Corpo 3rd Exam TSN 2020

Atty. Raymund Christian S.
Ong Abrantes BUSINESS ORGANIZATION II Ateneo de Davao University College of Law

February 20, 2020 by EJ Claros [3] Labor performed for or services actually rendered to the
corporation;
TITLE VII
STOCKS AND STOCKHOLDERS It doesn't include future services. It has to be those services actually
rendered or performed.
SEC. 59. Subscription Contract. – Any contract for the acquisition of
[4] Previously incurred indebtedness of the corporation;
unissued stock in an existing corporation or a corporation still to be
formed shall be deemed a subscription within the meaning of this Title,
There are some some restructuring modes where they would
notwithstanding the fact that the parties refer to it as a purchase or some
like to capitalize the debts so ang ginagawa i-reclass lang sya. The
other contract.
common term is reclassification. Re-class the debts of the corporation
to equity. Debt to Equity reclassification.
Please take note no matter how you call that contract if it is
for the acquisiton of unissued stock in a n existin corporation or a Instead na bayaran ang corporation mag iissue nalang sya ng stocks.
corporation still to be formed that's considered a subscription contract So the creditors will now be stockholders.
within section 59 of the revised corporation code.
[5] Amounts transferred from unrestricted retained earnings
SEC. 60. Pre-incorporation Subscription. – A subscription of shares to stated capital;
in a corporation still to be formed shall be irrevocable for a period of at
least six (6) months from the date of subscription, unless all of the other This is one of the modes wherein if you want to have more
subscribers consent to the revocation, or the corporation fails to capital then you unstrestricted earnings, you transfer it to the capital.
incorporate within the same period or within a longer period stipulated in One reason for companies or corporations to actually reclass of transfer
the contract of subscription. the unrestricted capital is to avoid the IAET. In IAET, in your taxation, if
your accumulated earnings beyond your reasonable needs it can be
No pre-incorporation subscription may be revoked after the articles of subjected to IAET Tax.
incorporation is submitted to the Commission.
In order to avoid that, one of the restructuring methods that
they do is to reclassify.
SEC. 61. Consideration for Stocks. – Stocks shall not be issued for a [6] Outstanding shares exchanged for stocks in the event of
consideration less than the par or issued price thereof. Consideration for reclassification or conversion;
the issuance of stock may be:
So may mga splitting of stocks.
[1] Actual cash paid to the corporation;
[7] Shares of stock in another corporation; and/or
[2] Property, tangible or intangible, actually received by the
corporation and necessary or convenient for its use and lawful purposes [8] Other generally accepted form of consideration.
at a fair valuation equal to the par or issued value of the stock issued;
Where the consideration is other than actual cash, or consists of
[3] Labor performed for or services actually rendered to the intangible property such as patents or copyrights, the valuation
corporation; thereof shall initially be determined by the stockholders or the
board of directors, subject to the approval of the Commission.
[4] Previously incurred indebtedness of the corporation;
If your consideration is other than cash, the risk there is that
[5] Amounts transferred from unrestricted retained earnings to there is a tendency there that it might be overvalued. Then you might be
stated capital; issued shares lower than the par value. You have the risk of issuing
watered stocks.
[6] Outstanding shares exchanged for stocks in the event of
reclassification or conversion; Kasi kapag hindi cash it's not 1:1. Even if your par value is
100 nagbigay ka ng cash okay lang kasi 100php. So let's say nagbigay
[7] Shares of stock in another corporation; and/or ka ng ganito, in exchange for 100 for value, there is a risk that the current
fair market value of this might not be 100php. You might violate the trust
[8] Other generally accepted form of consideration. fund doctrine.
Where the consideration is other than actual cash, or consists of To avoid that risk, the valuation may be initially determined by
intangible property such as patents or copyrights, the valuation thereof the BOD but it is subject to the approval of the SEC. So dumadaan
shall initially be determined by the stockholders or the board of directors, talaga yan sa confirmation ng SEC.
subject to the approval of the Commission.
The SEC will look at the zonal value that is determined by the
BIR or the appraisal report. Those are the things that you have to
Consideration for stocks: n exchange for the issuance of stock consider when you issue other than cash consideration for the shares.
what can you give to the corporation.
The issued price of no-par value shares may be fixed in the articles
1] Actual cash paid to the corporation; of incorporation or by the board of directors pursuant to authority
conferred by the articles of incorporation or the bylaws, or if not so
So you give cash to the corporation and the corporation issues fixed, by the stockholders representing at least a majority of the
you a stock. That's a basic and most common consideration for issuance outstanding capital stock at a meeting duly called for the purpose.
of stock.
SEC. 62. Certificate of Stock and Transfer of Shares. – The capital
[2] Property, tangible or intangible, actually received by the stock of corporations shall be divided into shares for which certificates
corporation and necessary or convenient for its use and lawful signed by the president or vice president, countersigned by the secretary
purposes at a fair valuation equal to the par or issued value of the or assistant secretary, and sealed with the seal of the corporation shall
stock issued; be issued in accordance with the bylaws.
Please take note that you cannot just give any tangible Shares of stock so issued are personal property and may be transferred
property. It must be actually received by the corporation and must be by delivery of the certificate or certificates indorsed by the owner, his
necessary for or convenient for its use and lawful purposes. Please take
note of the qualifications.
Apura, Bayquen, Cabarlo, Claros, Fabe, Flores, Lagat, Latorzam, Maligad, Puerin | III-Manresa 2019-2020 1
Atty. Raymund Christian S. Ong Abrantes BUSINESS ORGANIZATION II Ateneo de Davao University College of Law
attorney-in-fact, or any other person legally authorized to make the TAN V. SEC
transfer. 206 SCRA 740
No transfer, however, shall be valid, except as between the parties, until FACTS:
the transfer is recorded in the books of the corporation showing the Alfonso Tan was an incorporator of Visayan Educational
names of the parties to the transaction, the date of the transfer, the Supply Corporation. Initially, 400 shares of stock were in his name,
number of the certificate or certificates, and the number of shares represented by Stock Certificate Number 2. Alfonso sold 50 shares to
transferred. his brother Angelo. Because of the mentioned transactions, Stock
Certificate Number 2 was cancelled, and the corresponding stock
You have your stock and transfer book. It's like a journal. certificates 6 and 8 were issued, with certificate 6 representing 50 shares
Which shows the cancelled certificate, the issued certificates and your sold to Angelo, and certificate 8 representing the 350 shares for the
have the ledger. It shows the movement of the stocks. So if I am the petitioner Alfonso Tan.
stockholder and is issued a cerficate of stock and I sell it to someone
before it will be officially recorded in the corporation books as already Alfonso Tan was asked to endorse the cancelled Stock
sold, they have to surrender it. Certificate Number 2. However, Alfonso did not sign Stock Certificate
Number 2 and only returned Stock Certificate Number 8.
Because it will be cancelled and there will be an issuance of
a new certificate of shares given to the buyer. So you cannot just sell Later on, Alfonso Tan withdrew from the corporation because
shares of stock by just giving your old certificate of shares of stock. It he was dislodged as president. Due to the withdrawal, the cancellation
has to be cancelled and a new one is to be issued in favor of the buyer. of Stock Certificate 2 and 8 was effected and recorded in the stock and
transfer book. Alfonso then filed a case with SEC, questioning the
In reality for family owned corporations, they don't really issue cancellation of his aforesaid Stock Certificates 2 and 8.
certificate of stocks. But if you are taking about publicly listed
companies, companies that practices good corporatte housekeeping Petitioner argues that he was deprived of his shares despite
meron talaga yang ini-issue na certificate of shares. the non-endorsement or surrender of Stock Certificates 2 and 8 which is
contrary to Section 63 of the Corporation Code which requires:
What should the certificate of stock state?
It must state: Shares of stock so issued are personal property and may be
1. The number of shares that you have. transferred by delivery of the certificate or certificates indorsed by the
2. The par value owner, his attorney-in-fact, or any other person legally authorized to
3. Your name. make the transfer.
4. Stockholders
5. Must be signed by the president and vice president
6. Countersigned by the secretary. ISSUE: Whether or not the cancellation of Stock Certificate 2 and the
7. Must contain the corporate seal. subsequent issuance of Stock Certificate Number 8 was null and void.
RULING: NO.
Is there a required format?
No. It's the prerogative of the corporation as long as it contains the seal The cancellation and the transfers of stock were valid. Section 63 on
of the corporation and those required signatories. delivery uses the word “may” and not “shall” which mean that it is
permissive. Also, there was delivery.
Please take not that the signature of the secretary is very
important because the one who has custody of the stock and transfer There was a delivery of Stock Certificate No. 2 made by Alfonso Tan to
book is the secretary. the corporation before it was replaced with Stock Certificate No. 6 for 50
shares to Angelo Tan and Stock Certificate No. 8 for 350 shares to the
“The Commission may require corporations whose securities are Alfonso. There was already delivery of the deliberately unendorsed
traded in trading markets and which can reasonably demonstrate Stock Certificate No. 2, which made the issuance of Stock Certificate
their capability to do so to issue their securities or shares of stocks Nos. 6 and 8 valid. All the acts required for the transferee to exercise its
in uncertificated or scripless form in accordance with the rules of rights over the acquired stocks were attendant and even the corporation
the Commission.” was protected from other parties, considering that the said transfer was
earlier recorded or registered in the corporate stock and transfer book.
You call this uncertificated. Because there is no actual
certificate for that. It is just reported. Pag trading ka, the Commision can Furthermore, it is necessary to delineate the function of the stock itself
actually require corporations na dadaan lang sa brokers yun. Because form the actual delivery or endorsement of the certificate of stock itself
these are heavily traded, noh. That is also the precise reason why the because a certificate of stock is not necessary to render one a
taxation of this is different. stockholder in a corporation. The certificate is not stock in the
corporation but is merely evidence of the holder’s interest and status in
“No shares of stock against which the corporation holds any the corporation, his ownership of the share represented thereby, but is
unpaid claim shall be transferable in the books of the corporation.” not in law the equivalent of such ownership. It expresses the contract
between the corporation and the stockholder, but is not essential to the
Mind you, you can only get a certificate of shares once you fully paid existence of a share in stock or the nation of the relation of the
your subscribed shares. Hindi pupwedeng 50% pa lang binayad mo shareholder to the corporation.
tapos you require the corporation to issue a certificate. Hindi yan pwede.
Because what the law requires is that you must fully pay. Once you fully In Fleisher v. Botica Nolasco Co., Inc., it was held that a by-law which
pay, that's the time to demand the certificate. prohibits a transfer of stock without the consent or approval of all the
stockholders or of the president or board of directors is illegal as
Q:Papaano malalaman ng corporation? constituting undue limitation on the right of ownership and in restraint of
A:Sa stock and transfer book may nakalgay dun. It's in the ledger. trade.
Magkano yung binayad, when is the next installment for payment
(makikita sa subscription contract). Discussion:
Q: What if walang nakalagay kung kelan magbabayad ng next Q: Is Certificate of Stock a negotiable instrument?
payment?
A: No. Certificate of stock is not a negotiable instrument. "Although it is
A: The rule is upon the call of the BOD. The BOD may say that we need sometime regarded as quasi-negotiable, in the sense that it may be
capital, you pay na. transferred by endorsement, coupled with delivery, it is well-settled that
it is non-negotiable, because the holder thereof takes it without prejudice
to such rights or defenses as the registered owner/s or transferror's even in the absence of the actual certificate, mere recording will suffice
creditor may have under the law, except insofar as such rights or for her to exercise all stockholder rights, including the right to file a
defenses are subject to the limitations imposed by the principles derivative suit in the name of the corporation.
governing estoppel." (De los Santos vs. McGrath, 96 Phil. 577)
ISSUE: Whether or not there is a valid transfer of stock to Bitong?
For you to have the rights of a stockholder, it is not necessary
have the certificate of shares because remember that once you are a RULING: NO.
subscriber you have the rights of the stockholder. Kahit subscriber ka
pa, kahit hindi ka pa fully paid you have the rights of a stockholder. Sec 63 of the Corporation Code envisions a formal certificate of stock
which can be issued only upon compliance with certain requisites:
TENG V. SEC
784 SCRA 216 [1] First, the certificates must be signed by the president or vice-
president, countersigned by the secretary or assistant secretary, and
FACTS: sealed with the seal of the corporation. A mere typewritten statement
Ting Ping purchased shares of TCL Sales Corporation (TCL) from Chiu, advising a stockholder of the extent of his ownership in a corporation
his brother Teng Ching Lay (President and operations manager of TCL), without qualification and/or authentication cannot be considered as a
and Maluto. Teng Ching died. Ting Ping, to protect his shareholdings formal certificate of stock.
with TCL, requested petitioner Teng (TCL's Corporate Secretary), to
enter the transfer in the Stock and Transfer Book of TCL for the proper [2] Second, delivery of the certificate is an essential element of
recording of his acquisition. He also demanded the issuance of new its issuance. Hence, there is no issuance of a stock certificate where it
certificates of stock in his favor. TCL and Teng refused despite repeated is never detached from the stock books although blanks therein are
demands. properly filled up if the person whose name is inserted therein has no
control over the books of the company.
Ting Ping filed mandamus with the SEC which was granted. SEC issued
a writ of execution. Teng argued that prior to registration of stocks in the [3] Third, the par value, as to par value shares, or the full
corporate books, it is mandatory that the stock certificates are first subscription as to no par value shares, must first be fully paid.
surrendered because a corporation will be liable to a bona fide holder of
the old certificate if, without demanding the said certificate, it issues a [4] Fourth, the original certificate must be surrendered where the
new one. person requesting the issuance of a certificate is a transferee from a
stockholder.
On the other hand, Ting Ping argued that Section 63 of the Corporation
Code does not require the surrender of the stock certificate to the The certificate of stock itself once issued is a continuing affirmation or
corporation, nor make such surrender an indispensable condition before representation that the stock described therein is valid and genuine and
any transfer of shares can be registered in the books of the corporation. is at least prima facie evidence that it was legally issued in the absence
The only limitation imposed by Section 63 is when the corporation holds of evidence to the contrary. However, this presumption may be rebutted.
any unpaid claim against the shares intended to be transferred. Aside from petitioner’s own admissions, several corporate documents
disclose that the true party-in-interest is not petitioner but JAKA. It
ISSUE: Whether or not the surrender of the certificates of stock to the should be emphasized that JAKA executed, a deed of sale over 1,000
corporation is a requisite before registration of the transfer may be made Mr. & Ms. shares in favor of respondent Eugenio D. Apostol. On the
in the corporate books and for the issuance of new certificates in its same day, respondent Apostol signed a declaration of trust stating that
stead she was the registered owner of 1,000 Mr. & Ms. shares covered by a
Certificate of Stock. And, there is nothing in the records which shows
RULING: NO. that JAKA had revoked the trust it reposed on respondent Eugenia D.
Apostol. Neither was there any evidence that the principal had
To compel Ting Ping to deliver to the corporation the certificates as a requested her to assign and transfer the shares of stock to petitioner. In
condition for the registration of the transfer would amount to a restriction fine, the records are unclear on how petitioner allegedly acquired the
on the right of Ting Ping to have the stocks transferred to his name, shares of stock of JAKA.
which is not sanctioned by law.
Thus, for a valid transfer of stocks, the requirements are as follows:
In a sale of shares of stock, physical delivery of a stock certificate is one
of the essential requisites for the transfer of ownership of the stocks [a] There must be delivery of the stock certificate;
purchased." The delivery contemplated in Section 63, however, pertains
to the delivery of the certificate of shares by the transferor to the [b] The certificate must be endorsed by the owner or his attorney-
transferee, that is, from the original stockholder named in the certificate in-fact or other persons legally authorized to make the transfer; and,
to the person or entity the stockholder was transferring the shares to,
whether by sale or some other valid form of absolute conveyance of [c] to be valid against third parties, the transfer must be recorded
ownership. "[S]hares of stock may be transferred by delivery to the in the books of the corporation.
transferee of the certificate properly indorsed. Title may be vested in the
transferee by the delivery of the duly indorsed certificate of stock." At most, in the instant case, petitioner has satisfied only the third
requirement. Compliance with the first two requisites has not been
Nevertheless, to be valid against third parties and the corporation, the clearly and sufficiently shown. Bitong is not a stockholder and no
transfer must be recorded or registered in the books of corporation. personality to file the derivative suit.
Upon registration of the transfer in the books of the corporation, the
transferee may now then exercise all the rights of a stockholder, which February 20, 2020 by Carla Louise Bayquen 27:00 - 54:00
include the right to have stocks transferred to his name.
BITONG V. CA
BITONG V. CA 292 SCRA 503
292 SCRA 503
Sec 63 of the Corporation Code envisions a formal certificate of stock
FACTS: which can be issued only upon compliance with certain requisites:
Petitioner Bitong allegedly acting for the benefit of Mr. & Ms. Co. filed a
derivative suit before the SEC against respondent spouses Apostol. First, the certificates must be signed by the president or vice-president,
Respondent spouses moved to dismiss on the ground that petitioner had countersigned by the secretary or assistant secretary, and sealed with
no legal standing to bring the suit as she was merely a holder-in-trust of the seal of the corporation. A mere typewritten statement advising a
shares of JAKA Investments which continued to be the true stockholder stockholder of the extent of his ownership in a corporation without
of Mr. & Ms. Petitioner contends that she was a holder of proper stock qualification and/or authentication cannot be considered as a formal
certificates and that the transfer was recorded. She further contends that certificate of stock.
Second, delivery of the certificate is an essential element of its issuance. Whether or not the stock certificates may be issued for the
Hence, there is no issuance of a stock certificate where it is never equivalent of the shares partially paid in subscription, even if the
detached from the stock books although blanks therein are properly filled whole subscription has yet to be fully paid or cannot be fully paid
up if the person whose name is inserted therein has no control over the by the subscriber.
books of the company.
Example: Shares subscribed – 1000, actual paid-up shares – 500
Third, the par value, as to par value shares, or the full subscription as to Can there be a certificate of stock issued for the 500 shares already
no par value shares, must first be fully paid. paid? NO
Fourth, the original certificate must be surrendered where the person The indivisibility is not as to the share but to the subscription contract.
requesting the issuance of a certificate is a transferee from a You cannot divide the 1000.
stockholder.
Another issue is whether or not for example I only paid 50% of the
The certificate of stock itself once issued is a continuing affirmation or subscription and there is declaration of dividends. Does the subscriber
representation that the stock described therein is valid and genuine and have the right to dividends even if he has not yet fully paid his
is at least prima facie evidence that it was legally issued in the absence subscription? YES
of evidence to the contrary. However, this presumption may be rebutted.
Once you subscribe, even if not fully paid, you already have the rights
Thus, for a valid transfer of stocks, the requirements are as follows: of a shareholder, you have a right to the dividends.
a) There must be delivery of the stock certificate; Another issue: Can you use the dividends as payment to the unpaid
subscription? NO
b) The certificate must be endorsed by the owner or his attorney-in-fact
or other persons legally authorized to make the transfer; and, The only time that cash dividends may be applied to unpaid subscription
is when the stocks are declared delinquent. If it is not delinquent you
c) to be valid against third parties, the transfer must be recorded in the cannot use the cash dividends to pay for the unpaid subscription.
books of the corporation.
This is a good SEC opinion because we do not have jurisprudence that
At most, in the instant case, petitioner has satisfied only the third explains that.
requirement. Compliance with the first two requisites has not been
clearly and sufficiently shown. Bitong is not a stockholder and no SEC OPINION
personality to file the derivative suit. January 08, 1997
Q: Can you pledge a certificate of share? What are the remedies just in case for example the Corporate Secretary
A: Yes does not want to issue certificate of shares? You’re already fully paid.
Q: What’s a pledge? • Suit for specific performance based on an express or implied contract
A: Art. 2085. The following requisites are essential to the contracts of which is the subscription contract
pledge and mortgage: • Alternative relief by way of damages if specific performance cannot be
done
(1) That they be constituted to secure the fulfillment of a principal • Petition for mandamus to compel the issuance of a certificate
obligation; • Rescission of the contract of subscription (plus damages)
(2) That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the Section 63. Issuance of Stock Certificates. – No certificate of stock
free disposal of their property, and in the absence thereof, shall be issued to a subscriber until the full amount of the subscription
that they be legally authorized for the purpose. together with interest and expenses (in case of delinquent shares), if any
is due, has been paid.
Third persons who are not parties to the principal obligation may secure
the latter by pledging or mortgaging their own property. This is the principle of what we have just discussed.
SEC OGC OPINION 16-05

