1 outside creditors, including those owing to the limited partners. In the absence of any statement in the certificate as to the share in the profits for which each partner shall receive, a limited partner's share in the profits shall be in proportion to the amount of the partners’ respective capital contribution. This proportional sharing takes place where the partnership assets are insufficient to pay each of the partners’ claims. 1 priority in the distribution of assets. afte, ‘Article 1863 are the Application of the Law Case: Angela, Boni and Christine formed Gen-Y Partnership LTD contributing 265,000 each, Angela and Boni are general partners, while Christine is a limited partner.’ The gross capita} upon dissolution is 300,000 and the liabilities are as follows: (a) Winona = 60,000.00; (b) Xtian = P30,000; (c) Christine = (limited partner) P20,000; and (d) Angela = (general partner) 10,000. How much should Boni get in his return of capital only? How much should Angela get? How much should Christine get with respect to the profits? Liquidate the partnership observing the order of preference. Boni is entitled to get 57,000.00 for his return of capital. Angela should get a total amount of 67,500.00. Christine cannot get any share in the profits because the amount of liabilities is more than the claims of the partners. Legal Opinio1 Step 1: Determine if there are remaining profits. Gross Capital 300,000.00 Liabilities: P 110,000.00 (Winona, Xtian & Christine) 190,000.00 Less: Capital Contribution (P65,000 x 3) 195,000.00 Profits -P 5,000.00 Step 2: Liquidate the partnership. Gross Capital 300,000.00 Outside Creditors Winona (Outside Creditor) P 60,000 Xtian (Outside Creditor) 30,000 Christine (Limited Partner) P 20,000 110,000.00 P 190,000.00 Return of Capital of Limited Partner Christine 65,000.00 ® 125,000.00 aOther Creditors Angela (General Partner) P 10,000.00 P 115,000.00 Return of Capital of General Partner Angela 57,500 Boni i 57,500 P 115,000.00 Case: Angela, Boni and Christine formed AB Ltd. Angela and Boni are general partners who contributed 45,000.00 each; and Christi "4 ine, the limited partner contributed 60,000.00. The partners’ profit and loss sharing distribution are as follows: (a) Angela = 25%; (b) Boni = 50%; (c) Christine = 25%. Total assets consisting of cash upon dissolution is P430,000.00 and the liabilities are the following: (a) Angela (general partner) = P 20,000; (b) Christine (limited partner) = P50,000; (c) Diane (outside creditor) = P 100,000; and (d) Edgar (outside creditor) = 50,000. Liquidate. Legal Opinio Step 1: Determine if there are remaining profits: Assets “430,000 Less: Liabilities 220,000 ® 210,000 : Less: Capital Contribution P_ 150,000 Profits P 60,000 Step 2: Liquidate the partnership. Assets 430,000.00 Outside Creditors Diane = 100,000 Edgar = P50,000 Christine (limited partner) = P50,000 200,000.00 230,000.00 Christine’s share in the profts (257 of 60,000) P 15,000.00 215,000.00 Christine’s share in capital contribution (60,000) P 60,000.00 155,000.00 Inside Creditors (General Partner) Angela P 20,000.00 135,000.00 General partners’ share in the Profits A (25% of 60,000) 15,000 B (50% of 60,000) 30,000 P 45,000.00 P 90,000.00 — 47General partners’ share in the Capital Contribution A(P45,000) B (P45,000) 90,000 Law on Corporation The Law Sec. 2. Corporation defined. A corporation is an artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence. Discussion of the Law In the Philippines, the law which governs the creation of private corporations is Batas Pambansa Blg. 68, known as the Corporation Code of the Philippines. “Right of Succession” means that a corporation has the capacity to exist regardless of the death, withdrawal, insolvency or incapacity of the individual stgckholders and regardless of the transfer of interest or shares of stock. ‘The powers of all corporations are limited to those mentioned in their charters or in the general acts under which they are created. Kinds of Corporation (a) Stock Corporation — one which has a capital stock divided into shares and is authorized to distribute to the holders of such shares dividends or allotments of the surplus profits (ie, retained earnings) on the basis of the shares held. *” A stock corporation is organized for profit. The governing body of a stock corporation is usually the Board of Directors. (b) Non-stock Corporation — one where no part of its income is distributable as dividends to its members, trustees, or officers, subject to the provisions of the Code on dissolution. A non-stock corporation is one not organized for profit. The governing body is usually the Board of Trustees. (c) Corporation De Jure ~ a corporation organized in accordance with the requirements of law. (a) De Facto Corporation — a corporation where there exists a flaw in its incorporation. (e) Public Corporation ~ one formed or organized for the government of a portion of the State. Itis created by its own charter for the exercise of a public function. Examples: barangay, city, municipality. (Private Corporation — one formed for some private purpose, aim or end, It is created by incorporation under the general corporation law. This includes a government owned and controlled corporation with an original charter and quasi-public corporation, a private corporation performing public functions. (g) Corporation Sole ~ one organized for the purpose of administering and managing, @ trustee, the affairs, property and temporalities of any religious denomination, sect ot church. In this corporation, there is only one incorporator. (h) Eleemosynary Corporation — one organized for a charitable purpose. 2 Secon 3, Corporation Code ofthe Pilppines. AA(i) Domestic Corporation — a Phe corporation formed, organized and existing under the laws of the (Foreign Corporation ~ : Le rises oF the Phan Dorin food, organized or existing under any laws other pines and whose laws allow Filipino citizens and corporations to do business in their own country or state. Advantages of a Corporate Organization 1) Strong separate juridical personality 2) Limited liability to investors 3) _ Free transferability of units of ownership 4) Centralized management through the Board of Directors 5) Professionalism 6) Easier to sell small amounts of stock to raise capital Disadvantages of a Corporate Organization 1) _ Extensive government regulation 2) Double taxation 3) _ Activities are limited by charter and various laws Distinction Between a Partnership and a Corporation 1) Apartnership is created by the agreement of the parties, while a corporation isc law (BP. 68). 2) Ina partnership, the liability of the partners (except limited partners) extends to their personal properties, while the liability ofthe stockholders in a corporation is limited only to the extent of the shares of stock subscribed by them. when the management is not agteed upon, every partner is an agent of ge the affairs of the corporation reated by 3) Ina partnership, the partnership; while the power to do business and mana is vested in the board of directors or trustees. 