March 31, 2016 Section 64. Liability of Directors for Watered Stocks. – A director or
officer of a corporation who:
Case: Rural Bank of Maasin (a) consents to the issuance of stocks for a consideration less than its
par or issued value;
This is a request for an opinion from the SEC with rregard the following (b) consents to the issuance of stocks for a consideration other than
issues: cash, valued in excess of its fair value; or
(c) having knowledge of the insufficient consideration, does not file a
1.) Can the BOD make calls for payment on an installment basis? written objection with the corporate secretary, shall be liable to the
2.) Indivisibility of the subscription contract corporation or its creditors, solidarily with the stockholder concerned for
3.) Payment of the balance of unpaid subscription, delinquency shares, the difference between the value received at the time of issuance of the
and delinquency sales stock and the par or issued value of the same.
Specifically, they tried to question whether or not calls for the balance Discussion on (b): Remember when we talked about consideration.
of subscriptions may be made by installments. You can give non-cash assets, but it must be valued near or exactly the
par value or higher than par value, otherwise, you will be liable for
In the event that the subscription contract does not contain any due date watered stocks.
for the unpaid balance, can the BOD collect in installments? YES
Nothing restricts them. Discussion on (c): BOD who subsequently knew the watered stock. If
there is watered stock issued without your consent and you eventually
The calls for the payment of the balance of the subscription maybe made knew about it, file a written objection with the corporate secretary,
on installment, because the Code itself provides that the contract of the otherwise, you will be solidarily liable.
subscription or the call by the BOD, as the case may be, may require
the payment of the entire unpaid subscription or only a certain
Section 65. Interest on Unpaid Subscriptions. – Subscribers to
percentage thereof on the date specified for payment.
stocks shall be liable to the corporation for interest on all unpaid
subscriptions from the date of subscription, if so required by and at the corporation as treasury shares and may be disposed of by said
rate of interest fixed in the subscription contract. If no rate of interest is corporation in accordance with the provisions of this Code.
fixed in the subscription contract, the prevailing legal rate shall apply.
What if you have unpaid subscription, and after the call, you still haven’t
Q: Are there interest on the remaining balance if you paid partially? paid. What will be done with your paid shares? That is this section.
A: Yes, if there is a written word interest in the subscription contract, if it
is silent, there can be no interest. This is also pursuant to your civil code If you are the corporation, you have to follow the procedure of
provisions that interests must be stipulated in writing. If there is interest, delinquency sale, otherwise it should be void.
and no amount of interest was stipulated, that is the time that the legal
rate of interest may be used. The BOD can retract the notice of sale.
BOD’s Call “The highest bidder” - The stock so purchased shall be transferred to
such purchaser in the books of the corporation and a certificate for
Section 66. Payment of Balance of Subscription. – Subject to the
such stock shall be issued in the purchaser’s favor. The remaining
provisions of the subscription contract, the board of directors may, at
shares, if any, shall be credited in favor of the delinquent stockholder
any time, declare due and payable to the corporation unpaid
subscriptions and may collect the same or such percentage thereof, in who shall likewise be entitled to the issuance of a certificate of stock
either case, with accrued interest, if any, as it may deem necessary. covering such shares.
Payment of unpaid subscription or any percentage thereof, together with Example: Let’s you have subscribed to 1000 shares and you are
any interest accrued shall be made on the date specified in the delinquent for 600.
subscription contract or on the date stated in the call made by the board.
Failure to pay on such date shall render the entire balance due and If one bids 600 pesos for 200 shares and one bids 600 pesos for 100
payable and shall make the stockholder liable for interest at the legal shares, the winner will be the 100 shares (the lower shares).
rate on such balance, unless a different interest rate is provided in the
subscription contract. The interest shall be computed from the date So what happens to the 900 shares? The remaining shares, if any,
specified, until full payment of the subscription. If no payment is made shall be credited in favor of the delinquent stockholder who shall
within thirty (30) days from the said date, all stocks covered by the likewise be entitled to the issuance of a certificate of stock covering
subscription shall thereupon become delinquent and shall be subject to such shares.
sale as hereinafter provided, unless the board of directors orders
otherwise. This is an exception of the indivisibility of the subscription contract.
In this instance, the subscription is now divided into two. The one is
given to the highest bidder while the other to the original purchaser.
If there is a call, and you did not pay at the time of the call, then you can
be held liable for interest, interest by way of damages.
The corporation may bid for the delinquent shares. Take note: Title to
all the shares of stock covered by the subscription shall be vested in
Circumstance which makes a stockholder delinquent: If no payment is
made within thirty (30) days from the said date, all stocks covered by the the corporation as treasury shares and may be disposed of by said
subscription shall thereupon become delinquent. corporation in accordance with the provisions of this Code.
Equally important is: When is the time the delinquent stockholder gets zero? That’s when
Delinquency Sale it is sold to the corporation. Being placed in the treasury shares, the
consequence is that it will not be cancelled, rather it may be issued. It
Section. 67. Delinquency Sale. – The board of directors may, by may be sold to another stockholder in the future.
resolution, order the sale of delinquent stock and shall specifically state
the amount due on each subscription plus all accrued interest, and the When a Delinquency Sale be Questioned
date, time and place of the sale which shall not be less than thirty (30)
days nor more than sixty (60) days from the date the stocks become Section 68. When Sale May be Questioned. – No action to recover
delinquent. delinquent stock sold can be sustained upon the ground of irregularity
or defect in the notice of sale, or in the sale itself of the delinquent stock,
Notice of the sale, with a copy of the resolution, shall be sent to every unless the party seeking to maintain such action first pays or tenders to
delinquent stockholder either personally, by registered mail, or through the party holding the stock the sum for which the same was sold, with
other means provided in the bylaws. The same shall be published once interest from the date of sale at the legal rate. No such action shall be
a week for two (2) consecutive weeks in a newspaper of general maintained unless a complaint is filed within six (6) months from the date
circulation in the province or city where the principal office of the of sale.
corporation is located.
This is an instance where you pay under protest. Please take note of
Unless the delinquent stockholder pays to the corporation, on or before the prescription, it must be within six (6) months from the date of sale.
the date specified for the sale of the delinquent stock, the balance due
on the former’s subscription, plus accrued interest, costs of
Section 69. Court Action to Recover Unpaid Subscription. – Nothing
advertisement and expenses of sale, or unless the board of directors
in this Code shall prevent the corporation from collecting through court
otherwise orders, said delinquent stock shall be sold at a public auction
action, the amount due on any unpaid subscription, with accrued
to such bidder who shall offer to pay the full amount of the balance on
interest, costs and expenses.
the subscription together with accrued interest, costs of advertisement
and expenses of sale, for the smallest number of shares or fraction of a
share. The stock so purchased shall be transferred to such purchaser in The corporation is not precluded to pursue other remedies to collect
the books of the corporation and a certificate for such stock shall be what was not paid because at the end of the day it is based on a
issued in the purchaser’s favor. The remaining shares, if any, shall be subscription contract. You can actually file a collection case for the
credited in favor of the delinquent stockholder who shall likewise be unpaid subscribed shares.
entitled to the issuance of a certificate of stock covering such shares.
Effect of Delinquency; What Happens to a Delinquent Stockholder
Should there be no bidder at the public auction who offers to pay the full
Section 70. Effect of Delinquency. – No delinquent stock shall be
amount of the balance on the subscription together with accrued voted for, be entitled to vote, or be represented at any stockholder’s
interest, costs of advertisement, and expenses of sale, for the smallest meeting, nor shall the holder thereof be entitled to any of the rights of a
number of shares or fraction of a share, the corporation may, subject to
stockholder except the right to dividends in accordance with the
the provisions of this Code, bid for the same, and the total amount due provisions of this Code, until and unless payment is made by the holder
shall be credited as fully paid in the books of the corporation. Title to all of such delinquent stock for the amount due on the subscription with
the shares of stock covered by the subscription shall be vested in the
accrued interest, and the costs and expenses of advertisement, if any.
If you are a delinquent stockholder, you are stripped off all the rights of
Section 43.1. A corporation whose securities are registered pursuant to
a stockholder, except, the right to dividends. That is the only remaining
this Code or listed on securities exchange may:
right you have. (a) If so resolved by its Board of Directors and agreed by a shareholder,
investor or securities intermediary, issue shares to, or record the transfer
This is an exception where you can apply your dividends as payment for
of some or all its shares into the name of said shareholders, investors
your unpaid subscription. or, securities intermediary in the form of uncertified securities. The use
of uncertified securities in these circumstances shall be without
Section 71. Rights of Unpaid Shares, Nondelinquent. – Holders of prejudice to the rights of the securities intermediary subsequently to
subscribed shares not fully paid which are not delinquent shall have all require the corporation to issue a certificate in respect of any shares
the rights of a stockholder. recorded in its name; x x x
What happens if the Certificate is Lost or Destroyed (Procedure)? A corporation whose security is registered, we are talking about public
companies or publicly listed companies. These are the ones who are
Section 72. Lost or Destroyed Certificates. – The following procedure required to register their securities.
shall be followed by a corporation in issuing new certificates of stock in
lieu of those which have been lost, stolen or destroyed: This is the provision where transfer is made by broker without the
(a) The registered owner of a certificate of stock in a corporation or such surrendering of the certificate of stocks.
person’s legal representative shall file with the corporation an affidavit in
triplicate setting forth, if possible, the circumstances as to how the
certificate was lost, stolen or destroyed, the number of shares TITLE VIII
CORPORATE BOOKS AND RECORDS
represented by such certificate, the serial number of the certificate and
the name of the corporation which issued the same. The owner of such
certificate of stock shall also submit such other information and evidence What are the Books to be Kept?
as may be deemed necessary; and Section 73. Books to be Kept; Stock Transfer Agent. – Every
(b) After verifying the affidavit and other information and evidence with corporation shall keep and carefully preserve at its principal office all
the books of the corporation, the corporation shall publish a notice in a information relating to the corporation including, but not limited to:
newspaper of general circulation in the place where the corporation has (a) The articles of incorporation and bylaws of the corporation and all
its principal office, once a week for three (3) consecutive weeks at the their amendments;
expense of the registered owner of the certificate of stock which has (b) The current ownership structure and voting rights of the corporation,
been lost, stolen or destroyed. The notice shall state the name of the including lists of stockholders or members, group structures, intra-group
corporation, the name of the registered owner, the serial number of the relations, ownership data, and beneficial ownership;
certificate, the number of shares represented by such certificate, and (c) The names and addresses of all the members of the board of
shall state that after the expiration of one (1) year from the date of the directors or trustees and the executive officers;
last publication, if no contest has been presented to the corporation (d) A record of all business transactions;
regarding the certificate of stock, the right to make such contest shall be (e) A record of the resolutions of the board of directors or trustees and
barred and the corporation shall cancel the lost, destroyed or stolen of the stockholders or members;
certificate of stock in its books. In lieu thereof, the corporation shall issue (f) Copies of the latest reportorial requirements submitted to the
a new certificate of stock, unless the registered owner files a bond or Commission; and
other security as may be required, effective for a period of one (1) year, (g) The minutes of all meetings of stockholders or members, or of the
for such amount and in such form and with such sureties as may be board of directors or trustees. Such minutes shall set forth in detail,
satisfactory to the board of directors, in which case a new certificate may among others: the time and place of the meeting held, how it was
be issued even before the expiration of the one (1) year period provided authorized, the notice given, the agenda therefor, whether the meeting
herein. If a contest has been presented to the corporation or if an action was regular or special, its object if special, those present and absent,
is pending in court regarding the ownership of the certificate of stock and every act done or ordered done at the meeting. Upon the demand
which has been lost, stolen or destroyed, the issuance of the new of a director, trustee, stockholder or member, the time when any director,
certificate of stock in lieu thereof shall be suspended until the court trustee, stockholder or member entered or left the meeting must be
renders a final decision regarding the ownership of the certificate of noted in the minutes; and on a similar demand, the yeas and nays must
stock which has been lost, stolen or destroyed. be taken on any motion or proposition, and a record thereof carefully
Except in case of fraud, bad faith, or negligence on the part of the made. The protest of a director, trustee, stockholder or member on any
corporation and its officers, no action may be brought against any action or proposed action must be recorded in full upon their demand.
corporation which shall have issued certificate of stock in lieu of those
lost, stolen or destroyed pursuant to the procedure above-described.
B and C are covered by the GIS (General Information Sheet) it includes
Take note of the requirements, that is very procedural. Just take note of the beneficial ownership.
this: when you file an affidavit for replacement, are you going to be
issued a new certificate of shares? The answer is NO. Who can inspect the Corporate Records?
Corporate records, regardless of the form in which they are stored, shall
In lieu thereof, the corporation shall issue a new certificate of stock, be open to inspection by any director, trustee, stockholder or member of
unless the registered owner files a bond or other security. You have to the corporation in person or by a representative at reasonable hours on
file a bond first, or other security. business days, and a demand in writing may be made by such director,
trustee or stockholder at their expense, for copies of such records or
What’s the risk? Anyone can say that the certificate is lost when in truth, excerpts from said records.
it has been sold. That’s why there should be a bond.
Except in case of fraud, bad faith, or negligence on the part of the Just take note:
corporation and its officers, no action may be brought against any The inspecting or reproducing party shall remain bound by
corporation which shall have issued certificate of stock in lieu of those confidentiality rules under prevailing laws, such as the rules on trade
lost, stolen or destroyed pursuant to the procedure above-described. secrets or processes under Republic Act No. 8293, otherwise known as
If this is followed, the corporation is exempted from liability. the “Intellectual Property Code of the Philippines”, as amended,
Republic Act No. 10173, otherwise known as the “Data Privacy Act of
Uncertificated Shares 2012”, Republic Act No. 8799, otherwise known as “The Securities
Regulation Code”, and the Rules of Court.
We have talked about uncertificated shares. In relation to that, where
can you find the provision on uncertificated shares? It is under the
How about a party who is not a director, trustee, or a stockholder?
Securities and Regulation Code.
A requesting party who is not a stockholder or member of record, or is a
competitor, director, officer, controlling stockholder or otherwise
represents the interests of a competitor shall have no right to inspect or rights to the corporation shall be diluted. So, that is why the corporation
demand reproduction of corporate records. must offer the newly issued shares to the existing stockholder for the
former to have the opportunity to maintain the same interest in the
February 20, 2020 by Anton Maligad 54:00 to 1:21:31 corporation.
Q: So, can the Board of Directors of the Corporation deny such right of
CORPORATE BOOKS & RECORDS
the Stockholder?
A stock corporation must keep a stock and transfer book (STB).
A: Yes, the Corporation can deny the stockholder of his pre-emptive
What does it contain?
right.
The Stock and Transfer Book contains the names of the stockholder,
which is alphabetically arranged.
Provided, that such pre-emptive right shall not extend to shares issued
• Index—The STB contains an index of the names of the in compliance with laws requiring stock offerings or minimum stock
stockholders from A-Z; ownership by the public; or to shares issued in good faith with the
• Ledger approval of the stockholders representing 2/3 of the outstanding capital
stock, in exchange of property needed for corporate purposes or in
Please take note: You cannot have erasures in the Stock and Transfer payment of a previously contracted debt.
Book. That is why the Corporate Secretary uses a pencil.
Please take note: The holding requirement and the purpose to deny the
Section 74—Right to Financial Statements. pre-emptive right. The denial must be contained in the articles of
incorporation.
A corporation shall furnish a stockholder or member within ten
(10) days from receipt of their written request its most recent SEC Opinion August 11, 1997
financial statements, in the form and substance of the financial Issue: W/N the deposits to future subscriptions (additional
reporting required by the Commission. subscriptions) shall be included in the computation of the
stockholder’s proportionate right to subscribe to a proposal to
At the regular meeting of stockholders or members, the board of increase the authorized capital stock?
directors or trustees shall present to such stockholder or member a
financial report of the operations of the corporation for the preceding (There is a deposit of future subscriptions. After which, there is a
year, which shall include financial statements, duly signed and declaration of issuance of a new set of stocks)
certified in accordance with this Code, and the rules the Commission
may prescribe. Held: No.
The SEC opined that the term capital stock or authorized capital
However, if the total assets or total liabilities of the corporation is less stock is the amount fixed in the corporations articles of incorporation
than six hundred thousand pesos (P600,000) or such amount as to be subscribed and paid by the stockholders of the corporation. The
may be determined appropriate by the Department of Finance, the shares are subscribed out of the authorized capital stock, that portion
financial statements may be certified under oath by the treasurer and of the paid-in capital arising from the subscription becomes the
the president. capital of the corporation, which cannot be returned to the
stockholder in any form during the life of the corporation, unless
Discussion: otherwise allowed by law.
A corporation shall furnish a stockholder or member within ten (10)
days from receipt of their written request its most recent financial In contrast, deposits for future subscription are paid and received for
statements, in the form and substance of the financial reporting future issuance of stocks, which may or may not materialize. When
required by the Commission. deposits of such issue may be allowed for balance sheet
presentation or part of the stockholder’s equity count—the same
Atty. Ong: At a regular meeting, this should be given. If you are stock cannot be considered as part of the capital of the corporation, until
corporation, you shall send a notice to the stockholder, wherein the shares are actually issued in consideration thereof.
Financial statements are attached and compiled—management report
regarding the operations of the company. Therefore, the answer is no, you have no right over the deposit for
future subscriptions in relation to the proportion of share in the
However, if the total assets or total liabilities of the corporation is less corporation.
than six hundred thousand pesos (P600,000) or such amount as may
be determined appropriate by the Department of Finance, the financial Discussion: So, a deposit for future subscription is like this.
statements may be certified under oath by the treasurer and the
president. For example, the authorized capital stock is 100.
You want to increase it to 200. Therefore the increase is 100, so that the
Atty. Ong: It is because otherwise it must be certified by the Certified total shares is 200.
Public Accountant (CPA).
• If less than P600,000—the treasurer of the corporation may This increase requires an amendment. The problem with this is that the
certify the Financial Statements under oath. approval from the SEC of such increase takes long—especially for non-
cash considerations.
STOCKHOLDERS AND MEMBERS
Rights of a Stockholder What if there is already money given?
So, the one who want to subscribe to such increase in shares already
PRE-EMPTIVE RIGHT— In relation to Section 38 of the Revised gives money for the subscription. However, such increase has not yet
Corporate Code, all stockholders of a stock corporation shall enjoy been approved. Therefore, the money given is a deposit—a deposit for
preemptive right to subscribe to all issues or disposition of shares of any future subscriptions.
class in proportion to their respective shareholdings, unless such right is
denied by the articles of incorporation or an amendment thereto. The presentation for that:
Deposit for Future Stock Subscription—100 (value of payment for the
Atty.Ong: It is the right of the stockholder that can be exercised once 100 shares)
the corporation shall issue a new set of shares (separate from the It is a deposit, just in case the increase in the authorized capital stock is
previously authorized shares), the existing stockholders has the right to approved.
acquire first such shares in proportion to their existing stock ownership.
The purpose of this is to avoid dilution. Existing Stockholders has no right over the Deposit for future
Subscription. He has no interest in such new shares, because such is
Example: If you are a stockholder and the corporation shall issue a new not yet a capital, it is still a deposit. There is a possibility that such
set of shares. If those shares are given to another (third party), then your increase in capital shall not be approved. Therefore, such deposit cannot
be treated as a capital.
This is a very good tool if you want to avoid exposure, because the observations should have signaled greater circumspection on the
Deposit for Future Subscription is a liability of the corporation to the part of the SEC -- upon the third and last remand to it pursuant to our
stockholder. The risk of having a debt is: January 20, 1998 decision -- to demand transparency and
• For taxation—you are liable for documentary stamp tax; accountability from the majority stockholders, in view of the illegal
• Deposit for future subscription—not liable for DST assignments and objectionable features of the Revised
BENHAR/RUBY Plan, as found by the CA and as affirmed by this
So, some corporations they proportion the shares, and they place some Court:
of the new shares under the Deposit for future stock subscription—
to prevent exposure to DST. There can be no gainsaying the well-established rule in corporate
practice and procedure that the will of the majority shall govern in all
Another is that the Retained Earning are to large, then the corporation matters within the limits of the act of incorporation and lawfully
can be subject to IAET. So instead of putting such in capital, the enacted by-laws not proscribed by law. It is, however, equally true
corporation shall place it with the Deposit for future stock that other stockholders are afforded the right to intervene especially
subscription. during critical periods in the life of a corporation like reorganization,
or in this case, suspension of payments, more so, when the majority
Majority Stockholders of Ruby Industrial Corporation seek to impose their will and through fraudulent means, attempt to
vs. Lim siphon off Ruby’s valuable assets to the great prejudice of Ruby itself,
as well as the minority stockholders and the unsecured creditors.
FACTS: RUBY has been experiencing severe liquidity problem. The
majority stockholders wanted to infuse more capital into the Certainly, the minority stockholders and the unsecured creditors are
corporation through issuance of additional shares. Hence, the given some measure of protection by the law from the abuses and
Revised BENHAR/RUBY Rehabilitation Plan of the majority impositions of the majority, more so in this case, considering the give-
stockholders proposed to call for subscription of unissued shares for away signs of private respondents’ perfidy strewn all over the factual
P11.814M. This led to the special meeting of RUBY’s board meeting landscape. Indeed, equity cannot deprive the minority of a remedy
whose resolution authorized the issuance of the unissued portion of against the abuses of the majority, and the present action has been
the authorized capital stocks of the corporation in the form of instituted precisely for the purpose of protecting the true and
common stocks. However, the minority stockholders contended, legitimate interests of Ruby against the Majority Stockholders. On
among others, that they were not given notice as required and this score, the Supreme Court, has ruled that:
reasonable time to exercise their pre-emptive rights. Hence, the
minority stockholders wanted to nullify the acts of the majority “Generally speaking, the voice of the majority of the stockholders is
stockholders in implementing the capital infusion. Pre-emptive right the law of the corporation, but there are exceptions to this rule. There
refers to the right of a stockholder of a stock corporation to subscribe must necessarily be a limit upon the power of the majority. Without
to all issues or disposition of shares of any class, in proportion to their such a limit the will of the majority will be absolute and irresistible and
respective shareholdings. SC ruled in favor of the minority might easily degenerate into absolute tyranny. x x x”
stockholders.
Lamentably, the SEC refused to heed the plea of the minority
ISSUE: WON the additional capital infusion is valid? stockholders and MANCOM for the SEC to order RUBY to
commence liquidation proceedings, which is allowed under Sec. 4-9
HOLDING: of the Rules on Corporate Recovery. Under the circumstances,
liquidation was the only hope of the minority stockholders for
[No because the issuance of additional shares was done in breach effecting an orderly and equitable settlement of RUBY’s obligations,
of trust by the controlling stockholders. Here, the majority sought to and compelling the majority stockholders to account for all funds,
impose their will and, through fraudulent means, attempt to siphon properties and documents in their possession, and make full
off Ruby’s valuable assets to the great prejudice of Ruby itself, as disclosure on the nullified credit assignments.
well as the minority stockholders and the unsecured creditors.]
Discussion:
The SEC remained indifferent to the reliefs sought by the minority Q: So, can you absolutely deny the pre-emptive right?
stockholders, saying that the issue of the validity of the additional A: Yes, the pre-emptive right may be restricted or denied under the
capital infusion was belatedly raised. Even assuming the October 2, Articles of Incorporation, subject to certain exceptions.
1991 board meeting indeed took place, the SEC did nothing to
ascertain whether indeed, as the minority claimed: Q: But can you absolutely deny?
A: No, you cannot deny it absolutely. If there is a denial in the Articles
[1] the minority stockholders were not given notice as required of Incorporation pursuant to breach of trust by the controlling stockholder
and reasonable time to exercise their pre-emptive rights; and or directors, then the denial of the pre-emptive right shall be considered
as invalid. It is because the purpose of such is to freeze control of the
[2] the capital infusion was not for the purpose of rehabilitation stockholder.
but a mere ploy to divest the minority stockholders of their 40.172%
shareholding and reduce it to a mere 25.25%. DATU TAGORANAO BENITO vs. SEC
Pre-emptive right under Sec. 39 of the Corporation Code refers to FACTS: On February 6, 1959, the Articles of Incorporation of
the right of a stockholder of a stock corporation to subscribe to all respondent Jamiatul Philippine-Al Islamia, Inc. (originally Kamilol
issues or disposition of shares of any class, in proportion to their Islam Institute, Inc.) were filed with the Securities and Exchange
respective shareholdings. The right may be restricted or denied Commission (SEC) and were approved on December 14, 1962. The
under the articles of incorporation, and subject to certain exceptions corporation had an authorized capital stock of P200,000.00 divided
and limitations. The stockholder must be given a reasonable time into 20,000 shares at a par value of P10.00 each. Of the authorized
within which to exercise their preemptive rights. Upon the expiration capital stock, 8,058 shares worth P80,580.00 were subscribed and
of said period, any stockholder who has not exercised such right will fully paid for. Herein petitioner Datu Tagoranao Benito subscribed to
be deemed to have waived it. 460 shares worth P4,600.00.
The validity of issuance of additional shares may be questioned if On October 28, 1975, the respondent corporation filed a certificate of
done in breach of trust by the controlling stockholders. Thus, even if increase of its capital stock from P200,000.00 to P1,000,000.00. It
the pre-emptive right does not exist, either because the issue comes was shown in said certificate that P191,560.00 worth of shares were
within the exceptions in Section 39 or because it is denied or limited represented in the stockholders' meeting held on November 25, 1975
in the articles of incorporation, an issue of shares may still be at which time the increase was approved. Thus, P110,980.00 worth
objectionable if the directors acted in breach of trust and their primary of shares were subsequently issued by the corporation from the
purpose is to perpetuate or shift control of the corporation, or to unissued portion of the authorized capital stock of P200,000.00. Of
“freeze out” the minority interest. In this case, the following relevant the increased capital stock of P1,000,000.00, P160,000.00 worth of
shares were subscribed by Mrs. Fatima A. Ramos, Mrs. Tarhata A. chose to get the 200—so they already know their maximum interest,
Lucman and Mrs. Moki-in Alonto. which is 2/5.
On November 18, 1976, petitioner Datu Tagoranao filed with As to the increase, the subscribers were not aware of that. So that is
respondent Securities and Exchange Commission a petition alleging why as to the increase of 500, the subscribers have a preemptive right
that the additional issue (worth P110,980.00) of previously to retain the 2/5 interest in relation to the total of 1,000.
subscribed shares of the corporation was made in violation of his pre- In not all issuance can the stockholders exercise the right of preemption.
emptive right to said additional issue and that the increase in the
authorized capital stock of the corporation from P200,000.00 to RIGHT TO VOTE OF STOCKHOLDER
P1,000,000.00 was illegal considering that the stockholders of record
were not notified of the meeting wherein the proposed increase was TAN vs. SYCIP
in the agenda. Petitioner prayed that the additional issue of shares of 499 SCRA 216 (2006)
previously authorized capital stock as well as the shares issued from
the increase in capital stock of respondent corporation be cancelled; Facts:
that the secretary of respondent corporation be ordered to register Grace Christian High School (GCHS) is a nonstock, non-profit
the 2,540 shares acquired by him (petitioner) from Domocao Alonto educational corporation with fifteen (15) regular members, who also
and Moki-in Alonto; and that the corporation be ordered to render an constitute the board of trustees.
accounting of funds to the stockholders.
During the annual members' meeting... there were only eleven
In their answer, respondents denied the material allegations of the (11)living member-trustees, as four (4) had already died. Out of the
petition and, by way of special defense, claimed that petitioner has eleven, seven (7) attended the meeting through their respective
no cause of action and that the stock certificates covering the shares proxies.
alleged to have been sold to petitioner were only given to him as
collateral for the loan of Domocao Alonto and Moki-in Alonto. The meeting was convened... over the... objection... that there was
no quorum.
ISSUE: W/N
[1] the issuance of the 11,098 shares without the consent of In the meeting, Petitioners Ernesto Tanchi, Edwin Ngo, Virginia
the stockholders or of the Board of Directors, and in the absence of Khoo, and Judith Tan were voted to replace the four deceased
consideration, is null and void; member-trustees.
[2] the increase in the authorized capital stock from When the controversy reached the Securities and Exchange
P200,000.00 to P1,000,000.00 without the consent or express waiver Commission (SEC), petitioners maintained that the deceased
of the stockholders, is null and void member-trustees should not be counted in the computation of the
quorum because, upon their death, members automatically lost all
HOLDING: As aptly stated by the Securities and Exchange their rights (including the right... to vote) and interests in the
Commission in its decision: corporation.
xxx SEC... declared the... meeting null and void for lack of quorum.
... the questioned issuance of the unsubscribed portion of the capital held that the basis for determining the quorum in a meeting of
stock worth P110,980.00 is ' not invalid even if assuming that it was members should be their number as specified in the articles of
made without notice to the stockholders as claimed by petitioner. The incorporation, not simply the number of... living members.
power to issue shares of stocks in a corporation is lodged in the board
of directors and no stockholders' meeting is necessary to consider it The hearing officer also opined that Article III (2)[11] of the By-Laws
because additional issuance of shares of stocks does not need of GCHS, insofar as it prescribed the mode of filling vacancies in the
approval of the stockholders. The by-laws of the corporation itself board of trustees, must be interpreted in conjunction with Section
states that 'the Board of Trustees shall, in accordance with law, 29[12] of the Corporation
provide for the issue and transfer of shares of stock of the Institute Code.
and shall prescribe the form of the certificate of stock of the Institute.
(Art. V, Sec. 1). The SEC en banc denied the appeal of petitioners and affirmed the
Decision of the hearing officer in toto.
Petitioner bewails the fact that in view of the lack of notice to him of
such subsequent issuance, he was not able to exercise his right of Issues:
pre-emption over the unissued shares. However, the general rule Whether dead members should still be counted in the determination
is that pre-emptive right is recognized only with respect to new of the quorum, for purposes of... conducting the annual members'
issue of shares, and not with respect to additional issues of meeting.
originally authorized shares. This is on the theory that when a
corporation at its inception offers its first shares, it is presumed to Ruling:
have offered all of those which it is authorized to issue. An original Generally, stockholders' or members' meetings are called for the
subscriber is deemed to have taken his shares knowing that they purpose of electing directors or trustees[23] and transacting some
form a definite proportionate part of the whole number of authorized other business calling for or requiring the action or consent of the
shares. When the shares left unsubscribed are later re-offered, he shareholders or members,[24] such... as the amendment of the
cannot therefore claim a dilution of interest. articles of incorporation and bylaws, sale or disposition of all or
substantially all corporate assets, consolidation and merger and the
like, or any other business that may properly come before the
Discussion: meeting.
Atty. Ong: So remember that the preemptive right is only applicable to
the newly issued shares (increase of authorized capital stock) Under the Corporation Code, stockholders or members periodically
elect the board of directors or trustees, who are charged with the
Illustration: management of the corporation.
Authorized Capital Stock (ACS): 500
Subscribed shares: 200 The board, in turn, periodically elects officers to carry out
Unissued shares: 300 management functions on a... day-to-day basis. As owners, though,
Increase of ACS: 500 to the total of 1000 ACS the stockholders or members have residual powers over fundamental
Pre-emptive right: The shareholder with the subscribe 200 shares can and major corporate changes.
only exercise his preemptive right as to the increase of 500 of ACS only
and not to the total 1,000 ACS. It is because that at the time that such While stockholders and members (in some instances) are entitled to
person subscribed he already knows that the ACS is 500, but still they receive profits, the management and direction of the corporation are
lodged with their representatives and agents -- the board of directors The PCGG claimed it represented 85,756,279 shares at the meeting
or trustees.[26] In other words, acts of... management pertain to the including the corporate shares which corresponded to 1,286,744,185
board; and those of ownership, to the stockholders or members. In votes which in turn were distributed equally among the fifteen (15)
the latter case, the board cannot act alone, but must seek approval candidates who were declared elected.
of the stockholders or members.
Petitioners allege that the 27,211,770 shares or a total of
Discussion: 408,176,550 votes representing the corporate shares, were illegally
Q: Can the heirs vote on behalf of the deceased stockholder? cast by PCGG and should be counted in favor of petitioners so that
A: the results of the election would be as follows ––
Non-stock corporation—Heirs cannot vote, because this right to vote
is personal and non transferable. However, the heirs may be allowed to Stockholder Votes
vote if such is allowed by the by-laws or Articles of Incorporation of the Originally
corporation. Credited Add:
Stock Corporation—The heirs can vote. The death transfers the right 408,176,550
to vote to the Executor or Administrator of the Estate. If the heir is an divided by 3
Executor or Administrator, then such heir can vote. (136,058,850) Resulting
Votes
COJUANGCO vs. ROXAS 1. Mr. Eduardo M. Cojuangco, Jr. 2,280,618 136,058,850
195 SCRA 797 138,339,468
2. Mr. Manuel M. Cojuangco 2,279,719 136,058,850
Facts: 138,338,569
The issue squarely presented by the petitioners is whether or not the 3. Mr. Rafael G. Abello 2,278,863 136,058,850
Presidential Commission on Good Government (PCGG) may vote 138,337,713
the sequestered shares of stock of San Miguel Corporation (SMC) Stockholder Votes
and elect its members of the board of directors. Originally
Credited Less:
In G.R. No. 91925 the facts alleged are undisputed. Petitioners are 408,176,550
stockholders of record of SMC as follows — divided by 15
(27,211,770) Resulting
Stockholders No. of Shares Votes
Eduardo M. Cojuangco, Jr. 13,225 4. Mr. Eduardo De Los Angeles 135,115,521
Manuel M. Cojuangco 5,750 27,211,770 107,903,751
Rafael G. Abello 5,750 5. Mr. Feliciano Belmonte, Jr. 132,312,254 27,211,770
On April 18, 1989, the annual meeting of shareholders of SMC was 105,100,484
held. Among the matters taken up was the election of fifteen (15) 6. Mr. Teodoro L. Locsin 132,309,520 27,211,770
members of the board of directors for the ensuing year. Petitioners 105,097,750
were among the twenty four (24) nominees to the board. 7. Mr. Domingo Lee 132,308,355 27,211,770
105,096,585
The subject shares are collectively referred to as "corporate shares" 8. Mr. Philip Ella Juico 132,301,569 27,211,770
in the petition. 105,089,799
9. Mr. Patrick Pineda 132,284,365 27,211,770
Representatives of the corporate shares present at the meeting 105,072,595
claimed that the shares are not under sequestration; or that if they 10. Mr. Adolfo Azcuna 132,284,364 27,211,770
are under sequestration, the PCGG had no right to vote the same. 105,072,594
They were overruled. 11. Mr. Edison Coseteng 132,284,364 27,211,770
105,072,594
With PCGG voting the corporate shares, the following was the result 12. Mr. Andres Soriano III 132,182,000 27,211,770
of the election for members of the SMC board of directors: 104,970,230
13. Mr. Eduardo Soriano 132,173,943 27,211,770
Stockholder No. of Votes 104,962,173
1. Mr. Eduardo De Los Angeles 135,115,521 14. Mr. Francisco C. Eizmendi, Jr. 132,164,470
2. Mr. Feliciano Belmonte, Jr. 135,312,254 27,211,770 104,952,700
3. Mr. Teodoro L. Locsin 132,309,520 15. Mr. Benigno P. Toda, Jr. 132,147,319 27,211,770
4. Mr. Domingo lee 132,308,355 104,935,549
5. Mr. Philip Ella Juico 132,301,569 16. Mr. Antonio J. Roxas 132,146,107 27,211,770
6. Mr. Patrick Pineda 132,284,365 104,934,337
7. Mr. Adolfo Azcuna 132,284,364 17. Mr. Jose L. Cuisia, Jr. 132,141,775 27,211,770
8. Mr. Edison Coseteng 132,284,364 104,930,005
9. Mr. Andres Soriano III 132,182,000 18. Mr. Oscar Hilado 132,110,402 27,211,770
10. Mr. Eduardo Soriano 132,173,943 104,898,632
11. Mr. Francisco C. Eizmendi, Jr. 132,164,470 19. Mr. Enrique M. Cojuangco 2,279,729
12. Mr. Benigno P. Toda, Jr. 132,147,319 20. Mr. Jose C. Concepcion 1,596
13. Mr. Antonio J. Roxas 132,146,107 21. Mr. Marcos O. Cojuangco 875
14. Mr. Jose L. Cuisia, Jr. 132,141,775 22. Mr. Danilo S. Ursua 650
15. Mr. Oscar Hilado 132,110,402 23. Mr. Rodolfo M. Tinsay 23
16. Mr. Eduardo M. Cojuangco, Jr. 2,280,618 24. Mr. Amado C. Mamuric 0
17. Mr. Enrique M. Cojuangco 2,279,729 The petitioners assert that is they were allowed to vote their
18. Mr. Manuel M. Cojuangco 2,279,719 corresponding shares accordingly, then they would obtain enough
19. Mr. Rafael G. Abello 2,278,863 votes to be elected.
20. Mr. Jose C. Concepcion 1,596
21. Mr. Marcos O. Cojuangco 875 On May 31, 1989, petitioners filed with the Sandiganbayan a petition
22. Mr. Danilo S. Ursua 650 for quo warranto impleading as respondents the fifteen (15)
23. Mr. Rodolfo M. Tinsay 23 candidates who were declared elected members of the board of
24. Mr. Amado C. Mamuric 0 directors of SMC for the year 1989-1990. Summons was issued only
The fifteen individuals who received the highest number of votes as to respondents Antonio J. Roxas, Jose L. Cuisia, Jr. and Oscar T.
were declared elected. Hilado whose election will be affected by the claim of petitioners if
the same were upheld.
In due course, a resolution was rendered by the Sandiganbayan on be included therein, and should thus be ousted from the board of
November 16, 1989, affirming its jurisdiction over the petition but directors.
dismissing it for lack of cause of action on the ground that the PCGG
has the right to vote sequestered shares. As the petition under G.R. No. 91925 which was decided adversely
by the Sandiganbayan is now before this Court, and since time is of
Hence, this petition for certiorari, the main thrust of which is that the the essence as petitioners have been denied the right to vote since
right to vote sequestered shares of stock is vested in the actual 1986, instead of seeking relief from the Sandiganbayan, the
shareholders not in the PCGG. petitioners filed this petition for quo warranto (G.R. No. 93005), the
issues in which are the same as those raised in G.R. No. 91925.
Respondents were required to comment on the petition while
petitioners were required to comment on the motion to dismiss filed The petitions are impressed with merit.
by respondent SMC. The required comments and consolidated reply
thereto have all now been submitted. Nothing is more settled than the ruling of this Court in BASECO VS.
PCGG,2 that the PCGG cannot exercise acts of dominion over
In G.R. No. 93005, the facts alleged are substantially similar in property sequestered. It may not vote sequestered shares of stock
nature. Petitioners are stockholders of SMC as follows –– or elect the members of the board of directors of the corporation
concerned —
STOCKHOLDER NO. OF SHARES
EDUARDO M. COJUANGCO, JR. 52,900 d. Voting of Sequestered Stock; Conditions Therefor
ENRIQUE M. COJUANGCO 23,000
MANUEL M. COJUANGCO 23,000 So, too, it is within the parameters of these conditions and
On April 17, 1990, the annual meeting of the SMC shareholders was circumstances that the PCGG may properly exercise the prerogative
held. Among the matters taken up was the election of the fifteen (15) to vote sequestered stock of corporations, granted to it by the
members of the board of directors of SMC for the ensuing year. President of the Philippines through a memorandum dated June 26,
Petitioners were among the twenty (20) nominees to the board. 1986. That memorandum authorizes the PCGG "pending the
outcome of proceedings to determine the ownership of . . .
On the date of the meeting, there were 565,916,550 shares (sequestered) shares of stock," "to vote such shares of stock as it
outstanding, of which 531,598,051 shares, or 93.58%, were present may have sequestered in corporations at all stockholders" meetings
at the meeting, either in person or by proxy. The PCGG was allowed called for the election of directors, declaration of dividends,
to represent and vote certain shares of stock under sequestration. amendment of the Articles of Incorporation, etc." The Memorandum
should be construed in such a manner as to be consistent with, and
The said shares are once again referred to as "corporate shares" in not contradictory of the Executive Orders earlier promulgated on the
the petition. At the meeting, a representative of the corporate share same matter. There should be no exercise of the right to vote simply
maintained that they are not under sequestration, or if they are under because the right exists, or because the stocks sequestered
sequestration, the PCGG had no authority to vote them. constitute the controlling or a substantial part of the corporate voting
Nevertheless, the PCGG was allowed to vote the corporate shares power. The stock is not to be voted to replace directors, or revise the
and the result of the election was as follows –– articles or by-laws, or otherwise bring about substantial changes in
policy, program of practice of the corporation except for
Stockholder No. of Votes demonstrably weighty and defensible grounds, and always in the
1. Andres Soriano III 549,648,661 context of the stated purposes of sequestration or provisional
2. Francisco C. Eizmendi,Jr. 549,105,318 takeover, i.e., to prevent the dispersion or undue disposal of the
3. Eduardo J. Soriano 548,864,733 corporate assets. Directors are not to be voted out simply because
4. Antonio J. Roxas 548,809,271 the power to do so exists. Substitution of directors is not to be done
5. Benigno Toda, Jr. 548,751,713 without reason or rhyme, should indeed be shunned if at all possible,
6. Eduardo De Los Angeles 522,678,527 and undertaken only when essential to prevent disappearance or
7. Feliciano Belmonte 517,170,373 wastage of corporate property, and always under such
8. Renato Valencia 517,048,521 circumstances as to assure that the replacements are truly
9. Domingo Lee 517,014,895 possessed of competence, experience and probity
10. Teodoro L. Locsin, Jr. 516,361,120
11. Oscar Hilado 516,197,450 In the case at bar, there was adequate justification to vote the
12. Philip Ella Juico 516,118,723 incumbent directors out of office and elect others in their stead
13. Adolfo S. Azcuna 516,105,147 because the evidence showed prima facie that the former were just
14. Edison Coseteng 516,047,825 tools of President Marcos and were no longer owners of any stock in
15. Patricio Pineda 515,990,250 the firm, if they ever were at all.
16. Eduardo M. Cojuangco, Jr. 37,335,365
17. Marcos O Cojuangco 73,404 This is why, in its Resolution of October 28, 1986; this Court
18. Rafael G. Abello 40,404 declared that ––
19. Enrique M. Cojuangco 34,950
20. Manuel M. Cojuangco 30,955 Petitioner has failed to make out a case of grave abuse or excess of
jurisdiction in respondents' calling and holding of a stockholders
Uncast votes meeting for the election of directors as authorized by the
3,150,231 Memorandum of the President . . . (to the PCGG) dated June 26,
Invalid votes 381,865 1986, particularly, where as in this case, the government can,
TOTAL through its designated directors, properly exercise control and
7,956,960,120 management over what appear to be properties and assets owned
================ and belonging to the government itself and over which the persons
The fifteen individuals who received the highest number of votes who appear in this case on behalf of BASECO have failed to show
were declared elected. any right or even any shareholding in said corporation.
Representatives of the corporate shares manifested that if they were It must however be emphasized that the conduct of the PCGG
allowed to vote their shares, the votes corresponding to their shares, nominees in the BASECO Board in the management of the
a total of 108,846,948 shares, amounting to 1,632,704,220 votes, company's affairs should henceforth be guided and governed by the
would have been cast equally, or 544,234, 740 votes each for norms herein laid down. They should never for a moment allow
petitioners Eduardo Cojuangco, Jr., Enrique M. Cojuangco and themselves to forget that they are conservators, not owners of the
Manuel M. Cojuangco, all of whom would have been among those business; they are fiduciaries trustees, of whom the highest degree
who received 15 highest number of votes, and that respondents of diligence and rectitude is, in the premises, required.3
Adolfo S. Azcuna, Edison Coseteng and Patricio Pineda would not
In BASECO, Mr. Justice Padilla, in his concurring opinion4 asserted
that the removal and election of members of the board of directors As to G.R. No. 93005 the term of office of private respondents as
are clear acts of ownership on the part of the shareholders of the members of the SMC board of directors will expire on or after another
corporation, a right that should be denied the PCGG under ordinary election is held in April 1991.
circumstances. Of course, in BASECO, wherein it appears that Mr.
Marcos took possession and control of 95% of the total ownership Thus, the issue raised in G.R. No. 93005 relating to the election of
thereof which he could not have acquired out of his lawfully gotten the members of the board for 1990-1991 pursuant to sequestered
wealth, the PCGG was allowed by the Court to vote the sequestered shares of stock is a justiciable issue which should be determined
shares. once and for all.
Madame Justice Melencio-Herrera in a concurring opinion which in In the light of the foregoing discussion, the Court finds and so holds
turn was concurred in by Justice Feliciano, stated that she has no that the PCGG has no right to vote the sequestered shares of
objection to according the right to vote sequestered stock in case of petitioners including the sequestered corporate shares. Only their
a take-over of business actually belonging to the government and owners, duly authorized representatives or proxies may vote the said
whose capitalization comes from public funds but which, somehow, shares. Consequently, the election of private respondents Adolfo
landed in the hands of private persons, as in the case of BASECO. Azcuna, Edison Coseteng and Patricio Pineda as members of the
She advised caution and prudence in the case of sequestered shares board of directors of SMC for 1990-1991 should be set aside.
of an on-going private business enterprise, specially the sensitive
ones, since the true and real ownership of said shares is yet to be However, petitioners cannot be declared duly elected members of
determined and proved more conclusively before the courts.5 the board of directors thereby. An election for the purpose should be
held where the questioned shares may be voted by their owners
Mr. Justice Gutierrez, in a concurring and dissenting opinion, and/or their proxies. Such election may be held at the next
reiterated that the election of the board of directors is distinctly and shareholders' meeting in April 1991 or at such date as may be set
unqualifiedly an act of ownership. He would disallow the voting of under the by-laws of SMC.
shares by the PCGG on the ground that the same is authoritarian
and ultra vires.6 Private respondents in both cases are hereby declared to be de facto
officers who in good faith assumed their duties and responsibilities
Mr. Justice Cruz also dissented, He asserted that the acts of voting as duly elected members of the board of directors of the SMC. They
the shares and reorganizing the board of directors are acts of are thereby legally entitled to the emoluments of the office including
ownership which clash with the implacable principles of a free salary, fees and other compensation attached to the office until they
society, foremost of which is due process.7 vacate the same.10
The Solicitor General, however, contends in these two cases that if Nevertheless, the right of the Government, represented by the
the purpose of sequestration is to "help prevent the dissipation of the PCGG, as conservator of sequestered assets must be adequately
corporation's assets" or to "preserve" the said assets, the PCGG may protected.
resort to "acts of strict ownership," such as voting the sequestered
shares.8 The important rights of stockholders are the following:
There is no proof or indications showing that the petitioners seek to a) the right to vote;
exercise their right as stockholders to dissipate, dispose, conceal,
destroy, transfer or encumber their sequestered shares. On the other b) the right to receive dividends;
hand, there is no doubt that petitioners have the right to vote their
shares at the shareholders meeting even if they are sequestered and c) the right to receive distributions upon liquidation of the
that they as stockholders have a right to be voted for as members of corporation; and
the board of directors of SMC.9
d) the right to inspect the books of the corporation.
Besides, there are other means by which the said shares may be
preserved and their dissipation prevented. The PCGG may restrain It is through the right to vote that the stockholder participates in the
their sale, encumbrance, assignment or any other disposition during management of the corporation. The right to vote, unlike the rights to
the period of sequestration. It may monitor the business operations receive dividends and liquidating distributions, is not a passive thing
of petitioners as to said shares. It need not vote the shares in order because management or administration is, under the Corporation
to accomplish its role as conservator. Code, vested in the board of directors, with certain reserved powers
residing in the stockholders directly. The board of directors and
The rule in this jurisdiction is, therefore, clear. The PCGG cannot executive committee (or management committee) and the corporate
perform acts of strict ownership of sequestered property. It is a mere officers selected by the board may make it very difficult if not
conservator. It may not vote the shares in a corporation and elect the impossible for the PCGG to carry out its duties as conservator if the
members of the board of directors. The only conceivable exception Board or officers do not cooperate, are hostile or antagonistic to the
is in a case of a takeover of a business belonging to the government conservator's objectives.
or whose capitalization comes from public funds, but which landed in
private hands as in BASECO. Thus, it is necessary to achieve a balancing of or reconciliation
between the stockholder's right to vote and the conservator's
The constitutional right against deprivation of life, liberty and property statutory duty to recover and in the process thereof, to conserve
without due process of law is so well-known and too precious so that assets, thought to be ill-gotten wealth, until final judicial determination
the hand of the PCGG must be stayed in its indiscriminate takeover of the character of such assets or until a final compromise agreement
of and voting of shares allegedly ill-gotten in these cases. It is only between the parties is reached.
after appropriate judicial proceedings when a clear determination is
made that said shares are truly ill-gotten when such a takeover and There are, in the main, two (2) types of situations that need to be
exercise of acts of strict ownership by the PCGG are justified. addressed. The first situation arises where the sequestered shares
of stock constitute a distinct minority of the voting shares of the
It is true that in G.R. No. 91925 the term of office of the term of office corporation involved, such that the registered owners of such
of the assailed members of the board of directors, private sequestered shares would in any case be able to vote in only a
respondents therein, for 1989-1990 had expired. To this extent said minority of the Board of Directors of the corporation. The second
petition may be considered moot and academic. However, the issue situation arises where the sequestered shares of stock constitute a
of whether public respondent Sandiganbayan committed a grave majority of the voting shares of the corporation concerned, such that
abuse of discretion in rendering the resolution dated November 16, the registered owners of such shares of stock would in any case be
1989, which affects all subsequent shareholders' meetings and entitled to elect a majority of the Board of Directors of the corporation
elections of the members of the board of directors of SMC, is a involved.
justiciable controversy that must be resolved.
Turning to the first situation, the Court considers and so holds that in the articles of incorporation and by-laws of the company must be
order to enable the PCGG to perform its functions as conservator of amended so as to incorporate the above safeguards.
the sequestered shares of stock pending final determination by the
courts as to whether or not the same constitute ill-gotten wealth or a i. Any amendment of the articles of incorporation or by-laws
final compromise agreement between the parties, the PCGG must of the company that will modify in any way any of the above
be represented in the Board of Directors of the corporation and of its safeguards, shall need the prior approval of the director representing
majority-owned subsidiaries or affiliates and in the Executive the conservator.
Committee (or its equivalent) and the Audit Committee thereof, in at
least an ex officio (i.e., non-voting) capacity. The PCGG The amount of P5,000,000.00 referred to in paragraphs (e), (f) and
representative must have a right of full access to and inspection of (g) above is intended merely to be indicative. The precise amount
(including the right to obtain copies of) the books, records and all may differ depending upon the size of the corporation involved and
other papers of the corporation relating to its business, as well as a the reasonable operating requirements of its business.
right to receive copies of reports to the Board of Directors, its
Executive (or equivalent) and Audit Committees. By such Whether a particular case falls within the first or the second type of
representation and rights of full access, the PCGG must be able so situation described above, the following safeguards are
to observe and monitor the carrying out of the business of the indispensably necessary:
corporation as to discover in a timely manner any move or effort on
the part of the registered owners of the sequestered stock, alone or 1. The sequestered shares and any stock dividends
in concert with other shareholders, to conceal, waste and dissipate pertaining to such shares, may not be sold, transferred, alienated,
the assets of the corporation, or the sequestered shares themselves, mortgaged, or otherwise disposed of and no such sale, transfer or
and seasonably to bring such move or effort to the attention of the other disposition shall be registered in the books of the corporation,
Sandiganbayan for appropriate action. pending final judicial resolution of the question of ill-gotten wealth or
a final compromise agreement between the parties; and
In the second situation above referred to, the Court considers and so
holds that the following minimum safeguards must be set in place 2. Dividend and liquidating distributions shall not be delivered
and carefully maintained until final judicial resolution of the question to the registered stockholders of the sequestered shares, including
of whether or not the sequestered shares of stock (or, in a proper stock dividends pertaining to such shares, but shall instead be
case, the underlying assets of the corporation concerned) constitute deposited in an escrow, interest-bearing, account in a first class bank
ill-gotten wealth or until a final compromise agreement between the or banks, acceptable to the Sandiganbayan, to be held by such
parties is reached: banks for the benefit of whoever is held by final judicial decision or
final compromise agreement, to be entitled to the shares involved.
a. An independent comptroller must be appointed by the
Board of Directors upon nomination of the PCGG as The Court is aware that implementation of some of the above
conservator.1âwphi1 The comptroller shall not be removable (nor safeguards may require agreement between the registered
shall his position be abolished or his compensation changed) without stockholders and the PCGG as well as action on the part of the
the consent of the conservator. The comptroller shall, in addition to Securities and Exchange Commission. The Court, therefore, directs
his other functions as Such, have charge of internal audit. petitioners and the PCGG to effect the implementation of this
decision under the supervision and control of the Sandiganbayan so
b. The corporate secretary must be acceptable to the that the right to vote the sequestered shares and the installation and
conservator. If the corporate secretary ceases to be acceptable to operation of the safeguards above-specified may be exercised and
the conservator, a new one must be appointed by the Board of effected in a substantially contemporaneous manner and with all
Directors upon nomination of the conservator. deliberate dispatch.
c. The external auditors of the corporation must be WHEREFORE, the Petitions are GIVEN DUE COURSE and
independent and must be acceptable to the conservator.1âwphi1 GRANTED
The independent external auditors shall not be changed without the
consent of the conservator. Discussion:
Atty. Ong: PCGG has the right to vote in behalf of sequestered shares.
d. The conservator must be represented in the Board of
Directors and in the Executive (or equivalent) and Audit Committees RIGHT TO VOTE OF PLEDGORS, MORTGAGOR, AND
of the corporation involved and of its majority-owned subsidiaries or ADMINISTRATORS
affiliates. The representative of the conservator must be a full director Section 54—Right to Vote of Secured Creditors and
(not merely an honorary or ex oficio director) with the right to vote Administrators.
and all other rights and duties of a member of the Board of Directors
under the Corporation Code. The conservator's representative shall In case as stockholder grants security interest in his or her shares in
not be removed from the Board of Directors (or the mentioned stock corporations, the stockholder-grantor shall have the right to
Committees) without the consent of the conservator. The conservator attend and vote at meetings of stockholders, unless the secured
shall, however, have the right to remove and change its creditor is expressly given by the stockholder-grantor such right in
representative at any time, and the new representative shall be writing which is recorded in the appropriate corporate books.
promptly elected to the Board and its mentioned Committees.
Executors, administrators, receivers, and other legal representatives
e. All transactions involving the disbursement of corporate duly appointed by the Court may attend and vote in behalf of the
funds in excess of P5 million must have the prior approval of the stockholders or members without need of a proxy.
director representing the conservator, in order to be valid and
effective. Discussion: In case of pledged or mortgaged shares in stock
corporations, the pledgor or mortgagor shall have the right to attend
f. The incurring of debt by the corporation, whether in the and vote at meetings of stockholders, unless the pledgee or
form of bonds, debentures commercial paper or any other form, in mortgagee is expressly given by the pledgor or mortgagor such right
excess of P5 million, must have the prior approval of the director in writing which is recorded on the appropriate corporate books. (n)
representing the conservator, in order to be valid and effective. Executors, administrators, receivers, and other legal representatives
duly appointed by the court may attend and vote in behalf of the
g. The disposition of a substantial part of assets of the stockholders or members without need of any written proxy. (Sir Ong
corporation (substantial meaning in excess of P5 million) shall read Section 55 of the Corporate Code)
require the prior approval of the director representing the
conservator, in order to be valid and effective. Q: Can you pledge you certificate of shares?
A: Yes, you can pledge it because it is your personal property. This is
h. The above safeguards must be written into the articles of precisely a close corporation is not exactly a close corporation, because
incorporation and by-laws of the company involved. In other words,
you cannot absolutely limit the rights of the stockholder to sell to third corporation and should protect not only the interest of the majority but
persons. also those of the minority of the stock.
Section 55—Voting in case of Joint Ownership of Stock. Where a majority of the board of directors wastes or dissipates the funds
The consent of all co-owners shall be necessary in voting shares of of the corporation or fraudulently disposes of its properties, or
stock owned jointly by two (2) or more persons, unless there is a performs ultra vires acts, the court, in the exercise of its equity
written proxy, signed by all the co-owners, authorizing one (1) or jurisdiction, and upon showing that intra-corporate remedy is unavailing,
more of them or any other person to vote such share or shares: will entertain a suit filed by the minority members of the board of
Provided, That when the shares are owned in an “and/or” capacity directors.
by the holders thereof, any one of the joint owners can vote said
shares or appoint a proxy thereof. Where corporate directors are guilty of a breach of trust — not of mere
error of judgment or abuse of discretion — and intra-corporate remedy
Discussion: In case of shares of stock owned jointly by two or is futile or useless, a stockholder may institute a suit in behalf of himself
more persons, in order to vote the same, the consent of all the co- and other stockholders and for the benefit of the corporation, to bring
owners shall be necessary, unless there is a written proxy, signed about a redress of the wrong inflicted directly upon the corporation and
by all the co-owners, authorizing one or some of them or any other indirectly upon the stockholders.
person to vote such share or shares:
First Philippine International Bank vs CA
January 24, 1996 | G.R. No. 115849
Provided, That when the shares are owned in an "and/or"
capacity by the holders thereof, any one of the joint owners can
Facts:
vote said shares or appoint a proxy therefor. (Sir Ong read Section The Bank has been under conservatorship since 1984. It had an
56 of the Corporate Code) agreement with Demetria to sell to the latter 6 parcels of land it owns.
The agreement was made by Demetria with the Bank’s Manager. The
Section 56—Voting rights for Treasury Shares. Conservator, sought the repudiation of the agreement as it alleged that
the Bank Manager has no authority to enter in to such agreement. A
Treasury shares shall have no right to vote as long as such shares case was filed.
remain in the Treasury.
Meanwhile, Henry Co, who holds 80% shares of FPIB, filed a motion for
Discussion: Treasury Shares have no right to vote. intervention with the trial court, which was denied since the trial has been
concluded already and the case is now pending appeal. Henry Co, then
Right to Inspect & Examine—Provided, that those persons filed a separate case against the successor-in-interest (Ejercito) of
(stockholder, director, or officer of a competitor) shall have no right to Demetria, seeking to have the purported contract of sale be declared
inspect or examine. unenforceable against the bank. Ejercito raised the defense of forum
shopping.
Right of Appraisal—Please take note of the instances wherein the
stockholder can exercise his appraisal right. FPIB contends that there is no forum shopping for in the First Case, the
Bank is impleaded as defendant, whereas in the Second Case, it was
DERIVATIVE SUITS Henry Co who is the plaintiff.
Issue: WON there is forum shopping.
Derivative Suit---This is the right of stockholders to file a suit on behalf
of the corporation. It is an exception to the Doctrine of Centralized RULING: Yes
Management. Forum shopping is whenever as a result of an adverse opinion in one
forum, a part seeks a favorable opinion in another. Forum shopping
February 28, 2020 by LAGAT exists where there identity of parties, identity of rights, relief being
founded on the same facts, and identity of the two preceding particulars
We’re gonna discuss the right of stockholders to institute an action. We is such that any judgement rendered in the other action, will regardless
are also going to discuss the right of stockholders to file a derivative suit. of which party is successful, amount to res judicature in the action under
consideration.
Let’s discuss the cases.
Here, there is forum shopping because there exist identity of parties or
ANGELES vs SANTOS interests represented. First Case: FPIB is the defendant. Second case:
1937-08-31 | G.R. No. 43413 Henry Co is the plaintiff. The allegations of the complaint in the second
case show that the stockholders are bringing a “derivative suit”. Being a
FACTS: The minority group of the board of directors in Parañaque Rice derivative suit would mean that Henry Co in filing the case is really
Mill, Inc. sued the majority group alleging mismanagement, representing FPIB. So, whether they sued derivatively or directly, there
unauthorized use of funds, and corporate sabotage. They wanted the is undeniably an identity of interest represented.
corporation be put under receivership and the majority members held
liable, then kicked out of the board. The lower court ruled for the minority Okay. A derivative suit is actually an extraordinary remedy because it’s
group and gave them everything they wanted. Majority members not usual.
question the court’s power to terminate them from their positions in the
boardamong other things) We’ve learned that the doctrine of centralised management, it is the
directors who have the power to sue; it is exercised with the BOD.
ISSUE: WON it was proper for the court to order the removal of Santos Because in cases were they refuse to sue, or for another thing sila talaga
et al from their offices as members of the board of directors of the ang at fault to the detriment of the corporation. The law allows the
corporation. stockholder, even if hindi naman siya ang director, to sue on behalf of
the corporation. Because those people who are there to protect the
HOLDING: NO stockholders, are not doing their job. That’s why the law provides the
remedy of filing of a derivative suit.
There is ample evidence showing that Santos et al are guilty of breach
of trust as directors of the corporation. The board of directors of a Now, is it always the remedy of the minority stockholder? Do you have
corporation is a creation of the stockholders and controls and directs the to be the minority SH in order to exercise such derivative suit? Or kahit
affairs of the corporation by allegation of the stockholders. But the board majority SH ka, pwede ka mag-institute ng derivative suit? Does it
of directors, or the majority thereof, in drawing to themselves the power matter, the stockholdings, when exercising?
of the corporation, occupies a position of trusteeship in relation to the Case: It doesn’t not matter. It’s not actually a prerequisite for you to have
minority of the stock in the sense that the board should exercise good actual percentage of holdings before you can sue. But, in most cases,
faith, care and diligence in the administration of the affairs of the it’s the minority. Why? Because if majority ka, chances are yung
nakaupo doon, are your representative. Always the ones who are filing
a derivative suit are those not represented. Sila yung mga with process. The judgment must be made binding upon the corporation
misrepresented; marginalised sila. in order that the corporation may get the benefit of the suit and may not
bring subsequent suit against the same defendants for the same cause
So this is remedy for them. Di naman necessary talaga, but if you try to of action. In other words, the corporation must be joined as party
sure the cases, you will find that it is the minority who exercises this because it is its cause of action that is being litigated and because
extraordinary remedy of filing a derivative suit. judgment must be a res adjudicata against it.
So what happened here?
In the criminal complaint filed by herein respondent, nowhere is it stated
Kung ang tao real-party-in-interest, ano ang dapat gawin kung gawin? that she is filing the same in behalf and for the benefit of the corporation.
Such should be included in the case as an indispensable party. Thus, the criminal complaint including the civil aspect thereof could not
Was there foreign shopping? Yes be deemed in the nature of a derivative suit.
CHUA vs CA Please take note of the nature of derivative suit.

2004-11-19 | G.R. No. 150793
RN SYMACO vs SANTOS
Facts: 2005-08-18 | G.R. No. 142474
On February 28, 1996, private respondent Lydia Hao, treasurer of Siena Facts:
Realty Corporation, filed a complaint-affidavit with the City Prosecutor of Mariano Guison, as lessor, and the MFBAI, as lessee, executed a
Manila charging Francis Chua and his wife, Elsa Chua, of four counts of contract of lease over a portion of five parcels of land located in
falsification of public documents pursuant to Article 172[3] in relation to Malabon, Metro Manila. Included in the lease agreement was a portion
Article 171[4] of the Revised Penal Code. of his property occupied by Rudy Symaco.
[falsification of public documents: by making or causing it to appear in Meanwhile, Mariano Guison died intestate. On April 30, 1990, the Heirs
said Minutes of the Annual Stockholders Meeting that one LYDIA HAO of Mariano Guison and Norma Symaco, then President and Chairman
CHUA was present and has participated in said proceedings, when in of the Board of Directors of R.N. Symaco Trading Corporation, executed
truth and in fact, as the said accused fully well knew that said Lydia C. an unnotarized contract of lease over a portion of the property previously
Hao was never present during the Annual Stockholders Meeting held on leased to MFBAI.
April 30, 1994 and neither has participated in the proceedings thereof to
the prejudice of public interest and in violation of public faith and Santos alleged, inter alia, that as an MFBAI member, he was a nominal
destruction of truth as therein proclaimed. party; he filed the derivative suit for and in behalf of MFBAI
ISSUE: Is the criminal complaint in the nature of a derivative suit? Issue: Whether the case filed by Luisito T. Santos is a derivative suit,
for and in behalf of the MFBAI;
HOLDING:
Ruling:
Under Section 36, read in relation to Section 23, where a corporation is
an injured party, its power to sue is lodged with its board of directors or The Court also agrees with the petitioners’ contention that as respondent
trustees. An individual stockholder is permitted to institute a derivative Santos was not a legitimate MFBAI member, he had no standing to file
suit on behalf of the corporation wherein he holds stocks in order to a derivative suit for and in its behalf. One of the requisites of a derivative
protect or vindicate corporate rights, whenever the officials of the suit is that the party bringing the suit should be a stockholder/member
corporation refuse to sue, or are the ones to be sued, or hold the control at the time of the action or transaction complained of. The right to sue
of the corporation. In such actions, the suing stockholder is regarded as derivatively is an attribute of corporate ownership which, to be exercised,
a nominal party, with the corporation as the real party in interest. requires that the injury alleged be indirect as far as the
stockholders/members are concerned, and direct only insofar as the
A derivative action is a suit by a shareholder to enforce a corporate corporation is concerned. The whole purpose of the law authorizing a
cause of action. The corporation is a necessary party to the suit. And the derivative suit is to allow the stockholder/member to enforce rights which
relief which is granted is a judgment against a third person in favor of are derivative (secondary) in nature. A derivative action is a suit by a
the corporation. Similarly, if a corporation has a defense to an action shareholder/member to enforce a corporate cause of action.
against it and is not asserting it, a stockholder may intervene and defend
on behalf of the corporation. The Court also agrees with the petitioners’ contention that the CA erred
in ordering that all the original members of the MFBAI should be
Under the Revised Penal Code, every person criminally liable for a impleaded as parties in respondent Santos’ complaint. Contrary to the
felony is also civilly liable. When a criminal action is instituted, the civil CA ruling, all the MFBAI members are not indispensable parties in a
action for the recovery of civil liability arising from the offense charged derivative suit.
shall be deemed instituted with the criminal action, unless the offended
party waives the civil action, reserves the right to institute it separately
or institutes the civil action prior to the criminal action. It is enough that a member or a minority of such members file a
derivative suit for and in behalf of the corporation. After all, the
In Criminal Case No. 285721, the complaint was instituted by members/stockholders who filed a derivative suit are merely nominal
respondent against petitioner for falsifying corporate documents whose parties, the real party-in-interest being the corporation itself for and in
subject concerns corporate projects of Siena Realty Corporation. whose behalf the suit is filed. Any monetary benefits under the decision
Clearly, Siena Realty Corporation is an offended party. Hence, Siena of the court shall pertain to the corporation
Realty Corporation has a cause of action. And the civil case for the
corporate cause of action is deemed instituted in the criminal action.
CUA VS TAN
However, the board of directors of the corporation in this case did not
institute the action against petitioner. Private respondent was the one Facts:
who instituted the action. Private respondent asserts that she filed a PRCI is a corporation organized and established under Philippine laws
derivative suit in behalf of the corporation. This assertion is inaccurate. to carry on the business of conducting horse racing. It owns two real
Not every suit filed in behalf of the corporation is a derivative suit. For a properties. Its management determined that it could initially acquire
derivative suit to prosper, it is required that the minority stockholder 95.55% of the outstanding stock of JTH. In a special stockholder’s
suing for and on behalf of the corporation must allege in his complaint meeting, the acquisition over JTH was presented for approval. Several
that he is suing on a derivative cause of action on behalf of the stockholders expressed their satisfaction with PRCI’s decision to
corporation and all other stockholders similarly situated who may wish purchase the JTH shares due to the latter’s goodwill.
to join him in the suit.20 It is a condition sine qua non that the corporation
be impleaded as a party because not only is the corporation an It began to take steps towards the acquisition. It could be done by
indispensable party, but it is also the present rule that it must be served exchanging one its property (Makati property) for the JTH shares (its
unissued portion of increased authorised capital stock). The proposed Questions:
exchanged was approved in a meeting, but one lone dissident, Dulay. Does the ownership talk about legal ownership or does it include
Subsequently, the Annual Stockholder’s Meeting was scheduled. It beneficial ownership? What if the shares are in trust of a trustee? Can
included the property-for-shares exchange. However, respondents the trustee file a derivative suit? Can the beneficiary file a derivative suit?
Miguel et al, as minority stockholders of PRCI, filed a derivative before What kind of bona fide ownership is being referred to when we talk about
the RTC. derivative suit? Is it legal title? Does it include beneficial title? Does the
beneficial owner have the right to vote? These are questions that are
Issue: WON respondent’s complaints constituted a valid derivative suit? (inaudible) pag-isipan.
RULING: NO REYES vs RTC OF MAKATI