4) A partnership commences to acquire juridical personality from the moment of the execution of the contract of partnership; while a corporation commences its corporate existence only from the date of the issuance of the certificate of incorporation by the Securities and Exchange Commission. 3) Appartnership may be organized by only two persons; while a corporation requires at Teast five but not more than 15 incorporators to organize. 6) Apartnership has no right of succession, while a corporation has such right. 7) Ima partnership, a partner cannot transfer his interest in the partnership without the caasdat of all the partners because thé partnership is based on the principle of delectus personae; while in a stock corporation, & tockholder has the right to transfer his shares Pthout the prior consent of the other stockholders. 8) A partnership may be established for any period of ti while a corporation may exist exceeding 50 years. 9) Aparinership may be dissolved at any time Py the will of any oral of the partners, while a eorporation can only be dissolved with the consent of the state. ime stipulated by the partners, t yor a term of 50 years to be extended for another term not Se 149 —Steps in the Creation and Organization of a Corporation (1) Promotion; 2) Incorporation (Section 10); and j : ® K Se case and commencement of the business operations (Sec. 22). 01 Steps in Incorporation i i incorporation by the incorporators. The perso, Oe eee pening tncorpeeaion mg ccrace wa ALGAE lege seme sco ie enie authorized capital stock has been subscribed and at least 257, ¢; teases has been paid to the corporation. The authorized expats ey the net worth of the corporation as appearing in the Articles of Incorporation he subscribe capital stock is the amountin the capital stock which. hhas been subscribe: iby 1 corporat or stockholders, whether fully paid or not. The paid-up capital refers to the oom sf capi stock actually paid by the incorporators or stockholders which in no case must not be les, than 5,000.00." (2) Filing with the Securities and Exchange Commission of the articles of incorporation together with the following: (a) Treasurer’s affidavit showing at least 25% of the authorized capital stock has been, subscribed and at least 25% of the subscription has been paid; (b) By-laws may be filed together with the articles of incorporation which must be: () approved and signed by all of the incorporators; (ii) submitted to the Securities ang Exchange Commission together with the Articles of Incorporation. (Note: The by-laws may also be filed within one (1) month after receipt of the official notice of the issuance of its certificate of incorporation by the Securities and Exchange Commission, in which case it shall be approved by an affirmative vote o! the stockholders representing atleast a majority of the outstanding capital stock and certified by the majority of the board of directors. Failure to file the same within he period prescribed shall constitute a ground for the Securities. and Exchange Commission to revoke the franchise of the corporation under PD 902-A..) (3) Payment of the filing and publication fee (Section 139, Corporation Code); (4) The issuance by the Securities and Exchange Commission of the certificate of incorporation. Contents of the Articles of Incorporation®? (1) The name of the corporation. The name of the corporation must similar to other corporations tegistered at the Securities and Exchange Commission. It must not also be patently deceptive, confusing or contrary to existing laws, 2) The specific purpose or purposes for which the corporation was incorporated, (3) The place where the princi ion i @) ae ere the principal office of the corporation is located, which must be within tie (4) The term for which the Corporation is to exist. The term i which cn be extended for another So rear a of he Corporation shall be for SO yess ® See. 18, Corporation Code ofthe Philippines, 2 See Section 4, Corpeatn Cod ofthe Piipines, ‘Sean 11, Corporation Code of ho Phgpines. not be similar or confusingly —a_} (5) The names, nationalities and residences of the incorporators, An incorporator is defined as one who institutes the steps necessary to form a corporation, and is an original member of it.” The following are the minimum qualifications of incorporators: (a) Anatural person; (b) Not less than five (5) but not more than (15) incorporators; (Q). Of legal age; (d) Majority must be residents of the Philippines; () Must own at least one (1) share of the capital stock of the corporation. (6) Thenames, nationalities and residences of the incorporating board of directors until the first regular directors or trustees are duly elected and qualified. The following constitutes the minimum qualification of a board of director: 8 (a) He must own at least one share in his own name. If he ceases to own at least one share in his name, he automatically ceases as a director. (b) Majority of the corporate directors must be residents of the Philippines. (c) He must not have been convicted by final judgment of an offense carrying an imprisonment exceeding 6 years or an offense constituting a violation of the Corporation Code.* (7) Theauthorized capital stock, and the amount subscribed and paid by the stockholders/incorporators. It is important that at least 25% of the authorized capital stock is subscribed and 25% of the subscribed capital stock is paid which in no case the paid up capital must not be less than P'5,000." Sample Format: (Articles of Incorporation - Airline Transportation Business) ARTICLES OF INCORPORATION OF Airlines, Inc. KNOW ALL MEN BY THESE PRESENTS: That we, all of whom are of legal age and residents of the Philippines, Filipinos, have on this day, voluntarily associated ourselves together for the purpose of forming a stock corporation under the laws of the Republic of the Philippines: AND WE DO HEREBY CERTIFY: FIRST: That the name of the Corporation shall be Airlines, Inc. SECOND: That the specific purposes for which said Corporation is formed are: ‘Toengage in the business of transporting and carrying, by air, passengers, cargo, and mail, or other specialized functions, such as medical air transport or oil platform servicing; acquiring “ Philippine Legal Eneyiopedia, by Jose Agalon Stal, 1986 Edn, p. 417. “© Secton 10, Corporation Code of the Philippines. © Sections 23 and 27, Corporation Code of the Philippines. “ Secton 13, Corporation Code ofthe Phippines, — 51and maintaifing airplanes, acquiring and operating airport facilities, acquiring passengers o, freight, managing staff, and operating flights (whether domestic or international). ‘THIRD: That the place where the principal office of the corporation is to be establisheg or located is at Philippines. . FOURTH: That the term for which the Corporation is to exist is () years from and after the date of issuance of the Certificate of Incorporation. FIFTH: That the names, nationalities and residences of the incorporators are as follows; Name Nationality lence SIXTH: That the iirectors