The Court finds specious the averment of Miguel, et al., that appraisal 2008-08-11 | G.R. No. 165744
rights were not available to them, because appraisal rights may only be
exercised by stockholders who had voted against the proposed Facts:
corporate action; and that at the time respondents Miguel, et al., Anastacia Reyes along with her husband, Pedro, established Zenith
instituted Civil Case No. 07-610, PRCI stockholders had yet to vote on Corporation. They, together with their children Oscar, and Rodrigo each
the intended property-for-shares exchange between PRCI and JTH. owned shares of stock. Pedro died in 1964, while Anastacia died in
Miguel, et al., themselves caused the unavailability of appraisal rights 1993.
by filing the Complaint in Civil Case No. 07-610, in which they prayed
that the 11 May 2007 Resolution of the Board of Directors approving the Zenith and Rodrigo filed a complaint with the SEC against Oscar. The
property-for-shares exchange between PRCI and JTH be declared null complaint stated that it is "a derivative suit initiated and filed by the
and void, even before the said Resolution could be presented to the complainant Rodrigo C. Reyes to obtain an accounting of the funds and
PRCI stockholders for approval or rejection. More than anything, the assets of ZENITH INSURANCE CORPORATION which are now or
argument of respondents Miguel, et al., raises questions of whether their formerly in the control, custody, and/or possession of respondent [herein
derivative suit was prematurely filed for they had failed to exert all petitioner Oscar] and to determine the shares of stock of deceased
reasonable efforts to exhaust all other remedies available under the spouses Pedro and Anastacia Reyes that were arbitrarily and
articles of incorporation, by-laws, laws, or rules governing the fraudulently appropriated [by Oscar] for himself [and] which were not
corporation or partnership, as required by Rule 8, Section 1(2) of the collated and taken into account in the partition, distribution, and/or
IRPICC. The obvious intent behind the rule is to make the derivative suit settlement of the estate of the deceased spouses, for which he should
the final recourse of the stockholder, after all other remedies to obtain be ordered to account for all the income from the time he took these
the relief sought have failed. shares of stock, and should now deliver to his brothers and sisters their
just and respective shares.”
SAN MIGUEL vs KHAN Oscar’s defense is that it is not a derivative case, but for a settlement of
1989-08-11 | G.R. No. 85339 estate (Anastacia, their mother).
Facts:
33,133,266 shares of San Miguel Corporation were sequestered by the Issue: whether the trial court, sitting as a special commercial court, has
PCGG on the ground that the stock belonged to Eduardo Cojuangco, jurisdiction over the subject matter of Rodrigo's complaint.
Jr., allegedly a close associate and dummy of former President Marcos,
and the sale thereof was "in direct contravention of . . . EO no. 1 and 2.
The PCGG directed San Miguel "to issue qualifying shares" in the Ruling:
corporation to seven (7) individuals, including Eduardo de los Angeles, Application of the Two tests: Relationship and Controversy Tests.
"from the sequestered shares registered as street certificates.
In December, 1986, the SMC Board, by Resolution No. 86-12-2, Since Rodrigo is initiating the suit not from the interest of his own share,
"decided to assume the loans incurred by Neptunia for the down but that of their mother, he must show that shareholdings will be left to
payment (P500M) on the 33,133,266 shares." The Board opined that him upon the settlement of estate, and that he must register the transfer
there was "nothing illegal in this assumption (of liability for the loans)," of the shares allotted to him to him to make it binding against the
since Neptunia was "an indirectly wholly owned subsidiary of SMC," corporation. He cannot demand that this be done unless and until he
there "was no additional expense or exposure for the SMC Group, and has established his specific allotment (and prima facie ownership) of the
there were tax and other benefits which would redound to the SMC shares.
group of companies."
Without the settlement of Anastacia's estate, there can be no definite
However, at the meeting of the SMC Board on January 30, 1987, de los partition and distribution of the estate to the heirs. Without the partition
Angeles, one of the PCCG representatives in the SMC board, impugned and distribution, there can be no registration of the transfer. And without
said Resolution No. 86-12-2, denying that it was ever adopted, and the registration, we cannot consider the transferee-heir a stockholder
stating that what in truth was agreed upon at the meeting of December who may invoke the existence of an intra-corporate relationship as
4, 1986 was merely a "further study" by Director Ramon del Rosario of premise for an intra-corporate controversy within the jurisdiction of a
a plan presented by him for the assumption of the loan. De los Angeles special commercial court.
also pointed out certain "deleterious effects" thereof. He was however
overruled by private respondents. 14 When his efforts to obtain relief In sum, we find that - insofar as the subject shares of stock (i.e.,
within the corporation and later the PCGG proved futile, he repaired to Anastacia's shares) are concerned - Rodrigo cannot be considered a
the SEC. One of the contentions is that De los Angeles is not a party stockholder of Zenith. Consequently, we cannot declare that an intra-
interest. corporate relationship exists that would serve as basis to bring this case
Issue: WON a derivative suit exists. within the special commercial court's jurisdiction under Section 5(b) of
PD 902-A, as amended. Rodrigo's complaint, therefore, fails the
Ruling: relationship test.
Derivative suit is present.
De los Angeles, as a shareholder, though only minimally (.00001644%), Another significant indicator that points us to the real nature of the
may initiate a derivative suit on behalf of the corporation. There is no complaint are Rodrigo's repeated claims of illegal and fraudulent
need for the shareholder’s stocks to be substantial or significant in order transfers of Anastacia's shares by Oscar to the prejudice of the other
to file a derivative suit. heirs of the decedent; he cited these allegedly fraudulent acts as basis
In other words, the bona fide ownership by a stockholder of stock in his for his demand for the collation and distribution of Anastacia's shares to
own right suffices to invest him with standing to bring a derivative action the heirs. These claims tell us unequivocally that the present controversy
for the benefit of the corporation. The number of his shares is arose from the parties' relationship as heirs of Anastacia and not as
immaterial since he is not suing in his own behalf, or for the protection shareholders of Zenith. Rodrigo, in filing the complaint, is enforcing his
or vindication of his own particular right, or the redress of a wrong rights as a co-heir and not as a stockholder of Zenith. The injury he
committed against him, individually, but in behalf and for the benefit of seeks to remedy is one suffered by an heir (for the impairment of his
the corporation. successional rights) and not by the corporation nor by Rodrigo as a
shareholder on record.
wrongdoing against the corporation that he can champion in his capacity
THERE IS NO DERIVATIVE SUIT as a shareholder on record.
Rodrigo is not a shareholder with respect to the shareholdings originally In summary, whether as an individual or as a derivative suit, the RTC –
belonging to Anastacia; he only stands as a transferee-heir whose rights sitting as special commercial court – has no jurisdiction to hear Rodrigo’s
to the share are inchoate and unrecorded. With respect to his own complaint since what is involved is the determination and distribution of
individually-held shareholdings, Rodrigo has not alleged any individual succession.
cause or basis as a shareholder on record to proceed against Oscar.
Sir: No Jurisdiction. So, that is the last case for the right to institute a
Second, in order that a stockholder may show a right to sue on behalf of derivative action.
the corporation, he must allege with some particularity in his complaint
that he has exhausted his remedies within the corporation by making a We also have the right of the stockholder to demand dissolution. We will
sufficient demand upon the directors or other officers for appropriate talk about that when we reach the topic on corporate debts.
relief with the expressed intent to sue if relief is denied.
So far, we already discussed a lot of things already so—wala ba kayong
Lastly, we find no injury, actual or threatened, alleged to have been done na learn? (ramdom drug test interruption)
to the corporation due to Oscar's acts.
We have discussed the attitudes of the corporation—how it is form, what
February 28, 2020 27:00-54:00 By Mary Caroline Castro are the legal requirements and formalities of creating or establishing a
corporate of a corporation. We discussed the different powers of a
Sir: What do you have to alleged in the complaint in filing for a corporation.
derivative suit?
They are created by law— it does not have as the same powers as
Student: The Supreme Court lay down the requisites in order for there natural persons. We discussed what are the limitations.
a proper derivative suit.
Who governs the corporation? Who is the central nervous system of a
These are the requisites: corporation? We’ve discussed the:
1. the party bringing suit should be a shareholder during the 1. Holding Requirements.
time of the act or transaction complained of, the number of 2. The ultra-vires liabilities of the central government.
shares not being material; (What can they do and what they cannot do)
3. The different Capital Structure.
2. the party has tried to exhaust intra-corporate remedies, i.e., 4. The rights of the Stockholder (the ultimate owner of the
has made a demand on the board of directors for the corporation).
appropriate relief, but the latter has failed or refused to heed
his plea; and That is what we have already discussed so far.
(Sir: nag send sya nang mga demand letters or nang mga documents Now, we are going to a topic of—what if a corporation needs another
dito di ba? corporation?
Student: in his complaint, he merely alleged that as family members he Established muna ‘yong Corporation. What if “along the way” may
tried to reach an amicable settlement but failed.) nakilala s’yang new Corporation? What happens if a corporation needs
another corporation? What are the instances—what can the two
3. the cause of action actually devolves on the corporation; the Corporations do if they need each other? Let’s discuss Merger and
wrongdoing or harm having been or being caused to the Consolidation.
corporation and not to the particular stockholder bringing the
suit. MERGER AND CONSOLIDATION
Based on these requisites, the Supreme Court held that the allegations Over the course of time, it has evolved significantly. Before, you only
on the complaint will not amount a derivative suit. have two types: Merger and Consolidation. Now, of course as business
structures becomes more complicated and complex—depende. The
First, Rodrigo is not a shareholder with respect to the shareholdings decision to merger and acquire certain company is based on different
originally belonging to Anastacia; he only stands as a transferee-heir kinds of premise.
whose rights to the share are inchoate and unrecorded. With respect to
his own individually-held shareholdings, Rodrigo has not alleged any 1. Sometimes it is tax driven.
individual cause or basis as a shareholder on record to proceed against 2. Sometimes it is culture driven.
Oscar. 3. Sometimes it is regulation driven.
Second, in order that a stockholder may show a right to sue on behalf of But the standards or the way Corporations now merged is actually for
the corporation, he must allege with some particularity in his complaint the purpose of—SYNERGY. Essentially, it is synergy because as you
that he has exhausted his remedies within the corporation by making a know, two heads are better than one.
sufficient demand upon the directors or other officers for appropriate
relief with the expressed intent to sue if relief is denied. Paragraph 8 of First, let’s defined—you have your Revised Corporation Code on the
the complaint hardly satisfies this requirement since what the rule provisions on Merger and Consolidation. The Acquisition kasi is very
contemplates is the exhaustion of remedies within the corporate setting: different and medyo complex. There a lot of governing laws when it
comes to different mergers and acquisitions.
8. As members of the same family, complainant Rodrigo C.
Reyes has resorted [to] and exhausted all legal means of MERGER— refers to the joining of two (2) or more entities into an
resolving the dispute with the end view of amicably settling the existing entity or to form a new entity.
case, but the dispute between them ensued.
Sir: hindi lang ito isa or dalawa. It could be two or more entities joining
Lastly, we find no injury, actual or threatened, alleged to have been done together into an existing entity or to form a new entity, including joint
to the corporation due to Oscar‘s acts. If indeed he illegally and ventures. It is the broad definition of a merger. It includes joint ventures.
fraudulently transferred Anastacia‘s shares in his own name, then the
damage is not to the corporation but to his co-heirs; the wrongful transfer It is not a single dimensional when you talk about merger. You have to
did not affect the capital stock or the assets of Zenith. As already consider everything. Once mag merge ‘yan—you have to consider labor,
mentioned, neither has Rodrigo alleged any particular cause or you have to consider culture.
There is a pharmaceutical company in US which merged with the negligence. So, the counsel kailangan mayroong professional
pharmaceutical in UK. Nagkakagulo sila because the work etiquettes of indemnity. Because in the event of suit doon sya kukuha nag pera.
Americans is very different from the work etiquettes of British people. Anyway, ang layo na natin. So, let’s discuss acquisition.
So, nagkakaroon nang problema. It is multi-dimensional. You have to ACQUISITION—refers to the purchase of securities or assets,
consider a lot of things. That is why, usually pag may merger may due through contract or other means, for the purpose of obtaining
diligence pa na gina-require before they enter into a transaction. And control by:
you have to also—very important to the merger is VALUATION. You
have to value the company you are going to acquire. 1. One (1) entity of the whole or part of another;
Now, it is the same as to the value being offered to you? I had an 2. Two (2) or more entities over another; or
experienced, accountant pa ako noon—we were TV 5 before sya naging 3. One (1) or more entities over one (1) or more entities;
TV 5. When the subsidiary of—I think the company of MediaQuest and
Holdings, Incorporated. Of course, ang nangyari the valuation that they
are going to offer was that asset of a certain percentage. 4. Acquisition through other means, it includes acquisition
by an entity through its subsidiary or affiliate of the
Of course, if ikaw naman sa side ni TV 5, you would want to bloat the acquire entity.
net assets para Malaki. Kung ikaw naman sa side ni acquiring company,
you have to make sure that hindi bloated yong figures. You have also to Now, it become obligated nowadays, because there is a lot of the
consider what are the liabilities that you have to assume kasi acquired business structure that being implemented. So we have the case of
corporations. You have to compute that for you to value a company. Bank of Commerce v. Radio Philippines (2014).
It is interesting because kasi para s’yang— but it is realy interesting BANK OF COMMERCE VS. RADIO PHILIPPINES NETWORK,
because you have really to go through contracts. Review everything for INC.,
the purposes of—DUE DILEGENCE to properly value the company. G.R. No. 195615. April 21, 2014
That is the reason why gi acquire mo s’ya. Ang the main purpose talaga Facts: Here, the Traders Royal Bank (TRB) proposed to sell to
na na acquire s’ya kasi nagkakaroon talaga nang problema ang TV 5. petitioner Bank of Commerce (Bancommerce) for ₱10.4 billion its
The reason why ang TV 5 naging biglang maganda—there was a time banking business consisting of specified assets and liabilities.
na ang TV 5, ang pangit. Tapos bigla nalang nagpalabas sila nang block Bancommerce agreed subject to prior Bangko Sentral ng Pilipinas'
buster—syempre the prerogatives are expensive for those pero medyo (BSP's) approval of their Purchase and Assumption (P & A)
because of that nagkaroon sila nang market share. Ang naagaw nila is Agreement.
the GMA. Ang ABS was like—hindi naman nagalaw. But the GMA’s
market share was beaten up, that is why the GMA filed a case for a On November 8, 2001 the BSP approved that agreement subject to
violation against anti-dummy. the condition that Bancommerce and TRB would set up an escrow
fund of PSO million with another bank to cover TRB liabilities for
Because what happened here, the funds that are going (tapos na kasi contingent claims that may subsequently be adjudged against it,
ang kaso kaya hindi na sya sub judice. So, we could talk about it)—the which liabilities were excluded from the purchase.
TV 5 is using for finance to buy those royalties for films came from a
media company in Malaysia. They structure it in a way na nagpapadala Following the above approval, on November 9, 2001 Bancommerce
nang pera tapos in effect talagang in violation of Anti-dummy Act. Since entered into a P & A Agreement with TRB and acquired its specified
there was a case, the Malaysian company got scared so they pulled out assets and liabilities, excluding liabilities arising from judicial actions
they investments and they offered to the Pangilinan. Of course, which were to be covered by the BSP-mandated escrow of ₱50
Pangilinan wanted to acquire the satellites of TV 5 for some business million.
purpose. Kaya nakapasok s’ya media entity.
To comply with the BSP mandate, on December 6, 2001 TRB placed
Now, Commercial Law in general is very interesting. It is not your typical ₱50 million in escrow with Metropolitan Bank and Trust Co.
litigation. Sometimes ‘yong creativity mo rin is being honed when you (Metrobank) to answer for those claims and liabilities that were
practice commercial law. Wala naman kasing Hard and Fast Rule. You excluded from the P & A Agreement and remained with TRB.
have to—it requires experience and it requires analyses for you to really Accordingly, the BSP finally approved such agreement on July 3,
come up—'yon nga lang if you are a commercial law lawyer, you should 2002.
have determine or add value to your clients. They are not expending
this much to you because wala silang makukuha sayo, di ba? The is the Shortly after or on October 10, 2002, acting in G.R. 138510, Traders
worry of the commercial lawyers. You have to think the legal aspect and Royal Bank v. Radio Philippines Network (RPN), Inc., this Court
you have to manage the business. Because ‘legalese’ cannot be ordered TRB to pay respondents RPN, Intercontinental Broadcasting
quantify. Corporation, and Banahaw Broadcasting Corporation (collectively,
RPN, et al.) actual damages of ₱9,790,716.87 plus 12% legal interest
That is why, there is always a—before I went to private practice and some amounts. Based on this decision, RPN, et al.filed a motion
nagtrabaho ako sa isang firm na medyo foreign lawyers ang mga kausap for execution against TRB before the Regional Trial Court (RTC) of
ko. They always find it interesting that may knowledge ako on business Quezon City. But rather than pursue a levy in execution of the
and I am a lawyer. Because sa kanila daw kasi these two does not really corresponding amounts on escrow with Metrobank, RPN, et al. filed
complement each other. The business would say: let’s go here, let’s go a Supplemental Motion for Execution1 where they described TRB as
here because it is profitable na ‘to. Tapos sasabihin nang legal: No, that "now Bank of Commerce" based on the assumption that TRB had
is risky. So, talagang nag aaway ‘yan. Sabi ko: Common naman ‘yan been merged into Bancommerce.
dito.
RTC— issued an Order granting and issuing the writ of execution to
I took it seriously. There is also lots of learning that I been able to acquire cover any and all assets of TRB, "including those subject of the
specially on contract law. Sa atin ang contract di ba, is kung ano ang merger/consolidation in the guise of a Purchase and Sale Agreement
sinabi sa obligation and contracts, etc. ganun lang. kahit ano— lahat I with Bank of Commerce, and/or against the Escrow Fund established
stipulate I stipulate. Doon ko nalaman na meron pala talagang mga by TRB and Bank of Commerce with the Metropolitan Bank and Trust
indemnity clause, may mga LOL. Sabi nang lawyer from Netherlands: Company."
can you discuss LOL? But the is limitation of liability. There is dangers
of that mga indemnity rin, like insurance. Sad to say but our jurisdiction CA— denied the petition. The CA pointed out that the Decision of the
does not really thought of an insurance. If you really in fact a practicing RTC was clear in that Bancommerce was not being made to answer
professional there, mayroon silang professional indemnity. for the liabilities of TRB, but rather the assets or properties of TRB
under its possession and custody.
Kasi sa atin, the negligence of the counsel is also the negligence of the
client. Doon naman sa kanila the client can actually sue the counsel for
Issue: Whether or not there was a merger between TRB and liabilities an equivalent value in Bancommerce shares of stock.
Bancommerce. -NO Bancommerce and TRB agreed with BSP approval to exclude from
the sale the TRB’s contingent judicial liabilities, including those owing
Held: to RPN, et al.
MERGER AND DE FACTO MERGER Sir: Anong bang nangyari dito? Ano ‘yong binili?
Student: Specified assets and liabilities of TRB.
Merger is a re-organization of two or more corporations that results Sir: So, the acquired entity remains an entity?
in their consolidating into a single corporation, which is one of the Student: Yes.
constituent corporations, one disappearing or dissolving and the Sir: Walang na acquired na entity. It is just the assets and liabilities.
other surviving. To put it another way, merger is the absorption of
one or more corporations by another existing corporation, which How about the issue on de facto merger?
retains its identity and takes over the rights, privileges, franchises,
properties, claims, liabilities and obligations of the absorbed Student: The idea of a de facto merger came about because, prior to
corporation(s). The absorbing corporation continues its existence the present Corporation Code, no law authorized the merger or
while the life or lives of the other corporation(s) is or are terminated. consolidation of Philippine Corporations, except insurance companies,
railway corporations, and public utilities.
The Corporation Code requires the following steps for merger or
consolidation: In the book of Dean Cesar Villanueva, he explained that under the
Corporation Code, "a de facto merger can be pursued by one
[1] The board of each corporation draws up a plan of merger or corporation acquiring all or substantially all of the properties of another
consolidation. Such plan must include any amendment, if necessary, corporation in exchange of shares of stock of the acquiring corporation.
to the articles of incorporation of the surviving corporation, or in case
of consolidation, all the statements required in the articles of In the case at bar, No de facto merger took place simply because the
incorporation of a corporation. TRB owners did not get in exchange for the bank’s assets and liabilities
an equivalent value in Bancommerce shares of stock.
[2] Submission of plan to stockholders or members of each
corporation for approval. A meeting must be called and at least two Sir: de facto merger—remember the NELL DOCTRINE? When you
(2) weeks‘notice must be sent to all stockholders or members, acquire the assets of such entity and you putting to the business of such
personally or by registered mail. A summary of the plan must be entity and it becomes a de facto merger.
attached to the notice. Vote of two-thirds of the members or of
stockholders representing two thirds of the outstanding capital stock let’s discuss the ‘mean’ for mergers and acquisitions.
will be needed. Appraisal rights, when proper, must be respected.
Info vid presentation
[3] Execution of the formal agreement, referred to as the articles of https://www.youtube.com/watch?v=S7DoKFPOhZk
merger o[r] consolidation, by the corporate officers of each
constituent corporation. These take the place of the articles of What does “Mergers & Acquisitions” means?
incorporation of the consolidated corporation or amend the articles of
incorporation of the surviving corporation. Okay, let’s do this. Today I am going to teach you something about
mergers and acquisitions. Products and service are things that larger
[4] Submission of said articles of merger or consolidation to the SEC companies can often build and provide more cheaply and more
for approval. efficiently in order to go larger and gain the advantages of size
companies sometimes buy other companies. In this case we talk
[5] If necessary, the SEC shall set a hearing, notifying all corporations about merger and acquisition.
concerned at least two weeks before.
Merger and acquisitions are often very large, important, and costly
[6] Issuance of certificate of merger or consolidation. projects that can change companies enormously. Because the whole
acquisition process is complex and involves many different areas,
x x x companies often brings in lots of advices.
The idea of a de facto merger came about because, prior to the When new acquisition is being considered, one of the most important
present Corporation Code, no law authorized the merger or question is: HOW MUCH IS THE COMPANY WORTH?
consolidation of Philippine Corporations, except insurance
companies, railway corporations, and public utilities. And, except in To establish the value of the company:
the case of insurance corporations, no procedure existed for bringing
about a merger. Still, the Supreme Court held in Reyes v. Blouse, 1. You can compare the company to other similar
that authority to merge or consolidate can be derived from Section companies or
28½ (now Section 40) of the former Corporation Law which provides,
among others, that a corporation may "sell, exchange, lease or 2. You can estimate profits that the company will make
otherwise dispose of all or substantially all of its property and assets" in the future.
if the board of directors is so authorized by the affirmative vote of the
stockholders holding at least two-thirds of the voting power. The Companies usually buy other companies in order achieve cost
words "or otherwise dispose of," according to the Supreme Court, is savings or to generate additional income. So, it is also important for
very broad and in a sense, covers a merger or consolidation. companies to estimate future benefits. But putting a value of future
benefits is not easy.
x x x
Once the purchase has been completed—the companies may made
In his book, Philippine Corporate Law, Dean Cesar Villanueva to be reorganized and new responsibilities may need to be assigned.
explained that under the Corporation Code, "a de facto merger can
be pursued by one corporation acquiring all or substantially all of the Mergers and acquisitions is not that easy. You have to consider a lot of
properties of another corporation in exchange of shares of stock of things. That is why, when company intends to acquire another company
the acquiring corporation. The acquiring corporation would end up they studied that. And they also studied the regulations particularly the
with the business enterprise of the target corporation; whereas, the anti-trust regulations. So, you have the Competition Commission for
target corporation would end up with basically its only remaining case.
assets being the shares of stock of the acquiring corporation."
Synergy for M&A practice, the most used word in M&A is synergy.
No de facto merger took place in the present case simply because
the TRB owners did not get in exchange for the bank’s assets and
SYNERGY— is the concept that the combined value and Instead na mag market ako from the ground, mag acquire na lang ako
performance of two companies will be greater than the sum of the ng already established. This is also the idea of merger.
separate individual parts. Synergy is a term that is most commonly For example your company wanted to buy a smaller competing brewery.
used in the context of mergers and acquisitions (M&A). Essentially, Ang problem sa smaller operating businesses ay kalalaki ng
a business will attempt to merger with a business that has comprehend or expenses. They cannot really compete with big firms
complementary strengths and weaknesses. kasi a lot of expenses they have to considered. They call it patrol
competition. They call it patrol competition kasi pinapatay yung small
TYPES OF SYNERGY players sa industry. This is also the issue that the Philippine Competition
Commission (PCC) should look into, kung pinapatay ba nung big
1. REVENUE SYNERGY companies yung smaller companies/dealers. The good thing having
smaller companies is that, in line with the purpose of that PCC and other
Pwede din naman. Mas malaki ating kikitain pag dalawa tayong regulatory commissions are for the consumers, kung ano talaga yung
magbibenta. Kaysa naman mag co-compete tayo—let’s acquire. Let’s makakbigay ng better value sa consumers.
join forces. Lalaki ‘yong shareholder value natin.
MERGER WAVES
MARKET POWER and a larger company will attract more customers So these are the merger waves since 1800s.
and more brand awareness. You have your complementary products. 1. The First Wave (1897- 1904): The Horizontal Consolidation,
in buying of same competitors, the establishment of parlance.
COMPLEMENTARY PRODUCTS OR VERTICAL MERGER 2. The Second Wave (1916-1929): The Increasing
Let’s say ako ‘yong nagbibenta nag lechon manok—mag a-acquire ako Concentration.
nang mga nagbibenta nang Mang Tomas—di ba complementary sila. I 3. The Third Wave (1965 – 1969): The Conglomerate Era, the
pa-package lang.
one wherein the holding company acquires different industries
and companies para if magbunga ang is ang isa ka company
Also, to reduce competition. We will discuss later the role of the PCC the
Philippine Competition Commission with regards to M&As as mergers and malugi ang is aka industry, wala lang sya.
and acquisitions becomes prevalent. There is a need to regulate. 4. The Fourth Wave (1981-1989): The Retrenchment Era
Concentration. That is also the crisis time. You have Asia’s
2. COST SYNERGY Strategic Megaworld. Big companies are merged. In local
setting ano yung mga companies na naging significant
Pwede namang—remedy is your upper value so, pwede namang you merger? Sun and Smart.
would still get higher profits without changing your upper value but you 5. The age of cross border. The horizontal megaworld because
are going to change your middle value. I am talking revenue expenses of globalization the market becomes broader. Mas malaki
of cost and you have your profits. yung boarder kasi the ceiling invisible boarders of the country.
That is why the merger is not only for one jurisdiction.
The way you can increase this—either you increase the upper value and
Because of these major waves the regulation are also affected.
decrease the middle value. That your lower end or underlined figures
(Sir showed a heat map)
would also increase. So, pwede din naman cost synergy.
THE THREE BASIC FORMS OF ACQUISITIONS
Since pareha tayo may planta sa pagawaan nang kung ano-ano, isahin
There are three basic legal procedures that one firm can use to acquire
nalang natin ‘yong planta. Para naman ma over head natin na it would
another firm: (1) merger or consolidations, (2) acquisition of stock, and
be lower, so that’s— discounts, to be able to attract better prices.
(3) acquisition of assets
MARKET EFFICIENCY— So, why are we doing advertisements
(instead of two)? We can streamline all our operations so we can
1. MERGER OR CONSOLIDATION: Pag merger ka one entity
reduce costs.
remains pag consolidation ka is a+b=c (different entity). Again
REDUCE OVERHEAD COSTS AND OVERLAPPING OF very rare na ang consolidation.
DEPARTMENTS NAD RESOURCES. Let us have one HR instead 2. ACQUSITION OF STOCK: Some only considers acquisition
of two, one production unit since we produce the same goods. (Lift if inacquire yung assets then there is control kasi eventually
from 2019 TSN) they become owners of the majority of the shares. That is the
traditional way of acquisition.
3. FINANCIAL SYNERGY 3. ACQUISITION OF ASSETS: Instead of acquiring shares I
would rather acquire the assets. Why? Sometimes, this is for
I only have this much assets, so I cannot obtain loan kasi konti lang purposes of mitigating liability because if I am going to be
naman ang pwede kong ma collateral. Let’s merge so that mas madali stockholder on your company I may expose to liabilities. Of
ang assets na pwede natin ma “collateralize”. And we could obtain loans course, pag asset lang inacquire ko wala naman akong
so much that we will use it for our working capital.
liability. In fact, a lot of acquisitions are asset base.
So, that is also a good strategy for acquiring or merging with another
So examples of entities, you have acquisition of this part of corporate
entity.
structuring. Acquisition could be share purchase of business purchase.
Under business purchase, it could be itemized sale or lump-sum sale.
Borrow involve and gets better rates, diversification complex or
For lump-sum, example yung planta pati yung lupa bilhin mo (isahan)
companies on portfolio less systematic. Off-setting tax losses.
whlle if itimezed iba yug value ng lpa and iba yung planta. This different
Remember the illustration that I get regarding— CONGLOMERATES?
from share purchase kasi here you do not acquire the asset buy you
They are trying to acquire certain entities in a tax haven jurisdiction and
acquired the shares
tapos in entities in higher income tax rate. Tapos ultimately if kapag I to-
For capital report, it could be buy-back and capital reduction.
total s’ya nag o-off set your mga tax savings.
CORPORATE RESTRUCTURING
February 28 , 2020 by April Latorza
CAPITAL REORGANIZATION
Irereorganize mo yung capital for some purpose. One example is capital
GROWTH reduction, decreasing capital stock or reducing capital stock. So pwede
Mergers can give the acquiring company an opportunity to grow mo sya ireduce as long na di mo ma violate ang trust fund doctrine.
market share without doing significant heavy lifting. Instead, acquirers Pwede ka din mag buy back, for example you want to get back
simply buy a competitor's business for a certain price, in what is usually ownerships. How do you acquire? Sometimes an ang acquisition is not
referred to as a horizontal merger. only acquiring another entity, it is also acquiring interests. Now merger
To better illustrate it, for example mag pagawa ka ng BPO. Is it a better or demerger. Merger is a trend nowadays, also called simple sales of
decision kung mag train ka ng peope or mag pirate ka na la lang, who division or subsidiaries.
are already trained people. Parang ganun yun.
What is amalgamation? An amalgamation is a combination of two or A merger is the voluntary fusion of two companies on broadly equal
more companies into a new entity. Amalgamation is distinct from terms into one new legal entity. The firms that agree to merge are
a merger because neither company involved survives as a legal entity. roughly equal in terms of size, customers, scale of operations, etc. For
Instead, a completely new entity is formed to house the combined this reason, the term "merger of equals" is sometimes used.
assets and liabilities of both companies.
A de-merger is a corporate restructuring in which a business is broken
MERGER (M) VS AMALGAMATION (A) into components, either to operate on their own, to be sold or to be
1. As to creation, M is created by to two or more companies who liquidated. A de-merger (or "demerger") allows a large company, such
share similar operations or are engaged in the same line of as a conglomerate, to split off its various brands or business units to
business combine to expand their services or diversify their invite or prevent an acquisition, to raise capital by selling off components
activities while A is created by to a bigger and financially that are no longer part of the business's core product line, or to create
stronger entity takes over a smaller one. separate legal entities to handle different operations.
2. As to types, M is horizontal, vertical, and conglomeration while
4. SPIN-OFF
A is in the nature of purchase and amalgamation in the nature
A spinoff is the creation of an independent company through the sale or
of merger.
distribution of new shares of an existing business or division of a parent
3. As to legal identity, M gives rise to a new entity while A the company. A spinoff is a type of divestiture. The spun-off companies are
acquiring company retains its identity while the acquired expected to be worth more as independent entities than as parts of a
company’s identity is dissolved. larger business. A spinoff is also known as a spin out or starbust.
4. As to owners of shares, in M the shareholders of the
companies who are parties to the merger become the How it works? When a corporation spins off a business unit that has its
shareholders of the new entity while in A the shareholders of own management structure, it sets it up as an independent company
the acquired company are added to the existing number of under a renamed business entity. The company that initiates the spinoff
shareholders of the acquiring company. is referred to as the parent company. A spinoff retains its assets,
employees, and intellectual property from the parent company, which
Amalgamation is the new term for consolidation. gives it support in a number of ways, such as investing equity in the
newly formed firm and providing legal, technology or financial services.
What is demerger? If merger is imemerged mo, and demerger is a
company has different divisions or department. Kung ang merger is RATIONALE OF SPIN-OFF: A spinoff may occur for various reasons. A
lalaki kayo ang demerger is liliit. Example, SM Department Store, may company may conduct a spinoff so it can focus its resources and better
kids zone, men zone and women zone. If idemerged, gagawin mo iisang manage the division that has more long-term potential. Businesses
entity ang kids, men and women. One example of which is spin off. wishing to streamline their operations often sell less productive or
unrelated subsidiary businesses as spinoffs. For example, a company
What is a spin off or split off or starburst ? Spin off is a good strategy might spin off one of its mature business units that are experiencing little
kasi if you are the owner of the company, pag alam mo na that ang dami or no growth so it can focus on a product or service with higher growth
mong products na binebenta and alam mo na isa lang doon ang saleable prospects. Alternatively, if a portion of the business is headed in a
the rest are losing, inabsorbed ng product mo ang losses ng ibang different direction and has different strategic priorities from the parent
poduct. In order for you to regain an advantage is ispispin off mo yung company, it may be spun off so it can unlock value as an independent
saleable products, ispipin off mo yung losses. operation.
2019 TSN MERGER AND ACQUISITION PROCESS

1. BUY BACK 1. Formulate
An example of buy back is you buy the shares os the stockholders. You 2. Locate
buy them back. To increase the value of these shares from their original 3. Investigate
value. 4. Negotiate:
What is Reverse Stock Split? In negotiation is where the hard work is kasi you have to negotiate the
A reverse stock split is a type of corporate action in which a company price. It is a non-zero sum game. What is a non-zero sum game? A non-
reduces the total number of its outstanding shares in the open market. zero sum game is a situation where there is a net benefit or net loss to
A reverse stock split involves the company dividing its existing total the system based on the outcome of the game.
quantity of shares by a number such as five or ten, which would then be
called a 1-for-5 or 1-for-10 reverse split, respectively. A reverse stock WHAT ARE THE LEGAL IMPLICATONS OF MERGER OF ENTITIES?
split is also known as a stock consolidation, stock merge or share These are the topics that you would consider to conduct merger and
rollback and is the opposite exercise of stock split where a share is acquisition.
divided (split) into multiple parts. 1. Corporation Law of that specific jurisdiction. Consider
BOTH Corporation Codes of the companies for Merger and
Now, bakit usually pinipili ang Buy Back than Stock Split? Kasi in Stock Acqusition.
Split, wala masyadong impact sa economy. The value of these shares 2. Employment Law. Kasi usually the people working will be
remains. At may ibang shares na detrimental to the market. Market transferred. We now call it Human Capital or Human
works for both Quantitative and Qualitative Information. Hindi lang puro Resources. Even in transferring, you need clearance from
lang finances ang ibibigay mo sa market kailangan din ang information. NLRC and DOLE that there is no pending case and you have
to inform the NLRC what will happen to those, are they going
2. CAPITAL REDUCTION to be laid off or are they going to be absorbed.
Capital reduction is the process of decreasing a 3.
company's shareholder equity through share cancellations and share REGULATION AND REGULATORY POWERS
repurchases, also known as share buybacks. The reduction of capital is You have Philippine Competition Commission, mode of practices
done by companies for numerous reasons, including increasing standard. So naka culture, Company culture. Sometimes when you
shareholder value and producing a more efficient capital structure. After merged companies with different culture, the result is disaster.
a capital reduction, the number of shares in the company will decrease
by the reduction amount. While the company's market capitalizationwill COMPANY CULTURE refers to the personality of a company. It defines
not change as a result of such a move, the float, or number of shares the environment in which employees work. Company culture includes a
outstanding and available to trade, will be reduced. variety of elements, including work environment, company mission,
value, ethics, expectations, and goals.
Caveat: Itong Capital Reduction will not be easily approved by the SEC.
You have to prove that it is done not to defraud the creditors. These are the issues or the enemies:
First and foremost the Deal Structure: How to structure you deal, to be
3. MERGER and DEMERGER more appealing to the acquiring company. There are a lot of things to
consider.
1. The Transfer of Liability. E consider mo is if iaacquire mob 1. Pre-Merger Negotiation.
a tong company na to and there is an impending case or this 2. Contract Formulation
company has several liabilities. 3. Deal Implementation
2. Cash vs Equity. Am I going to pay in cash? Or am I going to 4. Commissioning
pay in equity or by shares that I am going to assume? 5. Post implementation
3. Escrow or Earnouts. These are deposits. For example I am
going to acquire you di pa ba sure if may susulpot na Why do some M and As fail?
inutangan na kahit kanino. So to make sure that I will be
protected from that. I wil require an escrow deposit. A deposit 1. There is inability to agree with the terms. No meeting of the minds.
na in effect of, in case mag susulputan yung mga creditor 2. Overestimation of the throw value of the market. You have to
doon ko kukunin yung pambayad. consider due diligence on both sides.
4. Warrant of Representation. Of course there are different 3. Synergy is not practicable. Dapat feasible.
remedies on breach of representation. 4. External change. If there is a change in law.
5. Target Indemnification. This is what should be considered 5. Inability to implement change. Consider the cultural differences.
when you structure a M& A deal. You have the joint and 6. Failure to achieve technological fit.
several liabilities. Liability which can be passed on and not. 7. Conflicting Culture
6.
What are the closing conditions? What if tapos na tayo sa merger, what February 29, 2020 by Franklin Flores
are the conditions? Post termination.
MERGER AND CONSOLIDATION
NON-COMPETE AND NON-SOLICITATION
A non-compete agreement bars a former employee
Section 75. Plan of Merger or Consolidation. –
from competing against a former employer for a specified amount of
Two (2) or more corporations may merge into a single
time. ... The non-solicitation agreement is a less restrictive contract
corporation which shall be one of the constituents corporations or may
and is narrowly aimed at preventing an employee from soliciting his or
consolidate into a new single corporation which shall be the consolidated
her former employer's clients.
corporation.
These are the provision na should be considered in restructuring the
company.
The board of directors or trustees of each corporation, party to the
merger or consolidation, shall approved a plan of merger or
FRIENDLY MERGER AND HOSTILE MERGER
consolidation, shall approved a plan of merger or consolidation, shall
A friendly acquisition occurs when one corporation acquires another
approve a plan of merger or consolidation setting forth the following:
with both boards of directors approving the transaction. There is
agreement (willing victim). Most takeovers are friendly, but hostile
(a) The names of the corporations proposing to merge or consolidate
takeovers and activist campaigns have become more popular lately with
hereinafter referred to as the constituent corporations;
the risk of activist hedge funds.
(b) The terms of the merger or consolidation and the mode of carrying
A hostile acquisition occurs when one corporation, the acquiring
the same into effect;
corporation, attempts to take over another corporation, the target
corporation, without the agreement of the target corporation’s board of
(c) A statement of the changes, if any, in the articles of incorporation of
directors.
the surviving corporation in case of merger; and, in case of
consolidation, all the statements required to be set forth in the articles of
A hostile takeover is usually accomplished by a tender offer or a proxy
incorporation for corporations organized under this Code; and
fight. In a tender offer, the corporation seeks to purchase shares from
outstanding shareholders of the target corporation at a premium to the
(d) Such other provisions with respect to the proposed merger or
current market price. This offer usually has a limited time frame for
consolidation as are deemed necessary or desirable.
shareholders to accept. The premium over the market price is an
incentive for shareholders to sell to the acquiring corporation. The
acquiring company must file a Schedule TO with the SEC if it controls Discussion:
more than 5% of a class of the target corporation’s securities. Often, There is a need for PLAN OF MERGER – it is a document,
target corporations acquiesce to the demands of the acquiring the BOD or BOT of each corporation, the Acquired and the Acquiring
corporation if the acquiring corporation has the financial ability to pull off Entity shall approve a plan of merger or consolidation which shall set the
a tender offer. following items in the plan:
Question: Bakit walang hostile merger, only take over?
Kasi in essence, merger has to be friendly. Kailangan may agreement. (a) The names of the corporations proposing to merge or consolidate
hereinafter referred to as the constituent corporations;
When it comes to acquisitions or take overs, it can be hostile. Kasi hindi
na man kailangan ng consent ng acquired eh. (b) The terms of the merger or consolidation and the mode of carrying
Sa hostile acquisitions, ang pwede gawin ng acquired is to merge with the same into effect;
another company of their choice. It is called the White Knight. A white
knight is an individual or company that acquires a corporation on the (c) A statement of the changes, if any, in the articles of incorporation
verge of being taken over by an unfriendly bidder/acquirer, otherwise of the surviving corporation in case of merger; and, in case of
known as a black knight. Although the target company does not remain consolidation, all the statements required to be set forth in the articles of
independent, acquisition by a white knight is still preferred to a hostile incorporation for corporations organized under this Code; and
takeover. Unlike a hostile takeover, current management typically
remains in place in a white knight scenario, and investors receive better (d) Such other provisions with respect to the proposed merger or
compensation for their shares. consolidation as are deemed necessary or desirable.
• One of which is the Consideration and
• What is the way of acquisition – is it going to be shares per
LIFE CYCLE OF MERGER AND ACQUISITION value or in any other manner depending on the negotiation of
the merger.
First ano ba ang reason behind M(erger) and A(cquisition)?
There is what we call upstream merger.
SYNERGY: the interaction or cooperation of two or more organizations,
substances, or other agents to produce a combined effect greater than the For example, the entities are both owned by the same company tapos
sum of their separate effects. e-merge sila, so magiging upstream merger lang sya kasi it’s going to
be the shares in exchange of the assets of the company, the shares who
Before M and A, there must be a study or what we call feasibility study. we owned that company to be acquired are just the same people from the
have, acquiring company.
From: https://www.accountingtools.com/articles/2019/3/17/upstream-merger (b) As to stock corporations, the number of shares outstanding, or in the
An UPSTREAM MERGER involves merging into a significantly larger case of nonstock corporations, the number of members;
firm. One reason for the smaller firm to do so is that it can gain access
to the broader product line, geographical reach, expertise, and (c) As to each corporation, the number of shares or members voting for
administrative capabilities of the larger firm. or against such plan, respectively;
Upstream merger in a sentence: (d) The carrying amounts and fair values of the assets and liabilities of
the respective companies as of the agreed cut-off date;
1. The upstream merger is an association of companies on a parity
basis. (e) The method to be used in the merger or consolidation of accounts of
2. A fairly common variant of the upstream merger is the construction of the companies;
a vertically integrated company, i.e. the supplier unites with the
consumer. (f) The provisional or pro forma values, as merged or consolidated, using
the accounting method; and
(g) Such other information as may be prescribed by the Commission.
If there’s going to be a basic question on Merger, it’s going be this one This one is different from the Articles of Incorporation.
(Section 76).
In Articles of Merger or Consolidation, you will set out the;
Q:What are the needed approval for the plan of merger?
A: (a) The plan of the merger or the plan of consolidation;
Section 76. Stockholders' or Members' Approval. –
Upon approval by a majority vote of each of the board of (b) As to stock corporations, the number of shares outstanding, or in the
directors or trustees of the constituent corporations of the plan of merger case of non-stock corporations, the number of members;
or consolidation, the same shall be submitted for approval by the
stockholders or members of each of such corporations at separate (c) As to each corporation, the number of shares or members voting for
corporate meetings duly called for the purpose. Notice of such meetings or against such plan, respectively;
shall be given to all stockholders or members of the respective
corporations in the same manner as giving notice of regular or special (d) The carrying amounts and fair values of the assets and liabilities of
meetings under Section 49 of this Code. The notice shall state the the respective companies as of the agreed cut-off date;
purpose of the meeting and include a copy or a summary of the plan of
merger or consolidation. If you are the Acquiring entity, one of the good things in
Merger is that your value will step up, kasi ang mga financial
The affirmative vote of stockholders representing at least two-thirds (2/3) statements ng mga entity is stated as historical matter, so if
of the outstanding capital stock of each corporation in the case of stock they acquired an entity or an asset 10 years ago, the reflected
corporations or at least two-thirds (2/3) of the members in the case of amount for that particular asset will be its historical cost.
non-stock corporations shall be necessary for the approval of such plan.
Any dissenting stockholder may exercise the right of appraisal in i.e. If you bought a land worth 10 Million, ten years ago, the reflected
accordance with this Code: Provided, That if after the approval by the amount for that particular asset will still be its historical cost up to the
stockholders of such plan, the board of directors decides to abandon the present which is 10M.
plan, the right of appraisal shall be extinguished. Now, if it’s going to be bought out by an entity through Merger,
magiging kanya na yung land, but the value of the land will no
Any amendment to the plan of merger or consolidation may be made: longer be 10M, it will be the new value because it is based on
Provided, That such amendment is approved by a majority vote of the the acquisition cost. Kaya nagkakaroon ng step-up values.
respective boards of directors or trustees of all the constituents Kaya it is a good thing for depreciable assets, because it will
corporations and ratified by the affirmative vote of stockholders depreciate in time.
representing at least two-thirds (2/3) of the outstanding capital stock or
of two-thirds (2/3) of the members of each of the constituents (e) The method to be used in the merger or consolidation of accounts of
corporations. Such plan, together with any amendment, shall be the companies;
considered as the agreement of merger or consolidation.
(f) The provisional or pro forma values, as merged or consolidated, using
the accounting method; and
There must be an approval by a
• majority vote of the respective boards of directors or trustees (g) Such other information as may be prescribed by the Commission.
of all the constituents corporations and
• ratified by the affirmative vote of stockholders representing at This a very important provision:
least two-thirds (2/3) of the outstanding capital stock or of two-
thirds (2/3) of the members of each of the constituents Section 78. Effectivity of Merger or Consolidation. –
The articles of merger or of consolidation, signed and certified
corporations.
as required by this Code, shall be submitted to the Commission for its
approval:
Note that there is an Appraisal Right in this instance. So if a stockholder
does not want a merger, then he can exercise his appraisal right- he can
Provided, That in the case of merger or consolidation of banks
have the value of his shares be bought out by the company.
or banking institutions, loan associations, trust companies, insurance
companies, public utilities, educational institutions, and other special
Q: Can you amend the plan of merger?
corporations governed by special laws, the favorable recommendation
A: Yes, with the approval of the members.
of the appropriate government agency shall first be obtained. If the
Commission is satisfied that the merger or consolidation of the
Section 77. Articles of Merger or Consolidation. – corporations concerned is consistent with the provisions of this Code
After the approval by the stockholders or members as and existing laws, it shall issue a certificate approving the articles and
required by the preceding section, articles of merger or articles of plan or merger or of consolidation, at which time the merger or
consolidation shall be executed by each of the constituent corporations, consolidation shall be effective.
to be signed by the president or vice president and certified by the
secretary or assistant secretary of each corporation setting forth If upon investigation, the Commission has reason to believe that the
proposed merger or consolidation is contrary to or inconsistent with the
(a) The plan of the merger or the plan of consolidation; provisions of this Code or existing laws, it shall set a hearing to give the
corporations concerned the opportunity to be heard. Written notice of a statute, as in this case, must be read according to its spirit and intent.
the date, time, and place of hearing shall be given to each constituent In this instance, “the Corporation Code should be given a judicious, not
corporation at least two (2) weeks before said hearing. The Commission stern discordant interpretation, which will promote and uplift the
shall thereafter proceed as provided in this Code. development of trade relations which will encourage friendly commercial
intercourse among corporations provided that is primordial end
Under this provision, where the Commission is satisfied, kasi ang (protection of public interests) is served.
nangyayari when you submit a document for plan of merger, articles of
However, prior to the approval of the proposed stipulation, a
merger, board resolution etc., ibibigay to sa SEC and it will be reviewed
by Commission. confirmation must be made by the applicants that the same would not
adversely affect any third party, nor would it cause a decrease in tax
dues of the corporations involved.
When the Commission is satisfied that the merger or consolidation of
the corporation concerned is NOT inconsistent with the provisions of the
Thus, notwithstanding the provisions of Section 79 of the Code that the
Revised Corporation Code and existing laws, therefore the power of
merger shall only be effective upon issuance by the Commission of the
SEC is only to determine if you complied with the law. They do not have
the power to inquire as to the details or the reason for the consolidation. Certificate of Merger, we confirm that the parties may stipulate on the
effective date of merger.
They will only check if you complied with the law, they are supposed to
ask the rationale of the merger.
It shall be understood, however that the foregoing opinion is rendered
based solely on the facts and circumstances disclosed and relevant
So, if there is compliance by corporations concerned and is consistent
solely to the particular issue raised therein. It shall not be used in the
with the provisions of this Code and existing laws, it shall issue a
certificate approving the articles and plan or merger or of nature of a standing rule binding upon the Commission in other cases or
upon the courts whether of similar or dissimilar circumstances. If, upon
consolidation, at which time the merger or consolidation shall be
further inquiry or investigation, it will be disclosed that the facts relied
effective.
upon are different, this opinion shall be rendered void.
If upon investigation, the Commission has reason to believe that the
proposed merger or consolidation is contrary to or inconsistent with the Please take note that it is the stipulation of the parties that is governing.
provisions of this Code or existing laws, it shall set a hearing to give the Bear this in mind kasi baka mailto kayo sa Codal, it is the agreement of
corporations concerned the opportunity to be heard. the parties on the date of effectivity that should be followed.
Written notice of the date, time, and place of hearing shall be given to Section 79. Effects of Merger or Consolidation. –
each constituent corporation at least two (2) weeks before said hearing. The merger of consolidation shall have the following effects:
The Commission shall thereafter proceed as provided in this Code.
(a) The constituent corporations shall become a single corporation shall
Take note. kapag nalaman ng SEC na inconsistent ka sa RCC become a single corporation which, in case of merger, shall be the
or other relevant laws, it will not automatically deny. Bibigyan ka ng surviving corporation designated in the plan of merger; and in case of
chance to explain bakit ganyan ang plan of merger mo. Liberal ang consolidation, shall be the consolidated corporation designated in the
approach ng SEC dito. The Corporation Code must be given a liberal plan of consolidation;
interpretation that will best execute its purpose. Strict construction
should not be permitted to defeat the policy and purpose of the code. (b) The separate existence of the constituent corporations shall cease,
except that of the surviving or the consolidated corporation;
Ang issue dito is effectivity, sabi ng Section 78, it is upon the issuance
of the certificate of merger or consolidation. (c) The surviving or the consolidated corporation shall possess all the
right, privileges, immunities and franchises of each constituent
Scenario: corporation; and all real or personal property, all receivables due on
A and B merged. A acquired B. Sa plan of merger and deal whatever account, including subscriptions to shares and other choses in
of structures, may cut-off date yan. How much is the value of action, and every other interest of, belonging to, or due to each
assets by B, whatever the value is, yun ang e-acquire ni A. Di constituents corporation, shall be deemed transferred to and vested in
ba mag-submit ka sa SEC? Since may cut-off date, what if na- such surviving or consolidated corporation as though such surviving or
approve ka at this point in time? consolidated corporation had itself incurred such liabilities or obligations;
and any pending claim, action or proceeding brought by or against any
What if nagkaroon ng liability in that particular period of time, constituent corporation may be prosecuted by or against the surviving
sino ang mag-assume nyan? Is it the acquired entity or the or consolidated corporation. The rights of creditors or liens upon the
acquiring entity. property of such constituent corporations shall not be impaired by the
merger or consolidation.
SEC-OGC Opinion No. 19-08
In this case, the proposed stipulation in the Plan of Merger states that
(a) The constituent corporations shall become a single corporation shall
the effective date of merger shall be on January 1, 2018. It should be become a single corporation which, in case of merger, shall be the
noted that this date has already lapsed without any indication of whether
surviving corporation designated in the plan of merger;
the Articles of Merger have already been filed with the Commission.
Therefore, should the Commission approve the Articles of Merger, the i.e. A plus B = A or B, depending on the acquiring entity
Certificate of Merger would only be issued after the effective date of
merger set by the parties.
and in case of consolidation, shall be the consolidated corporation
designated in the plan of consolidation;
In previous opinions, the Commission has accepted a similar stipulation
in the Plan of Merger of corporations based on public policy
i.e. A plus B = C, a different entity
considerations. In the exercise of supervisory and regulatory functions (b) The separate existence of the constituent corporations shall cease,
over corporations and partnerships registered with the Commission, the
except that of the surviving or the consolidated corporation;
Corporation Code should be given a reasonable or liberal construction
which will best execute its purpose, even though such construction is (c) The surviving or the consolidated corporation shall possess all the
not within its strict liberal interpretation. A strict construction should not
right, privileges, immunities and franchises of each constituent
be permitted to defeat the policy and purpose of the Code. Therefore, a
corporation; and all real or personal property, all receivables due on
literal interpretation is to be rejected if it would be unjust or lead to absurd whatever account, including subscriptions to shares and other choses in
results.
action, and every other interest of, belonging to, or due to each
constituents corporation, shall be deemed transferred to and vested in
As pointed out by these opinions, the Supreme Court has ruled that “the such surviving or consolidated corporation as though such surviving or
spirit, rather than the letter of a law determines its construction; hence,
consolidated corporation had itself incurred such liabilities or obligations;
and any pending claim, action or proceeding brought by or against any GLOBAL BUSINESS HOLDINGS vs. SURECOMPSOFTWARE
constituent corporation may be prosecuted by or against the surviving
or consolidated corporation. Due to Global’s merger with ABC and because it is the surviving
corporation, it is as if it was the one which entered into contract with
There is an automatic assumption of liability, so kung ikaw ang Surecomp. In the merger of two existing corporations, one of the
acquired entity, all of your utang will be transferred to the corporations survives and continues the business, while the other is
surviving entity, that is also one of the stipulations included in dissolved, and all its rights, properties, and liabilities are acquired by the
your plan of merger, so you structure the deal. You have to surviving corporation.28 This is particularly true in this case. Based on
make sure kung ano lang yung liabilities that will be assumed. the findings of fact of the RTC, as affirmed by the CA, under the terms
of the merger or consolidation, Global assumed all the liabilities and
Q: What if si creditor may trust sya doon sa acquired entity but obligations of ABC as if it had incurred such liabilities or obligations itself.
wala sa acquiring entity? May choice ba sya na ma-transfer In the same way, Global also has the right to exercise all defenses,
ang liabilities sa acquiring entity? rights, privileges, and counter-claims of every kind and nature which
ABC may have or invoke under the law. These findings of fact were
A: Yes meron. The remedy of the creditor here is contractual. never contested by Global in any of its pleadings filed before this Court.
Under Credit Transactions, merong loans na may stipulation
on non-assignment of ownership, and in the event na may Those are the provisions on Merger and Consolidation under the
change of ownership, the obligation becomes due and Revised Corporation Code. There’s a special law. Before the [Philippine]
demandable Competition Act was enacted, our anti-trust laws are basically in the
Philippine Act – unfair Competition, consumer act provisions, you see
The rights of creditors or liens upon the property of such constituent your provisions on unfair competition, you have your general laws, the
corporations shall not be impaired by the merger or consolidation. Civil Code, you cannot undermine other people.
Why? Because without this provision, it will be an escape Those are just the provisions. There’s really no complete laws how do
route sa mga mangutang, mag-utang-utang pero dili you monitor or review competition in commerce. Now that’s the reason
mubayad. why they enacted the PCA or RA 10667 on July 21, 2015.
Poliand Industrial vs. National Development Company PHILIPPINE COMPETITION ACT