of the Co ition shall (5) and that the names, nationalities and residence of the Directors of said Corporation who shall act as such rn their successors are elected and have qualified as provided for in the by-laws are as follows: Name lation: Residence SEVENTH: That the authorized capital stock of the Corporation is @e ) Pesos in lawful money of the Philippines, divided into fe ) shares with the a par value of e ) Pesos per share, EIGHTH: That the authorized capital stock of the corporation has been fully subscribe. representing the sum of @. ) Pesos, Philippine Currency, and at least twenty-t nt of the total subscription has been paid as follows: Name No. of Shares Amount Paid-In ‘Subscribed (Here, itis important that 60% of the authorized capital stock is owned by Filipino citizens.) NINTH: That has been elected by the subscribers as ‘Treasurer of the corporation to act as such until his/her successor is duly elected and qualified in accordance with the by-laws; and that as such Treasurer, (he/she) has been authorized to receive for and in the name and for the benefit of the corporation, all subscriptions paid by the subscribers. ‘TENTH: That no transfer of stocks or interest therein which will reduce the ownership of Filipino citizens to less than the percentage of the capital stock required by law shall be allowed or permitted to be recorded in the Corporate Books and this restriction shall be indicated in. all the stock certificates issued by the corporation. ==ili i ‘ate name ELEVENTH: That the corporation manifests its willingness = change its corporate pee in the event another person, firm or entity has acquired a prior right to u: orone deceptively or confusingly similar to it. IN WITNESS WHEREOF, we have hereunto affixed our signatures this at the City of Philippines. (Signatures of all Incorporators) SIGNED IN THE PRESENCE OF: ent A De (Acknowledgment) (Acknowledgment by Individuals - Multi-Party Instrument) REPUBLIC OF THE PHILIPPINES) CITY/MUNICIPALITY OF Ss. ACKNOWLEDGMENT BEFORE ME, a Notary Public for and in the (Province/City/Municipality) of Personally appeared the following persons, with their respective ‘Community Tax Certificates as follows: Name CT.C. No. Date/Place Issued 1 allknown tomeandtomeknown tobe thesame Persons who executed which they acknowledged to me to be theit free (__) page/s, including this duly signed by them and their instrumental the foregoing instrument and voluntary act and deed, consisting of only Page in which this Acknowledgment is written, witnesses on each and every page hereof. WITNESS MY HAND AND SEAL this at Philippines, NOTARY PUBLIC Doe. No. ; Page No. Book No, Series of (Articles of Incorporation — Hotel Business) ARTICLES OF INCORPORATION OF TTT Hotel Corporation eee eeKNOW ALL MEN BY THESE PRESENTS: That we, all of whom are of Jegal age and residents of the Philippiries, Filipinos, have on this ‘day, voluntarily associated ourselves together for the purpose of forming a stock corporation under the laws of the Republic of the Philippines: AND WE DO HEREBY CERTIFY: FIRST: That the name of the Corporation shall be____ HOTEL, CORPORATION. SECOND: That the specific purposes for which said Corporation is formed are: ‘To engage in the business of providing lodging, meals, and other related services to the traveling public on a commercial basis, THIRD: That the place where the principal office of the corporation is to be establisheg or located is at Philippines. FOURTH: That the term for which the Corporation is to exist is £ Years from and after the date of issuance of the Certificate of Incorporation. FIFTH: That the names, nationalities and residences of the incorporators are as follows; Name Nationality Residence SIXTH: That the f di ati Ibe five (5) and that the names, nationalities and residence of the Directors of said Corporation who shall act as such until their successors are elected and have qualified as provided for in the by-laws are as follows: Name Nationality Residence SEVENTH: That the authorized capital stock of the Corporation is fi 1 Pesos in lawful money of the Philippines, divided into shares with the a par value of P Pesos per EIGHTH: That the authorized capital stock of the corporation has been fully subscribed representing the’sum of, e. ) PESOS, Philippit Currency, and at least er tal has be +4 id as follows: Name ‘No. of Shares jount Paid-h share. NINTH: That has been elected by i y the subscribers as Ti yf the corporation to act as such until his/her successor is duly elected and qualified in secoedanct with the by-laws; and that as such Treasurer, (he / she) has been authorized to receive for and in the name and for the benefit of the corporation, all subscriptions Paid by the subscribers. — 4TENTH: That no transfer of stocks or interest therein which will reduce the ownership of Filipino citizens to less than the percentage of the capital stock required by law shall be allowed or permitted to be recorded in the Corporate Books and this restriction shall be indicated in all the stock certificates issued by the corporation. } ELEVENTH: That the corporation manifests its willingness to change its corporate name in the event another person,-firm or entity has acquired a prior right to use the said firm name or one deceptively or confusingly similar to it. IN WITNESS WHEREOF, ive have hereunto affixed our signatures this at the City of Philippines. (Signatures of all Incorporators) SIGNED IN THE PRESENCE OF: meee Mas fae (Acknowledgment) (Treasurer’s Affidavit with Authority to Examine Bank Account) REPUBLIC OF THE PHILIPPINES) Province of. )Ss. City /Municipality of ) Xe te eee eres eee e eee ee x ‘TREASURER’ DAY L Filipino, of legal age, (single/married/ widow), and aresident of Philippines, after being sworn to in accordance with law, depose and state: That I have been elected by the subscribers of _Name of Corporation _, Inc: as Treasurer thereof, to act as stich until my successor has been duly elected and qualified in accordance with the by-laws of the corporation, and that as such Treasurer, I hereby certify under oath that at least twenty-five (25%) percent of the authorized capital stock as been subscribed and at least twenty-five (25%) percent of the subscription has been paid and received by me in cash for the benefit and credit of the corporation. This is also to authorize the Securities and Exchange Commission (SEC) and Bangko Sentral ng Pilipinas (BSP) to examine and verify the deposit in the Name of Bank (____ Branch) in my name as Treasurer-in-Trust for —Name of Corporation _, Inc. in the amount of (P______) representing the paid- uP capital of the said corporation which is in the process of incorporation. This authority is valid and inspection of said deposit may be made even after the issuance of the Certificate of Incorporation to the corporation. Should the deposit be transferred to another bank prior to or after incorporation, this will also serve as authority to examine the pertinent books and records of accounts of the corporation as well as supporting papers to determine the utilization and disbursement of the said paid-up capital. TREASURER-IN-TRUSTSUBSCRIBED AND SWORN to before me, this , Why exhibited tome (his/her) Community Tax Certificate No. issued at___® Philippines on . NOTARY PUBLIC Doc.No.