RA 10667
Ordinarily, in the merger of two or more existing corporations, one JULY 15, 2015
of the combining corporations survives and continues the
combined business, while the rest are dissolved and all their rights,
properties and liabilities are acquired by the surviving corporation; It’s a relatively new law. it’s a bit young. In fact, because of this Philippine
The merger shall only be effective upon the issuance of a certificate Competition [PC], have you heard of the recent news about this, that,
of merger by the Securities and Exchange Commission (SEC), the Commission gave the go-signal for the Dennis Uy Empire to acquire
subject to its prior determination that the merger is not some of the shares of the Malampaya Funds for that. To be honest, it’s
inconsistent with Corporation Code not so easy to get a review from the Philippine Competition Commission
The Court cannot accept POLIAND’s theory that with the [PCC], it’s just by chance this time. If Dennis Uy wants to expand his
effectivity of LOI No. 1155, NDC ipso facto acquired the interests in empire, now is really the time. He’s strong with them. It’s not easy.
GALLEON without disregarding applicable statutory requirements
governing the acquisition of a corporation. Ordinarily, in the merger of I had an experience with the PCC. The problem with that, was that it was
two or more existing corporations, one of the combining corporations on 2015, we submitted, what happens with that if you don’t have a
survives and continues the combined business, while the rest are clearance from the PC, and you will file an AOI with the SEC, they will
dissolved and all their rights, properties and liabilities are acquired by not accept that. They will say go to the PC, have it cleared that there’s
the surviving corporation. The merger, however, does not become no abuse of dominant position, no anti-competitive, etc. Once cleared
effective upon the mere agreement of the constituent corporations. that’s the time they’re going to accept your documents.
As specifically provided under Section 79 of said Code, the The problem with that is, the AOI was done this month, next month, it
merger shall only be effective upon the issuance of a certificate of became effective, next month we will file, our problem is, you have your
merger by the Securities and Exchange Commission (SEC), subject to audit within 6 months every 6 months upon the filing of the SEC. if we
its prior determination that the merger is not inconsistent with the Code through their review, we have to be audited again.
or existing laws. Where a party to the merger is a special corporation
governed by its own charter, the Code particularly mandates that a But ultimately, the problem with that is since it’s new, they don’t have
favorable recommendation of the appropriate government agency rules and regulations. What if you’re not a covered entity? What if you’re
should first be obtained. The issuance of the certificate of merger is not covered with the required review with PCC? What will it issue with
crucial because not only does it bear out SEC’s approval but also marks the companies that will merge? They have nothing to issue if it’s not
the moment whereupon the consequences of a merger take place. By covered. What happened, we wrote a letter with SEC. It was pushed
operation of law, upon the effectivity of the merger, the absorbed through. In fact, up at this point, not all mergers, consolidations or
corporation ceases to exist but its rights, and properties as well as acquisitions will require to be reported to the PCC. There’s what is called
liabilities shall be taken and deemed transferred to and vested in the a mandatory review. If only you reach the threshold required, that’s the
surviving corporation. time you have to report it with the Commission, if you didn’t reach that,
they’re not going to give you anything. They will say, your transaction
In the absence of SEC approval, there is no effective transfer of the has not reached the threshold, you don’t have jurisdiction, etc. The
shareholdings in one corporation to another purpose of that (accdg. to the lawyer from the PCC) if we’re going to
The records do not show SEC approval of the merger. issue you that certificate, and you’re not covered, and later on, you
POLIAND cannot assert that no conditions were required prior to the realized you’re covered, we will be estopped. What if you submitted to
assumption by NDC of ownership of GALLEON and its subsisting loans. us as a reason on why you’re not covered is not really correct, and we
Compliance with the statutory requirements is a condition precedent to will investigate it, and that’s wrong, you’re really covered. They could
the effective transfer of the shareholdings in GALLEON to NDC. In say we’re estopped. That’s why they don’t issue any form of document
directing NDC to acquire the shareholdings in GALLEON, the President that you’re not covered even if you’re covered.
could not have intended that the parties disregard the requirements of
law. In the absence of SEC approval, there was no effective transfer of How do we understand the role of the PCA in terms of commerce, in
the shareholdings in GALLEON to NDC. Hence, NDC did not acquire terms of businesses, in terms of business organization? I’ll show you the
the rights or interests of GALLEON, including its liabilities. propaganda.
February 29, 2020 by Belle Fabe https://phcc.gov.ph/videos/anti-cartel/

[link of video shown in class]
Please take note – in a way, it has an extraterritorial application. It’s not
That’s the main thrust of the PCC– to really check the competition only applicable to those companies licensed to do business in the
because if there’s no competition, again it’s the consumers. Philippines but also to those foreign companies that has direct
substantial, and reasonably foreseeable effects in the PH. It’s not
Setting aside the political innuendos of the ABS-CBN franchise, imagine even the current effect, it’s also foreseeable.
if they’re gone. That’s why there are requirements. The PCC should do
it’s work on this particular issue. They should be heard because that’s Let’s say, Samsung would close down, what’s the foreseeable effects in
what they study. Some of the people there are economists, they study the PH? Those are the questions that you have. They do workshops,
statistics, etc. also statisticians, they study the effect of a certain when you review mergers and acquisitions, under the PCC, and
movements in the market, they study the closure in the market. When I sometimes it’s not a hard and fast rule to determine a certain industry,
heard the article saying that GMA would get 50% more of the market in it’s more of analysis, continuing analysis to determine the effects of a
the event of closure of ABS CBN. What’s the problem there if they get certain merger or acquisition.
more 50%? We would lose. They say, something else will come in, what
will they do? They will construct a satellite? They should be studied this This Act shall not apply to the combinations or activities of workers
time. And the PCC should do its work in that deliberations whether or or employees nor to agreements or arrangements with their
not they should stop giving the franchise for ABS-CBN. The point is we employers when such combinations, activities, agreements, or
are at the losing end if this competition is not checked. arrangements are designed solely to facilitate collective bargaining
in respect of conditions of employment.
DECLARATION OF POLICY
It does not apply to unions. When unions merge, the PCC does not care
about that because that’s the Labor Code that will be asked.
Section 2. Declaration of Policy. – The efficiency of market
competition as a mechanism for allocating goods and services is a
CONCEPT OF “SUBSTANTIALLY PREVENTS, RESTRICTS OR
generally accepted precept. The State recognizes that past measures
LESSENS COMPETITION (SLC)
undertaken to liberalize key sectors in the economy need to be
reinforced by measures that safeguard competitive conditions.
How do the PCC say that this particular merger or acquisition is
The State also recognizes that the provision of equal opportunities to all
against or anti-competitive? They have what we call the SLC – it’s a
promotes entrepreneurial spirit, encourages private investments,
very important concept because – if certain movements in the industry
facilitates technology development and transfer and enhances resource
or in the commerce, movements of business organization, substantially
productivity. Unencumbered market competition also serves the interest
prevents, restricts or lessens competition then it can be
of consumers by allowing them to exercise their right of choice over
considered as anti-competitive. This is the standard that they look at.
goods and services offered in the market.
The standard is the substantive legal standard for merger analysis is
Pursuant to the constitutional goals for the national economy to attain a
substantially prevents, restricts or lessens competition [SLC].
more equitable distribution of opportunities, income, and wealth; a
sustained increase in the amount of goods and services produced by
Competition creates incentives for firms to lower prices, increase output,
the nation for the benefit of the people; and an expanding productivity
improve quality, enhance efficiency, or introduce new and better
as the key to raising the quality of life for all, especially the
products. When levels of competition are reduced, firms’ competitive
underprivileged and the constitutional mandate that the State shall
incentives are diminished, to the probable detriment of customers. The
regulate or prohibit monopolies when the public interest so requires and
objective of the PCA is to foster and promote competition. Thus, in
that no combinations in restraint of trade or unfair competition shall be
reviewing mergers, the Commission will look at the effects on
allowed, the State shall:
competition over time in the relevant market or markets affected by the
(a) Enhance economic efficiency and promote free and fair
merger. A merger gives rise to an SLC when it has a significant effect
competition in trade, industry and all commercial economic
on competition, and consequently, on the competitive pressure on firms
activities, as well as establish a National Competition Policy to be
to reduce prices, improve quality, become more efficient or innovative.
implemented by the Government of the Republic of the Philippines
A merger that gives rise to an SLC is likely to lead to an adverse effect
and all of its political agencies as a whole;
on consumers.
(b) Prevent economic concentration which will control the
production, distribution, trade, or industry that will unduly stifle
Why is it very important? If the merger leads to an SLC, then it may be
competition, lessen, manipulate or constrict the discipline of free
detrimental to the consumers. This is their standard. They have to look
markets; and
at the market, does it substantially restricts or lessens or prevents
(c) Penalize all forms of anti-competitive agreements, abuse of
competition to the point the firm doesn’t become competitive? The good
dominant position and anti-competitive mergers and acquisitions,
thing about competition is that you would be innovative, you would offer.
with the objective of protecting consumer welfare and advancing
If there’s a lot of competition then – what would happen? [para lng
domestic and international trade and economic development
nanliligaw ka] You would improve, innovate. This is advantageous to
your consumers. If there are 3 suitors, then the other 2 merged, if that
results to an SLC, in a way, the first one would not be competitive,
SCOPE AND APPLICATION
because “you got this”. That’s the standard of reviewing of this PCC.
Section 3. Scope and Application. – This Act shall be enforceable ANTI-COMPETITIVE AGREEMENTS
against any person or entity engaged in any trade, industry and
commerce in the Republic of the Philippines.
Section 14. Anti-Competitive Agreements. –
It shall likewise be applicable to international trade having direct,
(a) The following agreements, between or among competitors, are
substantial, and reasonably foreseeable effects in trade, industry,
per se prohibited:
or commerce in the Republic of the Philippines, including those
(1) Restricting competition as to price, or components thereof, or other
that result from acts done outside the Republic of the Philippines.
terms of trade;
This Act shall not apply to the combinations or activities of workers
(2) Fixing price at an auction or in any form of bidding including cover
or employees nor to agreements or arrangements with their
bidding, bid suppression, bid rotation and market allocation and other
employers when such combinations, activities, agreements, or
analogous practices of bid manipulation;
arrangements are designed solely to facilitate collective bargaining
(b) The following agreements, between or among competitors which
in respect of conditions of employment.
have the object or effect of substantially preventing, restricting or
lessening competition shall be prohibited:
It shall likewise be applicable to international trade having direct,
(1) Setting, limiting, or controlling production, markets, technical
substantial, and reasonably foreseeable effects in trade, industry,
development, or investment;
or commerce in the Republic of the Philippines, including those
(2) Dividing or sharing the market, whether by volume of sales or
that result from acts done outside the Republic of the Philippines.
purchases, territory, type of goods or services, buyers or sellers or any
other means;
(c) Agreements other than those specified in (a) and (b) of this section An entity that controls, is controlled by, or is under common control with
which have the object or effect of substantially preventing, restricting or another entity or entities, have common economic interests, and are not
lessening competition shall also be prohibited: Provided, Those which otherwise able to decide or act independently of each other, shall not be
contribute to improving the production or distribution of goods and considered competitors for purposes of this section.
services or to promoting technical or economic progress, while allowing
consumers a fair share of the resulting benefits, may not necessarily be
deemed a violation of this Act. Example: 2 firms distributing N95 masks. Sabi nila, let’s have an
An entity that controls, is controlled by, or is under common control with agreement. Ako sa Luzon, ikaw sa Visayas and Mindanao. That
another entity or entities, have common economic interests, and are not agreement per se restricts competition because could dictate the price
otherwise able to decide or act independently of each other, shall not be kasi wala naming pwedeng mag counter-offer. So whatever the price,
considered competitors for purposes of this section. bibilhin mo talaga because of necessity.
It is not only mergers or acquisitions that the PCC review. Sometimes if (c) Agreements other than those specified in (a) and (b) of this section
there is an agreement between competitors, it will review that. Now, one which have the object or effect of substantially preventing, restricting or
of the exceptions of the Data Privacy [Act] is the PC. They have the right lessening competition shall also be prohibited: Provided, Those which
to get documents from competitors. They also have a confidentiality contribute to improving the production or distribution of goods and
clause, that they are penalized if they’re going to divulge the information services or to promoting technical or economic progress, while allowing
that they would get in the process of the review. But of course, when consumers a fair share of the resulting benefits, may not necessarily be
they review an agreement or a transaction, in the process they would deemed a violation of this Act.
know your trade secrets, they would know all these information that is
needed for your business. There’s a provision on confidentiality. This (underlined portion) is the caveat or saving clause for these
agreements. Therefore, doon sa Per Se (a), it is a violation. But sa (b)
WHAT ARE ANTI-COMPETITIVE AGREEMENTS? and (c), although they have for their object SLC (setting, limiting, and
The letter (a) is per se prohibited. We have (3) categories: controlling) but if they have the effect of improving production to the
advantage of the consumer then pwedeng i-approve ng Commission.
CATEGORIES So ire-review ng Comission tapos pagnarealize niya na meron naman
tong redeeming value.
(a) Per se prohibited;
(b) Agreements which have the object or effect of substantially Side comments: Kagaya ng tao, maghanap ka ng redeeming value.
preventing, restricting or lessening competition which is also prohibited; Pangit na nga, masama pa ugali. Hanap ka ng redeeming value. Ito
(c) Agreements other than those specified in (a) and (b) of this section yung ginagawa ng Philippine Competition Commission.
which have the object or effect of substantially preventing, restricting or
lessening competition So ano ba talaga ang overall consequences? Is it line with the spirit of
the law or SLC lang talaga siya. If it has the effect of improving the
production or distribution of goods and services.
(a) Per se prohibited;
(1) Restricting competition as to price, or components thereof, or
Example: Yung 2 firms na sabi ko (N95 masks distributors), if naman
other terms of trade;
talaga hayaan mo yung isa na magdistribute sa Luzon, Visayas and
Mindanao, it would increase the costs kasi wala naman talaga siyang
If the competitors agree (ABS-CBN, GMA, TV5) on – just use your facility sa Visayas and Mindanao, baka naman talaga if i-allow mo siya
imagination. na mag compete sa V & M, mag add siya ng cost kasi may freight pa
kasi wala siyang production dun. Then allowing him to compete would
(2) Fixing price at an auction or in any form of bidding including not be beneficial, then perhaps this agreement does not really involve
cover bidding, bid suppression, bid rotation and market an SLC and perhaps this agreement will be approved.
allocation and other analogous practices of bid manipulation;
Illustration (lifted from 2018 TSN)
February 29, 2020 by Chen Lee T. Apura
PROHIBITED ACTS
Section 14. Anti-Competitive Agreements. –

(a) The following agreements, between or among competitors, are per
se prohibited:
(1) Restricting competition as to price, or components thereof, or other
terms of trade;
(2) Fixing price at an auction or in any form of bidding including cover
bidding, bid suppression, bid rotation and market allocation and other
analogous practices of bid manipulation;
(b) The following agreements, between or among competitors which

have the object or effect of substantially preventing, restricting or
lessening competition shall be prohibited:
(1) Setting, limiting, or controlling production, markets, technical