___; PageNo.___; Book No.___; Series of. i (Undertaking to Change Corporate Name) Date The Honorable Commissioner Securities and Exchange Commission SEC Building, EDSA Greenhills, Mandaluyong Metro Manila sir: In connection with the registration of the Articles of Incorporation of ____Name of Corporation __ Inc, the undersigned representative and on behalf of the organizers thereof, hereby manifest our willingness to change its corporate name in the event that another person, firm or entity has acquired a prior right to the use of the said firm name or one deceptively or confusingly similar to it. Very truly yours, Corporate Legal Counsel (By-Laws - Stock Corporation) BY-LAWS OF INC. ARTICLE! SUBSCRIPTION, ISSUANCE AND TRANSFER OF SHARES Section 1. Subscriptions, Subscribers to the capital stock of the corporation shall pay © the corporation the subscription value or price of the stock in accordance with the terms and conditions prescribed by the Board of Directors. Unpaid subscriptions shall not earn interest unless determined by the Board of Directors. Section 2. Certificate. Each stockholder shall be entitled to one or more certificates for such fully paid stock subscription in his name in the books of the corporation. The certificates shall contain the matters required by law and the Articles of Incorporation. They shall be in such — 5 ———form and design as may be determined by the Board of Directors and numbered consecutively. ‘The certificates, which must be issued in consecutive order, shall bear the signature of the President, mutually countersigned by the Secretary or Assistant Secretary, and sealed with the corporate seal. Section 3. Transfer of Shares, Subject to the restrictions, terms and conditions contained in the Articles of Incorporation, shares may be transferred, sold, ceded, assigned or pledged by delivery of the certificates duly endorsed by the stockholder, his attorney-in-fact, or other legally authorized person. The transfer shall be valid and binding on the corporation only upon record thereof in the books of the corporation, cancellation of the certificate surrendered to the Secretary, and issuance of a new certificate to the transferee. No shares of stock against which the corporation holds unpaid claim shall be transferable in the books of the corporation All certificates surrendered for transfer shall be stamped “Canceled” on the face thereof, together with the date of cancellation, and attached to the corresponding stub with the certificate book. | Section 4. Lost Certificates, In case any certificate for the capital stock of the corporation is lost, stolen, or destroyed, a new certificate may be issued in lieu thereof in accordance with the procedure prescribed under Section 73 of the Corporation Code. ARTICLE I MEETINGS OF STOCKHOLDERS Section 1. Regular Meetings. The regular meetings of stockholders, for the purpose of electing directors and for the transaction of such business as may properly come before the meeting, shall be held at the principal office on the ____of each year, if a legal holiday, then on the following day. Section 2, Special Meeting. The special meetings of stockholders, for any purpose or purposes, may at any time be called by any of the following: (a) Board of Directors, at its own instance, or at the written request of stockholders representing a majority of the outstanding capital stock, (b) President. Section 3. Place of Meeting. Stockholders’ meetings, whether regular or special, shall be held in the principal office ‘of the corporation or at any place designated by the Board of Directors in the city or municipality where the principal office of the corporation is located. Section 4. Notice of Meeting. Notices for regular or special meetings of stockholders may be sent by the Secretary by personal delivery or by mail at least two (2) weeks prior to the date of the meeting to each stockholder of record at his last known post office address or by publication in a newspaper of general circulation. The notice shall state the place, date and hour of the meeting, and the purpose or purposes for which the meeting is called. In case of special meetings, only matters stated in the notice can be subject of motions or deliberations at such meeting. When the meeting of stockholders is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken. At the reconvened meeting, any business may be transacted that might have been transacted on the original date of the meeting. Section 5. Quorum. Unless otherwise provided by law, in all regular or special meeting of stockholders, a majority of the outstanding capital stock must be present or represented in order to constitute a quorum. Ifno quorum is constituted, the meeting shall be adjourned until the requisite amount of stock shall be present. — 7 a ai ecting, Meeting of the stockholders shall be presided over by the Coin crihet ae erin absence the President, or if none of the foregoing is in office and present and acting, by a chairman to be chosen by the stockholders. The Secretary shal ag, as Secretary of every meeting, but if not present, the chairman of the nesting * a1, appoint 5 secretary of the meeting. The chairman of the meeting may adjourn the meeting from time tg time, without notice other than announced at the meeting. ake i of Voting, At all meetings of stockholders, a stockholder may vote in porary ae ee aging by the stockholder or his duly authorized attorney n Fret Unless otherwise provided in the proxy, it shall be valid only for the meeting at which jt has been presented to the Secretary. Pe cats tote meee i in the hands of the Secretary before the time set for the meeting, Such pee ‘Gel Fs eee may be revoked by the stockholders either in an instrument in writing duly presented and recorded with the Secretary prior to a scheduled meeting or by their personal presence at the meeting. Section 8 Closing of Transfer Books of Fixing of Record Date. For the purpose of determining the stockholders entitled to notice of, orto vote at, any meeting of stockholders op any adjournment thereof or to receive payment of any dividend, or of making a determination of stockholders for any proper purpose, the Board of Directors may provide that the stock ang transfer books be closed for a stated period, but not to exceed, in any case, twenty (20) days. It the stock and transfer books be closed for the purpose of determining stockholders entitled to notice of, or to vote at, a meeting of stockholders, such books shall be closed for at least ten (10) working days immediately preceding such meeting. In lieu of closing the stock and transfer books, the Board of Directors may fix in advance a date as the record date which shall in no case be more than twenty (20) days prior to the date on which the particular action requiring such determination