development, or investment;
(2) Dividing or sharing the market, whether by volume of sales or
purchases, territory, type of goods or services, buyers or sellers or any
other means;
(c) Agreements other than those specified in (a) and (b) of this section An entity that controls, is controlled by, or is under common control with
which have the object or effect of substantially preventing, restricting or another entity or entities, have common economic interests, and are not
lessening competition shall also be prohibited: Provided, Those which otherwise able to decide or act independently of each other, shall not be
contribute to improving the production or distribution of goods and considered competitors for purposes of this section.
services or to promoting technical or economic progress, while allowing
consumers a fair share of the resulting benefits, may not necessarily be
Therefore, if you are controlled by someone and you cannot decide
deemed a violation of this Act. independently, you are not in competition.
malaki aking market share kasi ako si Globe and Smart. Let’s say I am
Section 15. Abuse of Dominant Position. – It shall be prohibited for
in a dominant position. I am Smart or Globe. Necessarily, hindi ako in
one or more entities to abuse their dominant position by engaging in
conduct that would substantially prevent, restrict or lessen competition: violation of the PCA, it’s the abuse of that dominant position that allows
you to in violation of the act.
(a) Selling goods or services below cost with the object of driving
competition out of the relevant market: Provided, That in the
Commission’s evaluation of this fact, it shall consider whether the entity Dominant position is not in itself prohibited. It is the abuse of that
dominant position that is prohibited.
or entities have no such object and the price established was in good
faith to meet or compete with the lower price of a competitor in the same
market selling the same or comparable product or service of like quality; Mind you, if you read the entire law, andaming SLC. So if tatanungin
sayo what is SLC, ito na yung sago niyo, this is the standard of review.
(b) Imposing barriers to entry or committing acts that prevent
competitors from growing within the market in an anti-competitive
manner except those that develop in the market as a result of or arising (a) Selling goods or services below cost with the object of driving
from a superior product or process, business acumen, or legal rights or competition out of the relevant market: Provided, That in the
laws; Commission’s evaluation of this fact, it shall consider whether the entity
(c) Making a transaction subject to acceptance by the other parties of or entities have no such object and the price established was in good
other obligations which, by their nature or according to commercial faith to meet or compete with the lower price of a competitor in the same
usage, have no connection with the transaction; market selling the same or comparable product or service of like quality;
(d) Setting prices or other terms or conditions that discriminate
unreasonably between customers or sellers of the same goods or Also known as Cut-throat Competition. Since you are in a dominant
services, where such customers or sellers are contemporaneously
position, mababa yung overhead mo. Yung mga small players, you can
trading on similar terms and conditions, where the effect may be to
kill them by lowering the costs because they cannot lower the cost
lessen competition substantially: Provided, That the following shall be anymore. So pwedeng babaan mo hanggang sa hindi na nila kaya,
considered permissible price differentials:
that’s what we call Cut-throat Competition. If you engage in that strategy,
(1) Socialized pricing for the less fortunate sector of the economy;
it can be considered an abuse of dominant position.
(2) Price differential which reasonably or approximately reflect
differences in the cost of manufacture, sale, or delivery resulting from
differing methods, technical conditions, or quantities in which the goods (b) Imposing barriers to entry or committing acts that prevent
or services are sold or delivered to the buyers or sellers; competitors from growing within the market in an anti-competitive
(3) Price differential or terms of sale offered in response to the manner except those that develop in the market as a result of or arising
competitive price of payments, services or changes in the facilities from a superior product or process, business acumen, or legal rights or
furnished by a competitor; and laws;
(4) Price changes in response to changing market conditions,
marketability of goods or services, or volume; So barriers to entry. Bina-bar mo yung existing potential competitors
(e) Imposing restrictions on the lease or contract for sale or trade of from entering the market.
goods or services concerning where, to whom, or in what forms goods
or services may be sold or traded, such as fixing prices, giving Example: You enter into an exclusive distribution agreement with one
preferential discounts or rebate upon such price, or imposing conditions of the suppliers of the component that you are selling. Say, you’re selling
not to deal with competing entities, where the object or effect of the a gadget, cellphone mo na mag rerecord then transcribe na agad siya.
restrictions is to prevent, restrict or lessen competition Kelangan may microchip siya. Ang microchip is developed by another
substantially: Provided, That nothing contained in this Act shall prohibit firm. And you enter into an exclusive distribution agreement with that
or render unlawful: firm. So paano ba maka compete ang competitors mo if the main source
(1) Permissible franchising, licensing, exclusive merchandising or of your product will supply the component na yun is nakukuha mo na.
exclusive distributorship agreements such as those which give each So that’s an example of barriers to entry in the market.
party the right to unilaterally terminate the agreement; or
(2) Agreements protecting intellectual property rights, confidential
information, or trade secrets; (d) Setting prices or other terms or conditions that discriminate
(f) Making supply of particular goods or services dependent upon the unreasonably between customers or sellers of the same goods or
purchase of other goods or services from the supplier which have no services, where such customers or sellers are contemporaneously
direct connection with the main goods or services to be supplied; trading on similar terms and conditions, where the effect may be to
(g) Directly or indirectly imposing unfairly low purchase prices for the lessen competition substantially: Provided, That the following shall be
goods or services of, among others, marginalized agricultural producers, considered permissible price differentials:
fisherfolk, micro-, small-, medium-scale enterprises, and other (1) Socialized pricing for the less fortunate sector of the economy;
marginalized service providers and producers;
(h) Directly or indirectly imposing unfair purchase or selling price on their Anong meaning nito? When you are in a dominant position you can
competitors, customers, suppliers or consumers, provided that prices actually dictate the price.
that develop in the market as a result of or due to a superior product or
process, business acumen or legal rights or laws shall not be considered Example: nag lower ka ng cost. What if the reason for lowering the cost
unfair prices; and is to cater the less fortunate sector? Then, that may be permissible. That
(i) Limiting production, markets or technical development to the is not anti-competition kasi hindi ka naman sa general market. For
prejudice of consumers, provided that limitations that develop in the example, nagbigay ka ng discount sa mga senior citizens, on top of the
market as a result of or due to a superior product or process, business 20%. That is not anti-competition kasi that is a socialized pricing for the
acumen or legal rights or laws shall not be a violation of this Act: less fortunate sector. If your income is this one, tag piso nalang. Ganun.
Provided, That nothing in this Act shall be construed or interpreted as a That may be permissible but it has to be reviewed by the PCC.
prohibition on having a dominant position in a relevant market or on
acquiring, maintaining and increasing market share through legitimate
means that do not substantially prevent, restrict or lessen competition: (f) Making supply of particular goods or services dependent upon the
Provided, further, That any conduct which contributes to improving purchase of other goods or services from the supplier which have no
production or distribution of goods or services within the relevant market, direct connection with the main goods or services to be supplied;
or promoting technical and economic progress while allowing Example: Nag offer kayo ng cellphone, dami kayo ng offer. Pero in-
consumers a fair share of the resulting benefit may not necessarily be offeran ka ng cellphone ng isa, bili ka may house and lot kasama. How
considered an abuse of dominant position: do you think the competitors can compete with that pricing scheme?
Provided, finally, That the foregoing shall not constrain the Commission That is an abuse of dominant position.
or the relevant regulator from pursuing measures that would promote
fair competition or more competition as provided in this Act.
(h) Directly or indirectly imposing unfair purchase or selling price on their
Pag nasa dominant position ka, hindi naman necessarily anti- competitors, customers, suppliers or consumers, provided that prices
competitive ka, hindi necessarily you are violating the law. For example, that develop in the market as a result of or due to a superior product or
process, business acumen or legal rights or laws shall not be considered acquisitions having a direct, substantial, and foreseeable effect on trade,
unfair prices; and industry, and commerce in the Philippines based on factors deemed
relevant by the Commission.
Example: Pareho kayo ng cellphone na binebenta pero nag innovate
2 TYPES OF REVIEW:
ka, ginawa mo siyang mag record ang mag transcribe na. Consequently,
pwede ka magdagdag ng price. That is ok because it would not 1. Motu propio
2. Upon notification
encourage competition, mag cocompete din yung competitors mo. But
2.1. Not covered
please take note of your patent laws.
2.2. Mandatory
Usually kasi ginagawa ngayon for the competitors to compete with the
Bago ka mag-memerge, you are required to notify the PCC kasi pag
innovations, they do reverse engineering. Bibili sila ng product tapos
pag-aralan nila then the week after may iba ng version, mas mura. You wala kang notification, hindi ka ientertain ng SEC niyan.
have your patent laws for that.
Pwede bang walang notification? Motu propio nalang mag review? Yes,
the PCC has the power to conduct a motu propio. Paano nila malalaman
(i) Limiting production, markets or technical development to the to? For example nag publish, nag marketing ka: XX Company will
prejudice of consumers, provided that limitations that develop in the acquire X Company. So makita sa news. PCC has the right to motu
market as a result of or due to a superior product or process, business propio that. Meron siyang ganung powers. Sa notification kasi, the
acumen or legal rights or laws shall not be a violation of this Act: documents will come from you. Submit ka ng documents, mag re-require
ang PCC na submit this then pag-aaralan niya yung kaso mo.
Kung wala pang demand, magho-hoard ka muna. Example yung masks,
tapos pag madami na demand, bigla ka mag sale. That’s an abuse of Kung ganon naman pala, Sir then pwede i-doktor and I will just submit
dominant position. good papers? The answer is yes, but also the answer is no. Apart from
the submission of documents, they have the power to inquire other
Lifted from 2018 TSN: legitimate sources. For example, they have the power to subpoena kung
If you prove na is an indispensable and natural result of a superior ano ba talaga yung finile mo. They can even engage in investigations.
product or process, business acumen or legal rights or laws, that cannot
be considered as abuse of dominant position. Example: When Grab took over Uber. Sa notification meron kang
dalawa: not covered and mandatory. Pag covered ka sa mandatory,
For example you have a technology that can make somebody fall in love. talagang ire-review ka. Pag hindi ka naman covered sa mandatory,
Of course hindi ka naman kayang icompete ng ibang competitor, so pwede kang hindi ireview. What happened with Uber and Grab, hindi
there’s a barrier to entry. sila part sa threshold so hindi sila covered supposedly. Sinasabi nila,
hindi kami covered so wag mo kaming hayaang ireview. Pero upon
That is presumed to be anti-competitive. But if you have proven to the investigation by the PCC, nalaman nila na the ultimate parent of Uber
Commission that this is because of our developed technology or owns billions and billions of asset. The ultimate parent is covered by the
enhanced product, not because we would want to really bar the entry to review notification. Sabi ng PCC “you are covered by the mandatory
this market, that cannot be considered as anti-competitive. It cannot be review notification then let us review.” That’s why they were penalized
considered as an abuse of dominant position. This is because you have by how many billions of pesos for not being transparent with the PCC.
proven that such is a result of a superior product or process, business
acumen or legal rights or laws, as a result of your patented invention. It Lifted from 2018 TSN:
cannot be considered as a barrier to entry, hence, it cannot be In conducting the review, ang criteria lang nila talaga is if it is likely to
considered as abuse of dominant position. SLC the relevant market for goods and services to be determined by the
Commission. And they would take into account any substantiated
Ang ginagawa niyan, ni-rereview ng Philippine Competition Commission efficiencies put forward by the parties to the proposed merger or
(PCC). If you have a merger or acquisition, you have to check kasi acquisition, which are likely to arise from the transaction.
meron silang mandatory threshold. Kapag papasok ka sa mandatory,
you have to notify them. Then, they will review. Kung sasabihin nila na Situation: You have a plan of merger and acquisition. You have to ask,
hindi naman to anticompetitive, hindi naman to abuse of dominant kailangan ko ba mag notify sa PCC? We will discuss the threshold kung
position. They would approve the merger and acquisition. But if they say ano yung mandatory qualification. If the answer is yes, you have to go
na this will result to SLC, ang sasabihin nila you may continue but please to Phase 1, which is review of the PCC. If hindi mo kailangan mag-notify,
provide this as a condition, unless nalang kung prohibited. That is the then go ahead sa merger and acquisition. Now dito tayo sa review. Si
mandate of the PCC- they have the right to review merger and PCC ise-set niya. Kung ikaw ang client, you really have to prove that
acquisitions. there is no SLC. Si PCC hindi yan siya bigla mag-gigive up.
Provided, That nothing in this Act shall be construed or interpreted as a Mag evaluate na siya based lang sa imong ihatag na documents. Ang
prohibition on having a dominant position in a relevant market or on gawin ni PCC, magtan-aw nan a siya og news. Kung mu-ingon ka nga
acquiring, maintaining and increasing market share through legitimate na you will get only 60% of company X, pero nagpa-presscon ka unya
means that do not substantially prevent, restrict or lessen competition: you will get 100% control of company X diay, i-coconsider yan ng PCC.
The results of the review is confidential. Kasi they would have access to
Again, this phrase is frequently mentioned in the Act kasi ito ang trade secrets. Kasi titingnan nila yung technology, ‘yung lahat. ‘Yan ang
standard. All of these things pwede naman permissible if it does not gagawin ni PCC. Now if they say na di naman to anti-competitive, they
produce any SLC. will proceed to Phase 2. Eton a ‘yung in depth. Economic na to sya. They
will compare with the relevant market. Kunwari may Jollibee dito sa
MERGERS AND ACQUISITIONS Davao. Kunwari magtatayo ka ng “Chicken Joy”. Tapos ‘yung chicken
joy mo mas masarap, i-cocompare nila yan sa relevant market. So they
IMPLEMENTING RULES AND REGULATION OF RA 10667 would consider Davao, and other applicable factors, yung ingredients
mo, etc. Kung sabihin nila na hindi siya SLC, then go ahead.
SECTION 1. Review of mergers and acquisitions. The Commission,
motu proprio or upon notification as provided under these Rules, shall Q: Pag sabihin nila na may SLC, can they prohibit?
have the power to review mergers and acquisitions having a direct, A: No. Hindi nila ipro-prohibit yan. Ang gagwin nila, yes go ahead
substantial and reasonably foreseeable effect on trade, industry, or provided that may conditions.
commerce in the Philippines, based on factors deemed relevant by the
Commission. Q: Pwede bang sabihin na di naman na wala ang conditions kasi may
enhanced or may gains in efficiencies?
A: The burden of proof in proving that there is gain and efficiencies is on
The Commission may motu propio or upon notification as provided
the applicant. Pag ma prove nila na there is gain and efficiency, despite
under these rules, shall have the power to review mergers and the fact that it will result to SLC,then the PCC will approve you
application. Kung tan-awon nimo tanan, mag boil down siya kung Ito yung mandatory, merong threshold which we will discuss later. If you
mandatory ang notification. So kung ako ang abogado, iensure nako na satisfy the threshold, you are required to notify the Commission before
dili siya muabot sa threshold. Para sili nako mag undergo sa process. the execution of the definitive agreements relating to the transaction.
Dili na nako kailangan i-notify. Before kayo mag execute ng plan/articles of merger, you have to notify
kung part ka ng threshold. So timing is essential for this kasi magkaiba
But take note that PCC has “motu proprio”… can review any entities. So yung requirements ng different government institutions.
pag hindi ka dumaan sa kanila, pag kita nila na “Oy, let’s check this.”
What happened to grab and uber? They didn’t notify. Pag tiningnan mo (b) If notice to the Commission is required for a merger or acquisition,
si Grab and uber, sobrang baba ng total assets. So hindi siya under the then all acquiring and acquired pre-acquisition ultimate parent
mandatory. Pero ang ultimate parent niya, ‘dun ang malaking kita. So entities or any entity authorized by the ultimate parent entity to file
pag-tingin doon, they notified and penalized grab. notification on its behalf must each submit a Notification Form (the
“Form”) and comply with the procedure set forth in Section 5 of this
Rule. The parties shall not consummate the transaction before the
IMPLEMENTING RULES AND REGULATION OF RA 10667
expiration of the relevant periods provided in this Rule.
SECTION 1. Review of mergers and acquisitions.
So you have to go to the ultimate parent. You have to layer, kung sino
ba talaga yung ultimate owner.
(a) In conducting this review, the Commission shall:
1. Assess whether a proposed merger or acquisition is likely to
Now Sir, for example gusto na naming mag acquire tapos ang bagal ng
substantially prevent, restrict, or lessen competition in the relevant
PCC, bagal ang pag-review, wala pang result. Ano yun naka tengga
market or in the market for goods and services as may be
determined by the Commission; and kami? My answer is no. Mind you the periods for the review by the PCC
is very strict. If hindi nila magawan ng report during that time, it is
2. Take into account any substantiated efficiencies put forward by the
deemed approved. After the lapse of the period kung wala pang result,
parties to the proposed merger or acquisition, which are likely to
arise from the transaction. it is deemed approved.
(b) In evaluating the competitive effects of a merger or acquisition, the
These are the thresholds that you have to remember:
Commission shall endeavor to compare the competitive conditions that
would likely result from the merger or acquisition with the conditions that IMPLEMENTING RULES AND REGULATION OF RA 10667
would likely have prevailed without the merger or acquisition.
SECTION 3. Thresholds for compulsory notification. Parties to a
(c) In its evaluation, the Commission may consider, on a case-to-case merger or acquisition are required to provide notification when:
basis, the broad range of possible factual contexts and the specific
competitive effects that may arise in different transactions, such as: (a) The aggregate annual gross revenues in, into or from the
1. The structure of the relevant markets concerned; Philippines, or value of the assets in the Philippines of the ultimate
2. the market position of the entities concerned; parent entity of at least one of the acquiring or acquired entities,
3. the actual or potential competition from entities within or outside of including that of all entities that the ultimate parent entity controls,
the relevant market; directly or indirectly, exceeds One Billion Pesos
4. the alternatives available to suppliers and users, and their access (PhP1,000,000,000.00).
to supplies or markets;
5. any legal or other barriers to entry.
So ang kasali lang sales in, into, or from the Philippines.
Of course pag ang binebenta mo naman, specialized products for Q: Bakit kasali yung gross sales from the Ph?
example Pinoy style tomato sauce, you cannot compare that to the A: Kasi you are talking about those companies na na-incorporate outside
Italian style tomato sauce. Mind you, when we did the workshops, you but has a competitive effect in the market in Ph.
have to really sub-categorize your products kasi you have a certain COMMISSION
market na kini-cater, so the competitiveness that you are talking about
is with respect to that market. You also have to consider the market GUIDELINES ON THE COMPUTATION OF MERGER
position of the entities. Is your consumer or your current market, what is NOTIFICATION THRESHOLDS
their propensity to get out of the market or get in the market?
I. Deductions
IMPLEMENTING RULES AND REGULATION OF RA 10667 2.6 Except for sales discounts, sales returns and allowances, and value
added tax or percentage tax; no other deduction shall be made against
SECTION 2. Notifying entities. gross revenues from sales.
(a) Parties to a merger or acquisition that satisfy the thresholds in
Section 3 of this Rule are required to notify the Commission before You consider the gross revenue, you also consider the assets in the Ph.
the execution of the definitive agreements relating to the
transaction. GUIDELINES ON THE COMPUTATION OF MERGER
NOTIFICATION THRESHOLDS
(b) If notice to the Commission is required for a merger or acquisition,
then all acquiring and acquired pre-acquisition ultimate parent B. Assets in the Philippines
entities or any entity authorized by the ultimate parent entity to file 2.20 The determination of whether a tangible asset is an asset “in” the
notification on its behalf must each submit a Notification Form (the Philippines depends on its actual physical location. Thus,
“Form”) and comply with the procedure set forth in Section 5 of this tangible movable and immovable assets located in the
Rule. The parties shall not consummate the transaction before the Philippines that are booked or reflected in the balance sheet or
expiration of the relevant periods provided in this Rule. audited financial statements of both Philippine and foreign entity
are assets “in” the Philippines.
(c) In the formation of a joint venture (other than in connection with a
merger or consolidation), the contributing entities shall be deemed 2.21 However, the location of intangible assets is typically determined
acquiring entities, and the joint venture shall be deemed the by the statute conferring the legal rights and privileges associated
acquired entity. with it. Thus, intangible assets with rights and privileges
conferred by Philippine statute such as patents and copyrights
(a) Parties to a merger or acquisition that satisfy the thresholds in are assets in the Philippines.
Section 3 of this Rule are required to notify the Commission before
the execution of the definitive agreements relating to the 2 THINGS YOU HAVE TO CONSIDER FOR PURPOSES OF
transaction. DETERMINING THE THRESHOLDS:
1. Revenues
2. Assets
SIZE OF THE PARTY TEST ii. The gross revenues from sales in, into, or from the Philippines of
If the party to the transaction covered by this threshold then required the corporation or non-corporate entity or by entities it controls,
compulsory, mandatory notification. Even if the transaction is not really other than assets that are shares of any of 10 those corporations,
covered. For example, malalaking company imerge pero ang exceeds PhP2,400,000,000.00
consideration for the transaction sobrang liit pero malalaking companies
involved, that is still covered. iii. If:
SIZE OF THE PARTY TEST1 - The aggregate annual gross revenue in, A. as a result of the proposed acquisition of the voting shares of a
into, or from the Ph or value of the assets in Ph of the ultimate parent corporation, the entity or entities acquiring the shares, together with
entity of at least 1 of the acquiring or acquired entities including that of their affiliates, would own voting shares of the corporation that, in
all the entities that the ultimate parent controls directly or indirectly the aggregate, carry more than the following percentages of the
exceeds 6 billion pesos2 (as amended by the Commission Resolution votes attached to all the corporation’s outstanding voting shares:
02-2020).
I. Thirty-five percent (35%), or
If one of the parties, acquiring or acquired has a gross revenue or assets II. Fifty percent (50%), if the entity or entities already own more than
of the ultimate parent exceeds 6 billion pesos, then they are required to the percentage set out in subsection I above, as the case may be,
provide notification. That is the size of the parties. before the proposed acquisition;
SIZE OF THE TRANSACTION TEST

If I will acquire, I will get 35% or 50% if the entity or entities already own
The size of the transaction pertains to the computation of the value of
more than the percentage set out in subsection I above, as the case may
the assets being acquired or/and gross revenues generated by the be, before the proposed acquisition.
assets being acquired, or of the acquired entity and entities it controls,
depending on the type of transaction provided under Rule 4, Section
3(b) and (d), as amended3.
B. as a result of the proposed acquisition of an interest in a non-
The size of the transaction as determined under Rule 4, Section 3(b) of corporate entity, the entity or entities acquiring the interest,
the IRR, exceeds Php 2,400,000,000.004. together with their affiliates, would hold an aggregate interest in the
non-corporate entity that entitles the entity or entities to receive
more than the following percentages of the profits of the non-
corporate entity or assets of that non-corporate entity on its
Thresholds for compulsory notification
dissolution:
I. Thirty-five percent (35%), or
SECTION 3(b)
II. Fifty percent (50%), if the entity or entities acquiring the interest are
already entitled to receive more than the percentage set out in
(1) With respect to a proposed merger or acquisition of assets in the subsection I immediately above before the proposed acquisition.5
Philippines if either
i. the aggregate value of the assets in the Philippines being acquired Again, if you get 35% of the interest of the acquired entity, you are
in the proposed transaction exceeds PhP2,400,000,000.00; or required to notify.
ii. the gross revenues generated in the Philippines by assets acquired
in the Philippines exceeds PhP2,400,000,000.00. Q: How about if you exceeded the thresholds?
Again, acquisitions may not be purchase of securities but purchase of (c) Where an entity has already exceeded the 35% threshold for an
assets. acquisition of voting shares, or the 35% threshold for an acquisition
of an interest in a non-corporate entity, another notification will
be required if the same entity will exceed 50% threshold after
making a further acquisition of either voting shares or an interest in
a non-corporate entity.6
SECTION 3(b) First acquisition mo 35% tapos nag acquire ka ulit nagging 50%, you
need to notify again. That’s the second notification. Joint venture is also
(2) With respect to a proposed merger or acquisition of assets outside included.
the Philippines, if
i. the aggregate value of the assets in the Philippines of the acquiring Q: How about successive transactions? Nag merge ka sa isa, then wala
entity exceeds PhP 2,400,000,000.00; and pang one year, nag merge ka na naman sa iba. Dami mong pera.
ii. the gross revenues generated in or into the Philippines by those
assets acquired outside the Philippines exceed PhP (e) A merger or acquisition consisting of successive transactions, or
2,400,000,000.00. acquisition of parts of one or more entities, which shall take place
Example under (i): I am an entity in the Ph but I want to acquire assets within a one-year period between the same parties, or any entity
outside the Ph, meron pa ring threshold for that. they control or are controlled by or are under common control with
another entity or entities, shall be treated as one transaction. If a
binding preliminary agreement provides for such successive
transactions or acquisition of parts, the entities shall provide
notification on the basis of such preliminary agreement. If there is
no binding preliminary agreement, notification shall be made when
SECTION 3(b)
the parties execute the agreement relating to the last transaction
which, when taken together with the preceding transactions,
(4) With respect to a proposed acquisition of (i) voting shares of a satisfies the thresholds under this Section.7
corporation or of (ii) an interest in a non-corporate entity
So, i-add mo yung value for that particular successive transactions.
i. If the aggregate value of the assets in the Philippines that are
owned by the corporation or non-corporate entity or by entities it Q: How about internal restructuring? Halimbawa yung may-ari,
controls, other than assets that are shares of any of those andaming sub. Meron kang women’s company, meron kang RTWs, may
corporations, exceeds PhP2,400,000,000.00; or children etc. gusto mong irestructure – itong dalawang company, imerge
mo. Are you covered by the compulsory notification?
1 4
Instance when parties to a merger or acquisition are required to As amended by Commission Resolution 02-2020
5
provide notification. IRR of RA 10667
2 6
Prior to the amendment, it is 5 Billion. Id
7
3 Id
Guidelines on the Computation of Merger Notification Thresholds
Exception:
PCC CLARIFICATORY NOTE NO. 16-002
1. For the purpose of enforcing the Philippine Competition Act or
SUBJECT: COVERAGE OF COMPULSORY NOTIFICATION
SEPTEMBER 16, 2016 its implementing rules and regulations or
2. There is consent of the notifying entity or
3. The release of information is mandatorily required to be
(2) Internal restructuring. -
disclosed:
a. by law or
(a) An internal restructuring within a group of companies is exempt
b. by a valid order of a court of competent jurisdiction or
from notification if the acquiring and acquired entities have the
same ultimate parent entity (UPE). c. of a government or regulatory agency
When there is compulsory notification with the PCC regarding mergers

(b) Notwithstanding the foregoing, mergers or acquisitions are not
considered purely internal and, therefore, do not qualify for the and consolidation, the PCC is bound by the confidentiality rule.
Remember that notification is required before executing transactions
exemption, if the restructuring leads to a change in control.
with respect to mergers. The problem if the PCC is not covered by the
(3) The foregoing shall not prevent the Commission from commencing rule and the notifying entity is a publicly listed entity, the leaked
information has an effect on the share price which is a material non-
a motu proprio review of mergers and acquisitions under the IRR.
public information.
Discussion under (2a): Pag same lang naman, hindi siya covered
because there is no detriment to the consumer. Kasi yun parin yung Section 6. Effect of notification. If within the relevant periods
stipulated in the preceding section, the Commission determines that the
may-ari.
merger or acquisition agreement is prohibited under Section 20 of the
Act and Section 9 of this Rule, and does not qualify for exemption under
Section 21 of the Act and Section 10 of this Rule, the Commission may:
Discussion under (2b): That is very important. Pinalabas mo lang na
internal restructuring pero meron palang papasok. If there is change of
control, it is part of the compulsory notification. (a) Prohibit the implementation of the agreement;
(b) Prohibit the implementation of the agreement unless and until it is
modified by changes specified by the Commission; or
PROCEDURE FOR NOTIFICATION AND REVIEW
(c) Prohibit the implementation of the agreement unless and until the
pertinent party or parties enter into legally enforceable
You have your pre-consultation. Mind you, the PCC is one of the
agreements specified by the Commission.
government entities that is very accommodating and efficient. Mag email
ka, meron ka sagot agad. Try mo mag email sa BIR.
The Commission can also allow the parties to amend certain provisions
CONFIDENTIAL INFORMATION of the agreement to make it permissible.
Although mergers and acquisitions have for its object the effect of
substantially preventing, restricting or lessening competition, it may be
RULE 4: MERGERS AND ACQUISITIONS
allowed if it is likely to bring about gains in efficiencies. These gains in
SECTION 13. Treatment of confidential information. efficiencies are efficiencies that increase competition in the market.
Efficiencies must be demonstrable, with detailed and verifiable evidence
of anticipated price reductions or other benefits. Moreover, the efficiency
(a) Information, including documents, shall not be communicated or
made accessible by the Commission, insofar as it contains trade gains must be merger specific and consumers will not be worse off as a
result of the merger.
secrets or other confidential information, the disclosure of which is
not considered necessary by the Commission for the purpose of
the review. An example of this is that when you plan to merge with another
company, the PCC might prohibit you from pursuing the merger because
it likely results to substantial lessening of competition (SLC). The
That’s why when you try to go to the website (www.phcc.gov.ph), meron defense for this is that even if the merger results to an SLC, there are
silang mga ruling pero they don’t really divulge the name of the parties still gains in efficiencies. There are benefits derived from the merger.
kasi nga confidential.
February 29, 2020 by Cavin Jhon Cabarlo Section 11. Burden of proof. The burden of proof under Section 10 of
this Rule lies with the parties seeking the exemption. A party seeking to
rely on the exemption specified in Section 21(a) of the Act or Section
Section 13(b) Any entity or party that supplies information, including 10(a) of this Rule must demonstrate that if the agreement were not
documents, to the Commission, shall clearly identify any material that it implemented, significant efficiency gains would not be realized.
considers to be confidential, provide a justification for the request of
confidential treatment of the information supplied and the time period
The burden of proof lies with the parties saying that there are gains in
within which confidentiality is requested, and provide a separate non-
efficiencies.
confidential version by the date set by the Commission.
Section 12. Finality of rulings on mergers and acquisitions. Merger

There is confidentiality of the information. This provision should be read
or acquisition agreements that have received a favorable ruling from the
in conjunction with Section 5 (o) which states:
Commission, except when such ruling was obtained on the basis of
fraud or false material information, may not be challenged under the Act
Section 5(o) All notices, documents, and information provided to or or these Rules.
emanating from the Commission under Sections 4 and 5 of this Rule
shall be subject to the confidentiality rule under Section 34 of the Act
The ruling of PCC on mergers and acquisitions are final.
and Section 13 of this Rule, except for the purpose of enforcing the Act
or these Rules, or when the release of information contained therein is
Q: What is your remedy if the Philippine Competition Commission ruled
with the consent of the notifying entity or is mandatorily required to be
that its ruling may not be challenged under the law?
disclosed by law or by a valid order of a court of competent jurisdiction,
or of a government or regulatory agency, including an exchange.
A: Petition for Review under Rule 43. Section 5.1 of Rule V of the PCC
Rules or Procedure provides that “Final orders or decisions of the
General Rule: Notices, documents or information provided to or Commission shall be appealable to the Court of Appeals in accordance
emanating from the Commission shall be subject to the confidentiality with the Rules of Court.” Since PCC is a quasi-judicial agency, the
rule proper remedy is to file a petition for review under Rule 43.
Q: As a lawyer of the parties in the merger/acquisition, why don’t you
want to undergo the compulsory notification?
A: Please take note it’s not cheap if you undergo for a

merger/acquisition, that is why you need to structure it in such a way that
you will not be subjected to a compulsory notification. If you are covered
by the compulsory notification, the filing fee is P250,000. That’s just
phase 1. If you get past phase 1 and proceed to phase 2, the fee is 1%
of 1% of the value of the transaction which shall not be less than
P1,000,000 and not exceed P5,000,000.
Q: What is the penalty if you do not comply with the notification