of stockholders is to be taken, except in instance where applicable rules and regulations provided otherwise. ARTICLE Ill BOARD OF DIRECTORS Section 1. Powers of the Board. Unless otherwise provided by law, the corporate powers of the corporation shall be exercised, all business conducted and all property of the corporation controlled and held by the Board of Directors to be elected by and from among the stockholders. Without prejudice to such general powers and such other powers as may be granted by law, the Board of Directors shall have the following express powers: a) From time to time, to make and change rules and regulations not inconsistent with these by-laws for the management of the corporation's business and affairs; b) To purchase, receive, take or otherwise acquire in any lawful manner, for and in the name of the corporation, any and all properties, rights, interest or privileges, including securities and bonds of other corporations, as the transaction of the business of the corporation may reasonably or necessarily require, for such consideration and upon such terms and conditions as the Board may deem proper or convenient; ©) Toinvest the funds of the corporation in another corporation or business or for any other purposes other than those for which the corporation was organized, whenever in the judgment of the Board of Directors the interests of the corporation would thereby b* promoted, subject to such stockholders’ approval as may be required by law; d) To incur such indebtedness as the Board may deem necessary and, for such purpos to make and issue evidence of such indebtedness including, without limitation, note — 53 —_deeds of trust, instruments, bonds, debentures, or securities, subject to such stockbaldes approval as may be required by law, and/or pledge, mortgage, or otherwise encum| a sr or part of the properties and rights of the corporation; provided that the borrowing be sourced from not more than nineteen (19) lenders; . ; e) To guarantee and secure payment of, for and in behalf of the obligations of other corporations or entities in which it has lawful interest; f) Tomake provisions for the discharge of the obligations of the corporation as they oat, including payment for any property, or in stocks, bonds, debentures, or other secur of the corporation lawfully issued for the purpose; g) To sell, lease, exchange, assign, transfer or otherwise dispose of any property, real or personal, belonging to the corporation whenever inthe Board’ sjudgment, thecorporation’s interest would thereby be promoted; h) To establish pension, retirement, bonus, profit-sharing, or other types of incentives or compensation plans for the employees, including officers and directors of the corperation and to determine the persons to participate in any such plans and the amount of their respective participation; i) . To prosecute, maintain, defend, compromise or abandon any lawsuit in which the corporation or its officers are either plaintiffs or defendants in connection with the business of the corporation, and likewise, to grant installments for the payments or settlement of whatsoever debts are payable to the corporation; j) To delegate, from time to time, any of the powers of the Board which may Jawfully be delegated in the course of the current business or businesses of the corporation to any standing or special committee or to any officer or agent and to appoint any persons to be agents of the corporation with such powers (including the power to subdelegate), and upon such terms, as may be deemed fit; k) To implement these by-laws and to act on any matter not covered by these by-laws provided such matter does not require the approval or consent of the'stockholders under any existing law, rules or regulation. ° Section 2. Election and Term. The Board of Directors shall be elected during each regular meeting of stockholders and shall hold office for one (1) year and until their successors are elected and qualified. Section 3. Vacancies. Any vacancy occurring in the Board of Directors other than by removal by the stockholders or by expiration of term, may be filled by the vote of at least a majority of the remaining directors, if still constituting a quorum; otherwise, the vacancy must betfilled by the stockholders at a regular or at any special meeting of stockholders called for the purpose. A director so elected to fill a vacancy shall be elected only for the unexpired term of his predecessor in office. Any directorship to be filled by reason of an increase in the number of direétors shall be filled only by an election at a regular or at a special meeting of stockholders duly called for the Purpose, or in the same meeting authorizing the increase of directors if so stated in the notice of the meeting. The vacancy resulting from the removal of a director by the stockholders in the manner Provided by law may be filled by election at the same meeting of stockholders without further Rotice, or at any regular or at any special meeting of stockholders called for the purpose; after giving notice as prescribed in this by-laws. Section 4. Meetings. Regular meetin; gs of the Board of Directors shall be held once eve Quarter of the year on such dates and at s ‘the Board, such times and places as the Chairman of the Board, ‘quest of a majority of the directors and shall be notice. or in his absence, the President, or upon the re held at such places as may be designated in th.cial meeting of the Board specifying the inicated by the Secretary to each directo, or by written or oral message. A directo, .e, Notice of the regular or spe date, time and place of the meeting shall: bs con 1m, personally, or by telephone, telex, telegram; facsim!* may waive this requirement, either expressly or impliedly. a ea Section 6. Quorum. A majority of the number.of directors 95 fixed in the Articles of Incorporation shall constitute a quorum for the transaction of corpon a. and eve decision of at least a majority of the directors present ata meeting ba “ - ora fs e aur shall be valid as a corporate act, except for the election of officers Dte of a majority of all the members of the Board. Section 7. Conduct of the Meetings. Metin; Section 5. Notic gs of the Board of Directors shall be preside over by the Chairman of the Board, o in his absence, the President or if pore a foregoing is in office and present and acting, by any other director chosen by the Board. The eee shal act as secretary of every meeting, if not present, the Chairman of the meeting appoint a secretary of the meeting. solution of the Board, each director shall receive reasonable per diem allowance for theattendanceat each meeting of the Board. As compensation, the Board shall receive and allocate an amount of not more than ten percent (1076) of the net income before income tax of the corporation during the. preceding year. Such compensation shall be determined and apportioned among the directors in such manner as the Board may deem proper, subject to the approval of stockholders representing at least a majority of the outstanding capital stock at a regular or special meeting of the stockholders. Section 8, Compensation. By re: ARTICLE IV OFFICERS Section 1. Election/Appointment. Immediately after their election, the Board of Directors shall formally organize by electing the Chairman, the President, one or more Vice-Presidents, the Treasurer, and the Secretary, at said meeting. The Board may, from time to time, appoint such other officers as it may determine to be necessary or proper. Any two (2) or more positions may be held concurrently by the same person, except that no one shalll act as President and Treasurer or Secretary at the same time. Section 2. Chairman of the Board. The Chairman of the Board of Directors shall preside at the meetings of the directors and the stockholders. He shall also exercise such powers and perform such duties as the Board of Directors may assign to him. Section 3. President. The President, who shall be a director, shall be the Chief Executive Officer of the corporation and shall also have administration and direction of the day-to-day business affairs of the corporation. He shall exercise the following functions: a) Topreside at the meetings of the Board of Directors and of the stockholders in the absence of the Chairman of the Board of Directors; b) To initiate and develop corporate objectives and policies and formulate long range projects, plans and programs for the approval of the Board of Directors, including those for executive training, development and compensation; ©) Tohave general supervision and management of the business affairs and property of the corporation; : d) Toensure that the administrative and operational policies of the corporation are carried out under his supervision and control; —— 60 —.e) Subject to guidelines prescribed by law, to appoint, remove, suspend or discipline employees of the corporation, prescribe their duties and determine their salaries; f) To oversee the preparation of the budgets and the statement of accounts of the corporation; g) To prepare such statements and reports of the corporation as may be required of him by law; h) To represent the corporation at all functions and proceedings; i) To execute on behalf of the corporation all contracts, agreements and other instruments affecting the interests of the corporation which require the approval of the Board of Directors, except as otherwise directed by the Board of Directors; j) _ Tomake reports to the Board of Directors and stockholders; Kk) Tosign certificates of stock; 1) To perform such other duties as are incident to his office or are entrusted to him by the Board of Directors; ‘The President may assign the exercise or performance of any of the foregoing powers, duties and functions to any other officer(s), subject always to his supervision and control. Section 4. The Vice-President(s). If one or more Vice-Presidents are appointed, he/they shall have such powers and shall perform such duties as may from time to time be assigned to him/them by the Board of Directors or by the President. Section 5. The Secretary. The Secretary must be a resident and a citizen of the Philippines. He shall be the custodian of and shall maintain the corporate books and record and shall be the recorder of the corporation’s formal actions and transactions. He shall have the following specific powers and duties: a) Torecord or see to the proper recording of the minutes and transactions of all meetings of the directors and the stockholders and to maintain minute books of such meetings in the form and manner required by law; b) _Tokeep or cause to be kept record books showing the details required by law with respect to the stock certificates of the corporation, including ledgers and transfer books showing all shares of the corporation subscribed, issued and transferred; ©) Tokeep the corporate seal and affix it to all papers and documents requiring a seal, and to attest by his signature all corporate documents requiring the same; 4) To attend to the giving and serving of all notices of the corporation required by law or these by-laws to be given; e) To certify to such corporate acts, countersign corporate documents or certificates, and make reports or statements as may be required of him by law or by government rules and regulations; f) Toact as the inspector of the election of directors and, as such, to determine the number of shares of stock outstanding and entitled to vote, the shares of stock represented at the meeting, the evidence of a quorum, the validity and effect of proxies, and to receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the result, and do such acts as are proper to conduct the election or vote. The Secretary may assign the exercise or performance of any or all the foregoing duties, powers and functions to any other person or persons, subject always to his supervision and control; 8) To perform such other duties as incident to his office or as may be assigned to him by the Board of Directors or the President. — 61 —i officer and ion shall be ts chief fiscal offi the f the corporation shal lowing dutic.” custodian of its funds, s i isbursements in the books of a) To keep full and accurate accounts of receipts and disbur ee the corporation; rities and bonds of b) have custody of, and be responsible oH all the funds, sécut the corporations i ion, in such bank as may ©) To deposit in the name and to the credit of Se naar, finda: securie® designated from time to time by the Board of Directors all the moneys fu ay come une bonds and similar valuable effects belonging to the corpo! t Hes contin, ition of the corporation a,; ler al statement showing the financial condition of rPpor “ a he financial reports as the Board of Directors, the Chairman, or the President, may, from time to time require; i rts, statements, certifications and other documents whic, 2 a Romine tare beech crate and regulations ano sub the same to the proper government agencies; en 8) To exercise such powers and perform such duties and functions as may be'assigned io him by the President. “ Section 7, Term of Office. The term of office of all officers shall be for a period of one (y year and until their successors are duly elected and qualified, Such officers may however by Sooner removed for cause. Section 8. Vacancies. If any position of the officers becomes vacant by reason of death resignation, disqualification or for any other cause, the Board of Directors by majority vote may elect a successor who shall hold office for the unexpired term, Section 9. Compensation: The by-laws officers shall receive such remuneration as the Board of Directors may determine. All other officers shall receive such remuneration as the Board of Directors may determine upon recommendation of the President. A director shall not be precluded from serving the corporation in any other capacity as an officer, e agent, or otherwise, and receiving compensation therefor. ARTICLE V OFFICE Section 1. Office. The principal office ofthe corporation shall be located at the place stated in Article III of the Articles of Inco: rporation. The corporation may have such other branch Offices, either within or outside the Philippines, as the B the business of the corporation may, from time to time ARTICLE VI oard of Directors may designate or as require, ot auditors of the corpo auditors shall examine, shall certify the remun of Directors, Section 2. Fiscal Year. The fiscal i Year of the corporation s January and end on the last day of December of each ei Section 3. Dividends. Dividends shall b : ; © deel "etnined earnings which shall be payable cash, Peper halll begin on the first day of ‘d and paid out of the unrestricted "ty or stock to all stockholders on the oo — 2-—_ —basis of outstanding stock held by them, as often and at such times as the Board of Directors may determine and in accordance with law and applicable rules and regulations. ARTICLE VII AMENDMENTS Section 1. Amendments. This by-laws may be amended or repealed by the affirmative vote of at least a majority of the Board of Directors and the stockholders representing a majority of the outstanding capital stock at any stockholders’ meeting called for the purpose. However, the power to amend, modify, repeal or adopt new by-laws may be delegated to the Board of Directors by the affirmative vote of stockholders representing not less than two-thirds of the outstanding capital stock; provided, however, that any such delegation of powers to the Board of Directors to amend, repeal or adopt new by-laws may be revoked only by the vote of the stockholders representing a majority of the outstanding capital stock at a regular or special meeting. : ARTICLE VIII SEAL Section 1. Form and Inscriptions. The corporate seal shall be determined by the Board of Directors. ARTICLE IX ADOPTION CLAUSE The foregoing by-laws was adopted by all the stockholders of the corporation on ‘at the principal office of the corporation. IN WITNESS WHEREOF, we, the undersigned incorporators present at said meeting, and voting thereat in favor of the adoption of said by-laws, have hereunto subscribed our names this at City, Philippines. (SIGNATURES OF ALL INCORPORATORS) Liability of the Board of Directors (1) Cotcept-Being ajuridical entity, the corporation canonly act through the board of directors, which exercises almost all corporate powers, laws, down all corporate business policies and is responsible for the efficiency of management under Sec. 23 of the Corporation Code. (2) Remedies in Case of Mismanagement ~ In the event of mismanagement or abuse of powers, the remedy of the stockholders shall be: (a) Receivership (b) Injunction if the act has not yet been done (© Dissolution if abuse amounts to a ground for quo warranto but the Solicitor General refuses to act (@)_ Derivative suit or complaint filed with the ordinary courts. (Regional Trial Court) (3) Solidary Liability - Directors or trustees shall be solidarily liable for all damages resulting therefrom suffered by the corporation, its stockholders or members and other persons when:patently unlawful acts of the to fi vote for oF assee or bad faith in directing the affairg (a) They willfully and knowingly vote or gence orb corporation or who are guilty of tion; or ' oa cer aa personal or pecuniary interest in conflict with their duty as such (b) They acq rs directors or trustees. l Se tings 3 i tue of his office acquires for a (4) Disloyaty of @ Director ~ Where a director, by Wi i ergs i it hich should belong to the co fi Pes pe hl ete ater ral kro oa by refunding the same. Principle of the Trust Fund Doctrine The subscription to the capital of a corporation con a right to look for satisfaction of their claims. stitutes a fund to which creditors have Application of the Law Case: On November 23, 2007, Alfa Hotel Corporation through its board of d sctors executed a Voling Trust Agréement transferring the beneficial ownership of its shares in trust Bank of the Philippines, Inc. by reason of the loan obtained by the former from the latter. aa a ction 59 of the Corporation Code of the Philippines: “Voting Trusts One or more stockholders of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding five (5) years at any one time: Provided, that in the case of a voting trust specifically required as a condition in a loan agreement, said voting trust may be for a period exceeding (5) years but shall automatically expire upon full payment of the loan. x xx.” _ By its very nature, a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights such as the right to receive dividends, the right to inspect the books of the corporation, the tight to sell certain interests in the assets of the corporation and other rights to which a stockholder may be entitled until the liquidation of the corporation. However, in order to distinguish a voting trust agreement from proxies and other voting pools and agreements, it must pass three criteria or tests, namely: (1) that the voting rights of the stock are separated from the other attributes of ownership; (2) that the voting rights granted are intended to be irrevocable for a definite period of time; and (3) that the principal purpose of the grant of voting rights is to acquire voting control of the corporation. (5 Fletcher, Cylopedia of the Law on Private Corporations, Section 2075 [1976] p. 331 citing Tankersly vs. Albright, 374 F Supp. 538.) Under Section 59 of the Corporation Code, a voting trust agreement may confer upon a trustee not only the stockholder’s voting rights but also other rights pertaining to his shares as long as the voting trust agreement is not entered “for the purpose of circumventing the Jaw against monopolies and illegal combinations in restraint of trade ot used for purposes of fraud.” The law simply provides that a voting trust agreement is an agreement in writing whereby one or more stockholders of a corporation consent to transfer his or their shares to a trustee in order to vest in the latter voting or other rights pertaining to said shares for a period not exceeding five years upon the fulfillment of statutory conditions and such other terms and Bsr Specified in the agreement. The five-year period may be extended in cases where the votins eee ei mee era Pursumnt to a loan agreement whereby the period is made contingent * Commaril Lan Revie by CesarL,Vilansva, 2004 Eton pp. 645-646 4 Sec. 54, Corporation Code o the Piippines, Philippine Trust Company vs. Rivera, 4 Phil 469 (1973, — 4Do the board of the directors of Alfa Hotel Corporation automatically cease to become board of directors upon the execution of the voting trust agreement to Bank of the Philippines, Inc? Are the board of directors of Alfa Hotel Corpor. execution of the voting trust agreement? Legal Opinion: Upon the execution of the voting trust agreement transferring the shares to 2 trustee (Bank of the Philippines, Inc), the board of the directors of Alfa Hotel Corporation already ceased to be such, having lost legal title over the shares. Therefore, the board of directors Gf Alfa Hotel Corporation can no longer be liable to third persons for they are no longer the proper party in interest against whom third persons may file a claim: In this case, the trustee {Bank of the Philippines, Inc. shall be the proper party in interest against whom third persons may file a clai ‘ation still liable to third persons upon the Dissolution of a Corporation Corporations are dissolved as follows: th the Securities and Exchange Commission. (1) Voluntarily, by filing the proper papers witl a hearing is required where No hearing is required if there are no creditors affected but creditors are affected. (2) Involuntarily upon verified complaint filed with the Securities and Exchange Commission, upon notice and hearing, and on grounds authorized by law as in the following: (a) Fraud or misrepresentation as to the paid up capital of the corporation; (b) Ultra vires acts which are persistent despite SEC warnings (Republic vs. Security Credit & Acceptance Corporation, 19 SCRA 58 [1967]); (C) Continuous inactivity of the corporation for at least 5 years; (a) Refusal to adopt or approve by-laws (P-D. 902-A); and (c) Serious dissension in the corporation. (8) Expiration of the term of the Corporation; (4). Shortening of the corporate term under Sec, 120 of the Corporation Code; (6) Failure to organize and commence business within two (2) years from the date of issuance of certificate of incorporation; or (6) Legislative dissolution.® Corporate Liquidation ‘After the dissolution of the corporation, it continues to exist as a body corporate, but only for the purpose of enabling it to settle and close its affairs but not for the purpose of continuing the business for which it was established. The liquidation of partnership affairs shall be for a period of three (3) years.” A dissolved corporation cannot extend corporate life during the 3-year liquidation period by amendment of its articles of incorporation extending corporate term." However, if a corporation has a pending case which it filed during the 3-year liquidation period and it is “Ramon C. Lee etal. vs. The Hon. Court of Appeals eta, G.R. No. 93695, February 4, 1992. “ The Corporation Code Explained, by Jose N. Nolledo, 1994 Reprint, p. 154. * Section 122, Corporation Code ofthe Philipines. * adnambra Cigar vs. Secures and Exchange Commission, 24 SCRA 269 1968} — 6 ——Still pending after said period, then the stockholders should meet and transfer all the rights o action to the trustee so that he can continue the case until its termination.* Finally, it has been held that even after the lapse of the 3-year liquidation period, the officers and directors of the defunct corporation are the proper parties in interest insofar as they may be held personally liable for the unpaid deficiency tax assessment made against the defunct corporation.” Government Requirements in Doing Business as a Partnership or Corporation Requirements for Registration of Business Name under DTI For Partnership — Articles of Partnership; Birth Certificate of all the Partners with their 2X2 pictures For Corporation — Articles of Incorporation; By-laws; Certificate of Incorporation; Birth Certificates of all the Incorporators with their 2X2 pictures Requirements for Acquiring a Business Permit with the City or Municipal Mayor * . Barangay/Police Clearance * Certificate of Registration with the DTI * Articles of Partnership; Articles of Incorporation and By-laws * Payment of Fees (depending on the capital stock or amount of capital declared) Requirements for Registration of Business under the Bureau of Internal Revenue * Toacquire a Tax Identification Number * Business Permit from the Local Government Unit Concerned * Certificate of Registration with the DTI * Articles of Partnership; Articles of Incorporation and By-laws ‘* 500 Annual Registration Fee Requirements for Registration of at the Social Security System To acquire an SSS Number and PhilHealth Number Business Permit from the Local Government Unit concerned; * Certificate of Registration with the DTI Articles of Partnership; Articles of Incorporation and By-Laws +i Guide Questions 3+ Try to ansiver the fllowing questions to give you a better understinding ofthe laws discussed in his capt 1. Whatis the concept of partnership? How does a partnership differ from a corporation? 2 What are the different kinds of partnership? 3. 5 National Abaca Corporation vs. Pore, 2 SCRA89 [1961], Tan Tiong Bio vs. BIR, 100 Phi 86 [1956]. — 6 —_een 10. 11. 12, 13. 14. 15. 16. 17. 18. 19. 20. Serendipity Walk Walk outside the campus perimeter for 10 minutes and make the following observations. EntrePinoy Icon Invite in your class a community-based entrepreneur f who has built his or her business as either a partnership or jf corporation. What are the advantages of a partnership? What are the disadvantages of a partnership? What are the advantages of a corporation? What are the disadvantages of a corporation? ‘What are the formalities in forming a partnership? What is the concept of a corporation? What are the different kinds of corporation? Explain the trust fund doctrine with respect to the liability of the persons. What are the formalities required in forming a corporation? What are the steps in creating and organizing a corporation? What is the main function of a board of director in a stock corporation? What are the liabilities of the board of directors? What are the qualifications of a board of director in a stock corporation? What are the government requirements in forming a corporation? What is the difference between a general partnership and a limited partnership? What are the contents in the articles of incorporation? What are the usual contents of a corporation's by-laws? Explain the process of dissolving a partnership. Explain the process of dissolving a corporation. corporation to third , #36 CLASS ACTIVITIES 3s What establishments around the campus are partnerships and corporations? ‘What are your assumptions? : Would it be more advantageous if an entrepreneur formed a corporation? How did the entrepreneur start the business? ‘What were the contributions of the partners or incorporators? How do they divide profits? What problems do they encounter in the business? |: How do they solve them? — 67 ——os TM Mei Yh oar Top 1,000 Corporations ‘Try to get listing from the Internet of the f0P | 1,000 corporations in the Philippines , * Identify companies that are affiliated with one another. * Whatis an affiliate? L RESEARCH PROJECT ic id its entire equity on th a la Hotels Corporation s0! Man en Nedra te caners of Onkoood Premier Ayala Center, ie i Cs i istrict, toa Singapore compan d tin the central business distric m1 y Sakooud bet remembered for the failed mutiny several years back. Sui the Internet under the heading “Ayala Sells Oakwood to Ascott.” Discuss in class how corporations sell their shares of stock as an exit strategy, Dy you think Ayala Hotels Corporation did. the right decision? Why? Wha are the possible reasons for selling a profitable property in a prime location like Oakwood? Do you think the property will be more profitable with th brand Ascott after the takeover? Justify your answer.