requirements?
A: Section 3(g) of the Act.
Section 3(g). A transaction that meets the thresholds and does not
comply with the notification requirements and waiting periods set out in
Section 5 shall be considered void and will subject the parties to an
administrative fine of one percent (1%) to five percent (5%) of the value
of the transaction.
In summary, these are the period for the process from the submission
Q: What is the period for the notification and review process with the of the form:
PCC?
1. Upon submission, the Commission shall have 15 days to
A: Section 5(f) to (i) of the Implementing Rules of the Philippine determine whether the requirements are complied with and
Competition Law. shall inform the parties accordingly
2. Within 30 days from commencing Phase 1 review, the
Section 5(f). Upon submission of the Form, the Commission shall Commission shall determine whether there is a need for a
determine within fifteen (15) days whether the Form and other relevant more comprehensive and detailed analysis and request
requirements have been completed in accordance with applicable rules additional documents if necessary
or guidelines, and shall inform the parties of other information and/or 3. The request for additional information extends the period for
documents it may have failed to supply, or issue a notice to the parties an additional 60 days within which the agreement may not be
that the notification is sufficient for purposes of commencing Phase I consummated. This period is reckoned from the date of
review of the merger or acquisition. receipt of the request.
(g) The waiting period under this Section shall commence only upon the Therefore, the maximum number of days that the agreement
Commission’s determination that the notification has been completed in may not be consummated is 90 days (30 days from Phase 1
accordance with applicable rules and guidelines. review plus 60 days for request for additional information).
(h) Within thirty (30) days from commencing Phase I review, the 4. Should the parties fail to furnish the additional information or
Commission shall, if necessary, inform the parties of the need for a more documents requested, the notification shall be deemed
comprehensive and detailed analysis of the merger or acquisition under expired and the parties should refile their notification.
a Phase II review, and request other information and/or documents that 5. Should the parties wish to submit the requested information
are relevant to its review. beyond 15 days, they may ask for an extension of time to
comply with the same. The period for review shall be extended
(i) The issuance of the request under the immediately preceding accordingly.
paragraph has the effect of extending the period within which the 6. If there are no PCC decision after the lapse of the additional
agreement may not be consummated for an additional sixty (60) days. 60 days for review, the notification shall be deemed approved.
The additional sixty (60) day period shall begin on the day after the
request for information is received by the parties; Provided, that, in no
case shall the total period for review by the Commission of the subject
agreement exceed ninety (90) days from the time the initial notification
by the parties is deemed complete as provided under paragraph (f) of
this Section; Provided further, that should the parties fail to provide the
requested information within fifteen (15) days from receipt of the said
request, the notification shall be deemed expired and the parties must
refile their notification. Alternatively, should the parties wish to submit
the requested information beyond the fifteen (15) day period, the parties
may request for an extension of time within which to comply with the
request for additional information, in which case, the period for review
shall be correspondingly extended.
continues in effect, no meeting of stockholders need be called to elect
SPECIAL CORPORATIONS directors: Provided, That the stockholders of the corporation shall be
deemed to be directors for the purpose of applying the provisions of this
CLOSE CORPORATION Code, unless the context clearly requires otherwise: Provided, further,
That the stockholders of the corporation shall be subject to all liabilities
Q: What is the concept of a close corporation? of directors.
A: Under American jurisprudence, from which much of our own
corporate concepts are derived, close corporations are those in which The articles of incorporation may likewise provide that all officers or
the major part of the persons to whom the powers have been granted, employees or that specified officers or employees shall be elected or
on the happening of vacancies among them, have the right of appointed by the stockholders, instead of by the board of directors.
themselves to appoint others to fill such vacancies, without allowing to
the stockholders in general any vote or choice in the selection of such “The articles of incorporation may likewise provide that all officers
new officers; or where the business policy and activities are entirely or employees or that specified officers or employees shall be
dominated for practical purposes by the majority stock ownership of a elected or appointed by the stockholders, instead of by the board
family whose stock is not traded in any market and is very infrequently of directors.”
sold.
This is also a difference between a close and a regular corporation. In a
One of the most significant features of a close corporation is the identity regular corporation, you have the BOD. In close corporation, the BOD
of stock ownership and corporate management, whereby all or most of are essentially the stockholders of the corporation.
the stockholders are active in the corporate affairs as directors or key
officers. “The articles of incorporation of a close corporation may provide
that the business of the corporation shall be managed by the
Section 95. Definition and Applicability of Title. – A close stockholders of the corporation rather than by a board of
corporation, within the meaning of this Code, is one whose articles of directors.”
incorporation provides that:
The stockholders have direct management as an exception to the
(a) all the corporation’s issued stock of all classes, exclusive of treasury general rule of the doctrine of centralized management.
shares, shall be held of record by not more than a specified number of
persons, not exceeding twenty (20); “No meeting of stockholders need be called to elect directors”
(b) all the issued stock of all classes shall be subject to one or more This is because the BOD are essentially the stockholders.
specified restrictions on transfer permitted by this Title; and
Q: Let’s say you have a close corporation and you allowed your child to
(c) the corporation shall not list in any stock exchange or make any own all the shares is such corporation. When your child marries, can you
public offering of its stocks of any class. Notwithstanding the foregoing, prohibit the transfer of your child’s shares to his/her spouse?
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 A: Yes, you can prohibit. That is the concept of the close corporation as
another corporation which is not a close corporation within the meaning provided under Section 97 of the Revised Corporation Code.
of this Code.
Section 97. Validity of Restrictions on Transfer of Shares. –
Any corporation may be incorporated as a close corporation, except Restrictions on the right to transfer shares must appear in the articles of
mining or oil companies, stock exchanges, banks, insurance companies, incorporation, in the bylaws, as well as in the certificate of stock;
public utilities, educational institutions and corporations declared to be otherwise, the same shall not be binding on any purchaser in good faith.
vested with public interest in accordance with the provisions of this Said restrictions shall not be more onerous than granting the existing
Code. stockholders or the corporation the option to purchase the shares of the
transferring stockholder with such reasonable terms, conditions or
The provisions of this Title shall primarily govern close corporations: period stated. If, upon the expiration of said period, the existing
Provided, That other Titles in this Code shall apply suppletorily, except stockholders or the corporation fails to exercise the option to purchase,
as otherwise provided under this Title. the transferring stockholder may sell their shares to any third person.
“A close corporation, within the meaning of this Code, is one “Restrictions on the right to transfer shares must appear in the
whose articles of incorporation provides” articles of incorporation, in the bylaws, as well as in the certificate
of stock”
A close corporation must comply with the provision under Section 95
and whose Articles of Incorporation must provide for the specific The restrictions must be included in these three:
provisions listed therein. Otherwise, the corporation will not be 1. Articles of Incorporation
considered as a close corporation but will just be considered as a regular 2. By-laws
corporation. 3. Certificate of stock
Section 96. Articles of Incorporation. – The articles of incorporation If the restriction is not included in all those three, the restriction becomes
of a close corporation may provide for: invalid and the restriction is not binding on any purchaser in good faith.
This is for the third person to know that the transfer of stocks is restricted.
(a) A classification of shares or rights, the qualifications for owning or
holding the same, and restrictions on their transfers, subject to the Q: Can you absolutely prohibit the transfer? Can you prevent the
provisions of the following section; shareholders from selling his/her shares?
(b) A classification of directors into one (1) or more classes, each of A: The restrictions shall not be more onerous than granting the existing
whom may be voted for and elected solely by a particular class of stock; stockholders or the corporation the option to purchase the shares of the
and transferring stockholder with such reasonable terms, conditions or
period stated. If, upon the expiration of said period, the existing
(c) Greater quorum or voting requirements in meetings of stockholders stockholders or the corporation fails to exercise the option to purchase,
or directors than those provided in this Code. the transferring stockholder may sell their shares to any third person.
Therefore, one cannot absolutely restrict the transfer of shares in a close
The articles of incorporation of a close corporation may provide that the corporation.
business of the corporation shall be managed by the stockholders of the
corporation rather than by a board of directors. So long as this provision Q: What is the rationale behind the prohibition on absolute restriction?
A: Stock ownership has all the attributes of ownership. Under the Law violates a restriction on transfer of stock, and the corporation may, at its
on Property, the owner has jus disponendi or the right to dispose. Once option, refuse to register the transfer in the name of the transferee.
that right is restricted, one is not in the concept of an owner.
(e) The provisions of subsection (d) shall not be applicable if the transfer
Q: What are the restrictions that you can put in the Articles of of stock, though contrary to subsections (a), (b) or (c), has been
Incorporation? consented to by all the stockholders of the close corporation, or if the
A: Those restrictions which are not more onerous than having the right close corporation has amended its articles of incorporation in
of first refusal to the existing stockholders of the corporation. If a accordance with this Title.
stockholder wants to sell his shares, he must first offer it to the existing
stockholders. This is to give the existing stockholders the right to (f) The term “transfer”, as used in this section, is not limited to a transfer
maintain the closeness of the corporation by buying that share. This is for value.
the maximum restriction that one can get from a close corporation.
(g) The provisions of this section shall not impair any right which the
ANDAYA V. RURAL BANK OF CABADBARAN transferee may have to either rescind the transfer or recover the stock
G.R. No. 188769, August 3, 2016 under any express or implied warranty.
Facts: Andaya bought from Chute shares of stock in the Rural Bank of Section 98 (d) (3). The transfer violates a restriction on transfer of
Cabadbaran. Chute and Andaya requested for the registration of the stock, and the corporation may, at its option, refuse to register the
transfer in the corporation. However, the bank’s corporate secretary transfer in the name of the transferee.
informed Chute that he could not register the transfer on the ground that
under the previous stockholder’s Resolution, existing stockholders were General Rule: When there is a transfer, the corporate secretary should
given priority to buy the shares of others in the event that the latter record the transfer in the stock and transfer book. If the corporate
offered those shares for sale. If no other stockholder would buy them, secretary refuses to record the transfer, he can be compelled through a
she could then proceed to sell her shares to outsiders. petition for mandamus since the act of recording is a purely ministerial
duty.
The bank’s legal counsel also responded to Andaya stating that the
request is under evaluation. However, Andaya responded that he could Exception: When there is a restriction on the transfer of shares,
not be deprived of his right as a transferee since the restriction of shares mandamus will not lie because the corporation has the option to
did not appear in the articles of incorporation, bylaws, or certificates of refuse to register the transfer of the stock in the name of the
stock as required under Section 98 of the Corporation Code (Section 97 transferee.
under the Revices CC). The bank eventually denied Andaya’s request
on the ground that there was conflict of interest, as he was then March 12, 2020 by Luke Morgan Codilla 00:00 - 20:00
president and chief executive officer of Green Bank of Caraga, a
competitor bank.
Agreement by Stockholders
Issue: Whether or not Section 98 applies– NO.
SEC. 99. Agreements by Stockholders. –
Held: Section 98 applies only to close corporations. Hence, before the
Court can allow the operation of this section in the case at bar, there (a) Agreements duly signed and executed by and among all
must first be a factual determination that respondent Rural Bank of stockholders before the formation and organization of a close
Cabadbaran is indeed a close corporation. There needs to be a corporation shall survive the incorporation and shall continue to
presentation of evidence on the relevant restrictions in the articles of be valid and binding between such stockholders, if such be their
incorporation and bylaws of the said bank. From the records or the RTC intent, to the extent that such agreements are consistent with the
Decision, there is apparently no such determination or allegation that the articles of incorporation, irrespective of where the provisions of
bank is a close corporation. such agreements are contained, except those required by this Title
to be embodied in said articles of incorporation.
Section 98. Effects of Issuance or Transfer of Stock in Breach of (b) A written agreement signed by two (2) or more stockholders
Qualifying Conditions. may provide that in exercising any voting right, the shares held by
them shall be voted as provided or as agreed, or in accordance with
(a) If a stock of a close corporation is issued or transferred to any person a procedure agreed upon by them.
who is not eligible to be a holder thereof under any provision of the
articles of incorporation, and if the certificate for such stock (c) No provision in a written agreement signed by the stockholders,
conspicuously shows the qualifications of the persons entitled to be relating to any phase of corporate affairs, shall be invalidated
holders of record thereof, such person is conclusively presumed to have between the parties on the ground that its effect is to make them
notice of the fact of the ineligibility to be a stockholder. partners among themselves.
(b) If the articles of incorporation of a close corporation states the (d) A written agreement among some or all of the stockholders in a
number of persons, not exceeding twenty (20), who are entitled to be close corporation shall not be invalidated on the ground that it
stockholders of record, and if the certificate for such stock conspicuously relates to the conduct of the business and affairs of the corporation
states such number, and the issuance or transfer of stock to any person as to restrict or interfere with the discretion or powers of the board
would cause the stock to be held by more than such number of persons, of directors: Provided, That such agreement shall impose on the
the person to whom such stock is issued or transferred is conclusively stockholders who are parties thereto the liabilities for managerial
presumed to have notice of this fact. acts imposed on directors by this Code.
(c) If a stock certificate of a close corporation conspicuously shows a (e) Stockholders actively engaged in the management or operation
restriction on transfer of the corporation’s stock and the transferee of the business and affairs of a close corporation shall be held to
acquires the stock in violation of such restriction, the transferee is strict fiduciary duties to each other and among themselves. The
conclusively presumed to have notice of the fact that the stock was stockholders shall be personally liable for corporate torts unless
acquired in violation of the restriction. the corporation has obtained reasonably adequate liability
insurance.
(d) Whenever a person to whom stock of a close corporation has been
issued or transferred has or is conclusively presumed under this
section to have notice of: (1) the person’s ineligibility to be a stockholder When there is an agreement by stockholders, that is effective as to the
of the corporation; or (2) that the transfer of stock would cause the stock stockholders. A person who relies on the articles of incorporation cannot
of the corporation to be held by more than the number of persons be made liable in violation of an agreement.
permitted under its articles of incorporation; or (3) that the transfer
stockholders generally, the Commission, upon written petition by
SEC. 100. When a Board Meeting is Unnecessary or Improperly
any stockholder, shall have the power to arbitrate the dispute. In
Held. – Unless the bylaws provide otherwise, any action taken by
the directors of a close corporation without a meeting called the exercise of such power, the Commission shall have authority
to make appropriate orders, such as: (a) cancelling or altering any
properly and with due notice shall nevertheless be deemed valid if:
provision contained in the articles of incorporation, bylaws, or any
(a) Before or after such action is taken, a written consent thereto is stockholder’s agreement; (b) cancelling, altering or enjoining a
resolution or act of the corporation or its board of directors,
signed by all the directors; or
stockholders, or officers; (c) directing or prohibiting any act of the
(b) All the stockholders have actual or implied knowledge of the corporation or its board of directors, stockholders, officers, or
other persons party to the action; (d) requiring the purchase at their
action and make no prompt objection in writing; or
fair value of shares of any stockholder, either by the corporation
(c) The directors are accustomed to take informal action with the regardless of the availability of unrestricted retained earnings in its
books, or by the other stockholders; (e) appointing a provisional
express or implied acquiescence of all the stockholders; or
director; (f) dissolving the corporation; or (g) granting such other
(d) All the directors have express or implied knowledge of the relief as the circumstances may warrant.
action in question and none of them makes a prompt objection in
A provisional director shall be an impartial person who is neither a
writing.
stockholder nor a creditor of the corporation or any of its
subsidiaries or affiliates, and whose further qualifications, if any,
An action within the corporate powers taken at a meeting held
may be determined by the Commission. A provisional director is
without proper call or notice, is deemed ratified by a director who
failed to attend, unless after having knowledge thereof, the director not a receiver of the corporation and does not have the title and
powers of a custodian or receiver. A provisional director shall have
promptly files his written objection with the secretary of the
all the rights and powers of a duly elected director, including the
corporation.
right to be notified of and to vote at meetings of directors until
removed by order of the Commission or by all the stockholders.
Of course kase same lang ang stockholders tsaka board of directors. The compensation of the provisional director shall be determined
Just note the particular requirements for the board meeting to be valid. by agreement between such director and the corporation, subject
to approval of the Commission, which may fix the compensation
Pre-emptive Right in Close Corporation absent an agreement or in the event of disagreement between the
provisional director and the corporation.
SEC. 101. Preemptive Right in Close Corporations. – The
preemptive right of stockholders in close corporations shall extend Q: So what happens when there is a deadlock? For example, dalawa-
to all stock to be issued, including reissuance of treasury shares, dalawa, very prevalent for family owned corporations, yung may apat na
whether for money, property or personal services, or in payment of kapatid. Dalawa said yes to a certain project, dalawa naman ang no. So
corporate debts, unless the articles of incorporation provide there is a deadlock What happens? Paano mag momove ang company?
otherwise.
A: Take note that these are the remedies — (a) to (g).
Very important.
Example: (e) the appointment of a provisional director. Pwede mag
appoint ng provisional director just to break the tie.
The general rule of preemptive right hindi na covered dun yung part of
the authorized capital stock but then inissue because at the time that
How do you do this? The SEC upon written petition by any stockholder.
you subscribed you already know the maximum of your percentage. It’s
The stockholder may petition the SEC to arbitrate the dispute, and in the
only applicable if you increase your authorized capital stock and then
exercise of such power, the SEC shall have the authority to make such
you have that preemptive right.
orders as it deems appropriate including an order, cancelling or altering
any provision.
For purposes of close corporations it applies to all issuances of stocks
because the purpose of this is actually to limit ownership within that
In this particular case, the law will not look at the agreement of the
particular person or stockholder.
parties. It will step into it to arbitrate any dispute when it comes to
deadlocks.
SEC. 102. Amendment of Articles of Incorporation. – Any
amendment to the articles of incorporation which seeks to delete Q: Who is a provisional director?
or remove any provision required by this Title or to reduce a
quorum or voting requirement stated in said articles of A: He shall be an impartial person who is neither a stockholder nor a
incorporation shall require the affirmative vote of at least two- creditor of the corporation or of any subsidiary or affiliate of the
thirds (2/3) of the outstanding capital stock, whether with or corporation, and whose further qualifications, if any, may be determined
without voting rights, or of such greater proportion of shares as by the SEC. So ang maglalagay nito is the SEC. [Sec. 103, 2nd
may be specifically provided in the articles of incorporation for Paragraph]
amending, deleting or removing any of the aforesaid provisions, at
a meeting duly called for the purpose. Now let’s say dun, in a particular transaction, 2-2, so maglalagay ng
provisional director, para whatever decision of the majority, mag
You can amend your articles from an ordinary corporation to a close momove na yung corporation.
corporation. Take note wala po tayong tinatawag na open corporation.
When you talk about open corporation, anong lahi yan? Walang ganun. SEC. 104. Withdrawal of Stockholder or Dissolution of Corporation.
Public Corporations, Ordinary Corporations, Close Corporation, and you – In addition and without prejudice to other rights and remedies
have One Person Corporations. available under this Title, any stockholder of a close corporation
may, for any reason, compel the corporation to purchase shares
Deadlocks held at fair value, which shall not be less than the par or issued
value, when the corporation has sufficient assets in its books to
cover its debts and liabilities exclusive of capital stock: Provided,
SEC. 103. Deadlocks. – Notwithstanding any contrary provision in That any stockholder of a close corporation may, by written
the close corporation’s articles of incorporation, bylaws, or petition to the Commission, compel the dissolution of such
stockholders’ agreement, if the directors or stockholders are so corporation whenever any of acts of the directors, officers, or those
divided on the management of the corporation’s business and in control of the corporation is illegal, fraudulent, dishonest,
affairs that the votes required for a corporate action cannot be oppressive or unfairly prejudicial to the corporation or any
obtained, with the consequence that the business and affairs of the
corporation can no longer be conducted to the advantage of the
stockholder, or whenever corporate assets are being misapplied or other presiding elder of such religious denomination, sect, or
wasted. church.
Any stockholder of a close corporation may for any reason compel the Now, before the OPC, it is only a religious corporation that can have one
said corporation to purchase his shares at their fair value when such stockholder. So that is your corporation sole. So you have your religious
corporation has sufficient assets in its books to cover it debts liabilities societies. But because of the amendment, there is already one person
exclusive of capital stock. Eto, you will ask for buy out. corporations.
Provided that any stockholder of a close corporation may by written

SEC. 109. Articles of incorporation. – In order to become a
petition to the SEC compel the dissolution of such corporation whenever corporation sole, the chief archbishop, bishop, priest, minister,
any of acts of the directors, officers or those—so this is very similar to
rabbi or presiding elder of any religious denomination, sect or
the ordinary dissolution, pwede voluntary, pwede ding involuntary.
church must file with the Commission articles of incorporation
setting forth the following:
SPECIAL CORPORATIONS
(a) That the applicant chief archbishop, bishop, priest, minister,
EDUCATIONAL CORPORATIONS rabbi, or presiding elder represents the religious denomination,
sect, or church which desires to become a corporation sole;
SEC. 105. Incorporation. – Educational corporations shall be
governed by special laws and by the general provisions of this (b) That the rules, regulations and discipline of the religious
Code. denomination, sect or church are consistent with becoming a
corporation sole and do not forbid it;
Because of its very nature, ng educational corporations, there is a (c) That such chief archbishop, bishop, priest, minister, rabbi, or
specific provision. But again, pag ang issue is wala namang or di naman presiding elder is charged with the administration of the
inadress ng specific provision, you go to the usual provisions under your temporalities and the management of the affairs, estate and
corporation code. properties of the religious denomination, sect or church within the
territorial jurisdiction, so described succinctly in the articles of
SEC. 106. Board of Trustees. –Trustees of educational institutions incorporation;
organized as nonstock corporations shall not be less than five (5)
nor more than fifteen (15): Provided, That the number of trustees (d) The manner by which any vacancy occurring in the office of
shall be in multiples of five (5). chief archbishop, bishop, priest, minister, rabbi, or presiding elder
is required to be filled, according to the rules, regulations or
Unless otherwise provided in the articles of incorporation or discipline of the religious denomination, sect or church; and
bylaws, the board of trustees of incorporated schools, colleges, or
other institutions of learning shall, as soon as organized, so (e) The place where the principal office of the corporation sole is to
classify themselves that the term of office of one-fifth (1/5) of their be established and located, which place must be within the territory
number shall expire every year. Trustees thereafter elected to fill of the Philippines.
vacancies, occurring before the expiration of a particular term,
shall hold office only for the unexpired period. Trustees elected The articles of incorporation may include any other provision not
thereafter to fill vacancies caused by expiration of term shall hold contrary to law for the regulation of the affairs of the corporation.
office for five (5) years. A majority of the trustees shall constitute a
quorum for the transaction of business. The powers and authority
of trustees shall be defined in the bylaws. SEC. 110. Submission of the Articles of Incorporation. – The
articles of incorporation must be verified, by affidavit or affirmation
For institutions organized as stock corporations, the number and of the chief archbishop, bishop, priest, minister, rabbi, or presiding
term of directors shall be governed by the provisions on stock elder, as the case may be, and accompanied by a copy of the
corporations. commission, certificate of election or letter of appointment of such
chief archbishop, bishop, priest, minister, rabbi, or presiding elder,
duly certified to be correct by any notary public.
If it’s a non-stock, you have your Board of Trustees.
From and after filing with the Commission of the said articles of
If it is a stock educational institution, for institutions organized as stock incorporation, verified by affidavit or affirmation, and accompanied
corporation, the number and term of directors shall be governed by the by the documents mentioned in the preceding paragraph, such
provisions of a stock corporation. So you go to the general rule. chief archbishop, bishop, priest, minister, rabbi, or presiding elder
shall become a corporation sole and all temporalities, estate and
Pag non-stock lang, eto yung mag aaply — not less than five, not more properties of the religious denomination, sect or church
than fifteen, but in multiples of five. So hindi pwedeng three, di rin theretofore administered or managed as such chief archbishop,
pwedeng seven. Must be five, ten, or fifteen. And the term is not one bishop, priest, minister, rabbi, or presiding elder shall be
year. It has a rotational term. So, 1/5 mag eexpire. Because of, again, personally held in trust as a corporation sole, for the use, purpose,
the nature of an educational institution, there is this rotational. exclusive benefit and on behalf of the religious denomination, sect
or church, including hospitals, schools, colleges, orphan asylums,
RELIGIOUS CORPORATIONS parsonages, and cemeteries thereof.
SEC. 107. Classes of Religious Corporations. – Religious

corporations may be incorporated by one or more persons. Such SEC. 111. Acquisition and Alienation of Property. – A corporation
corporations may be classified into corporations sole and religious sole may purchase and hold real estate and personal property for
its church, charitable, benevolent, or educational purposes, and
societies.
may receive bequests or gifts for such purposes. Such corporation
Religious corporations shall be governed by this Chapter and by may sell or mortgage real property held by it by obtaining an order
for that purpose from the Regional Trial Court of the province
the general provisions on nonstock corporations insofar as
where the property is situated upon proof that the notice of the
applicable.
application for leave to sell or mortgage has been made through
publication or as directed by the Court, and that it is in the interest
SEC. 108. Corporation sole. – For the purpose of administering and of the corporation that leave to sell or mortgage be granted. The
managing, as trustee, the affairs, property and temporalities of any application for leave to sell or mortgage must be made by petition,
religious denomination, sect or church, a corporation sole may be duly verified, by the chief archbishop, bishop, priest, minister,
formed by the chief archbishop, bishop, priest, minister, rabbi, or rabbi, or presiding elder acting as corporation sole, and may be
opposed by any member of the religious denomination, sect or (a) That the religious society or religious order, or diocese, synod,
church represented by the corporation sole: Provided, That in or district organization is a religious organization of a religious
cases where the rules, regulations, and discipline of the religious denomination, sect or church;
denomination, sect or church, religious society, or order (b) That at least two-thirds (2/3) of its membership has given written
concerned represented by such corporation sole regulate the consent or has voted to incorporate, at a duly convened meeting
method of acquiring, holding, selling, and mortgaging real estate of the body;
and personal property, such rules, regulations and discipline shall
govern, and the intervention of the courts shall not be necessary. (c) That the incorporation of the religious society or religious order,
or diocese, synod, or district organization is not forbidden by
competent authority or by the Constitution, rules, regulations or
SEC. 112. Filling of Vacancies. – The successors in office of any discipline of the religious denomination, sect or church of which it
chief archbishop, bishop, priest, minister, rabbi, or presiding elder forms part;
in a corporation sole shall become the corporation sole on their
accession to office and shall be permitted to transact business as (d) That the religious society or religious order, or diocese, synod,
such upon filing a copy of their commission, certificate of election, or district organization desires to incorporate for the
or letters of appointment, duly certified by any notary public with administration of its affairs, properties and estate;
the Commission.
(e) The place within the Philippines where the principal office of the
During any vacancy in the office of chief archbishop, bishop, corporation is to be established and located; and
priest, minister, rabbi, or presiding elder of any religious
denomination, sect or church incorporated as a corporation sole, (f) The names, nationalities, and residence addresses of the
the person or persons authorized by the rules, regulations or trustees, not less than five (5) nor more than fifteen (15), elected by
discipline of the religious denomination, sect or church the religious society or religious order, or the diocese, synod, or
represented by the corporation sole to administer the temporalities district organization to serve for the first year or such other period
and manage the affairs, estate, and properties of the corporation as may be prescribed by the laws of the religious society or
sole shall exercise all the powers and authority of the corporation religious order, or of the diocese, synod, or district organization.
sole during such vacancy.
Unless forbidden by competent authority, pertinent rules etc. you can
In your corporation sole, I think ang medjo ano lang nito is what if organize a religious society but please take note of the approval
namatay? Kase sa corporation sole you have your head the archbishop, requirements: written consent and/or the affirmative vote at a meeting
the head of the institution, which is actually the stockholder of the called for the purpose of at least two-thirds of its membership. So if you
corporation sole. So what happens if namatay siya, diba wala syang have a congregation, gawa kayo ng religious society, so you just have
kasamang stockholder, so what happens to the corporation, will it be to get the 2/3 of the votes of your members so you can actually establish
dissolved automatically? a religious society. But again it must be sanctioned by your religion. So
hindi naman gawagawa ka ng religious society of a catholic pero hindi
The answer is no. In that particular case, the successor in office of any naman yun sanctioned ng catholic.
archbishop, bishop, etc. shall become the corporation sole on their
accession to office. So automatic. So sino yung mag a-accede dun sa ONE PERSON CORPORATIONS
pagiging rabbi, priest, or bishop nya, automatically siya din yung
magiging head ng corporation sole. So again there is no need for Introduction:
election. So yun lang yung dapat tandaan ninyo.
The creation or the enactment of the provisions of a one person
SEC. 113. Dissolution. – A corporation sole may be dissolved and corporation is based on the clamor of businessmen to ease the doing of
its affairs settled voluntarily by submitting to the Commission a business in the Philippines. So it’s a very prevalent problem when
verified declaration of dissolution, setting forth: businessmen who want to do business in the Philippines and sabi nila
(a) The name of the corporation; what if isa lang akong negosyante and I have to make a corporation?
Because a corporation is an attractive vehicle for business because of
(b) The reason for dissolution and winding up; the doctrine of limited liability. You can shelter whatever liability that the
corporation might assume in the future. So it’s an attractive vehicle. But
(c) The authorization for the dissolution of the corporation by the the problem before the revision is that you need at least 5 incorporators,
particular religious denomination, sect or church; and and what happens if wala kang kakilala? Then there is that proliferation
of having dummies, may tatlong dummy, may apat na dummy, tapos isa
(d) The names and addresses of the persons who are to supervise lang ang totoong mag ooperate ng corporation.
the winding up of the affairs of the corporation.
It’s okay at the first instance but how about when later on you have to
Upon approval of such declaration of dissolution by the amend, or you have to do certain acts which requires the approval of the
Commission, the corporation shall cease to carry on its operations majority or 2/3? What happens if hindi mo na mahagilap kase ito yung
except for the purpose of winding up its affairs. mga labandera, mga kapitbahay, lessor etc. and after 5 years hindi mo
na sila mahagilap, at di mo na alam kung saan sila. And that has become
a problem for businessmen. So that’s why they suggested na why not
It can also be either voluntary or involuntary.
just make a one person corporation.
SEC. 114. Religious Societies. – Unless forbidden by competent We are not just the only jurisdiction that has a one person corporation.
authority, the Constitution, pertinent rules, regulations, or A lot of jurisdictions around the world, meron nang mga LLC (Limited
discipline of the religious denomination, sect or church of which it Liability Corporations) or mga One Person Corporation. You can actually
is a part, any religious society, religious order, diocese, synod, or create a corporation for purposes of for just having one stockholder.
district organization of any religious denomination, sect or church,
may, upon written consent and/or by an affirmative vote at a But please take note of the dilemma that this will actually give us — of
meeting called for the purpose of at least two-thirds (2/3) of its course wala pa ngayon kase bago pa lang ito at wala pang umaakyat sa
membership, incorporate for the administration of its temporalities Supreme Court — because it has become an attractive tool for limited
or for the management of its affairs, properties, and estate by filing liability. So it blurs the line of the separate juridical entity. Because
with the Commission, articles of incorporation verified by the apparently if I have a One Person Corporation, so I have two juridical
affidavit of the presiding elder, secretary, or clerk or other member personalities — I have my own personality, and I have the personality of
of such religious society or religious order, or diocese, synod, or my One Person Corporation.
district organization of the religious denomination, sect or church,
setting forth the following: How do you attribute the liabilities of each? How do you operate without
saying that we didn’t use this as a tool to evade liability? So it blurs the
line of the concept of separate juridical liability or the doctrine of limited corporate purposes made prior to insolvency will depend upon financial
liability. That’s why first you have to go to a survey of public cases of all status of the corporation at the time the payment was made.
the problems with One Person Corporations.
Under the enumeration, this was the ruling of the different jurisdiction
Examination and analysis: and based on American jurisprudence. So it quinalify yung first
paragraph mentioned, that when can creditors go after the personal
• Authority of sole stockholder to bind his company properties of the sole stockholder. So it will depend upon the financial
status of the corporation at the time the payment was made.
Since in most instances the sole stockholder assumes the management
of the business, the question arises whether or not he has the legal If the corporation had surplus at the time of the payment, recovery is
authority to bind the corporation when he purports to act on its behalf for denied. If the corporation was insolvent at the time payment was made,
admittedly proper corporate purposes. recovery is clearly indicated.
In Union National Bank v. State National Bank, these are American So eto na yung mga nuances. The right of the creditor to go after the
Jurisprudence, the sole stockholder executed a mortgage in the name personal properties of the stockholder becomes dependent on the
of the corporation. In a suit between the mortgagee and the creditor, the solvency of the corporation.
Court found the mortgage invalid.
This result stems from an application of the trust fund doctrine, which
The corporation has been held bound even though it would cause conceives of capital stock as a reserve pool for the benefit of creditors.
corporate property to be devoted for personal use of the stockholder. On the other hand, some courts disregard that doctrine, and validate any
For instance the Corporation was required to pay a note signed in its payment even for a non-corporate purpose, made while the corporation
name in payment of a personal debt of the sole stockholder—so again was solvent.
there is this blur line between your own transaction and that of your one
person corporation, because apparently you are the one managing it The problem here is analogous to the right of the creditors to recover
also, because you are the sole owner—, and on a note signed by the dividends paid improperly out of capital inasmuch as the use of
sole stockholder executed in payment for purchase of the outstanding corporate property for personal purposes is, in effect, the declaration of
capital stock of the corporation. a dividend.
The courts which deny the right of a sole stockholder to bind his Factors leading to personal liability:
corporation are courts which are generally reluctant to pierce the (1) Manner of Operation of Business
corporate veil in other cases. They are courts which extinguish the
separate identity only when necessary to prevent fraud and injustice. Mere failure to comply with statutory formalities, such as holding
This is interpreted to mean the attempt by the sole stockholder to use directors meetings, will not subject a sole shareholder to liability.
the corporation for an improper purpose. Evidently these courts do not Nevertheless in many situations the manner in which he conducts his
view this class of cases as within that interpretation. business will be important in determining personal liability. When the
sole stockholder has represented himself to the creditors “as the
The trend of the cases is in the direction of giving the sole stockholder business:, or told creditors that “the corporation is a mere name, but I
the same authority as is ordinarily possessed by the board of directors. really operate the store” or other similar phrases, the sole stockholder is
personally held liable for the debts of the corporation.
• Use of Corporate Property for Personal Benefit of Sole
Stockholder So you see, even the rulings in the courts of America, different sya on
how you treat it when it comes on manner of operation of business. So
Now this is also another issue when it comes to one person corporation, they really had that leeway to disregard the corporate entity depending
the use of corporate property for personal benefit of sole stockholder. on the representation of the sole stockholder.
Remember when we discussed the power of the corporation, the When the disregard of corporate formalities extends beyond the mere
corporate assets must be used only in relation to its purpose. And you failure to hold meetings, elect directors, etc., and instead leads to
have your one person corporation, let’s say meron kang one person financial commingling of the assets of the corporation with those of the
corporation for donuts. And meron kang delivery van for your donuts sole stockholder, the corporate separateness has been destroyed by the
kase yung donuts, when you order so you deliver. Now, what would stockholder himself.
prevent a sole stockholder to use the van for other personal purpose?
Like panghatid ng kung ano-ano, so that would be used not in the (2) Inadequate Capitalization
purpose of the corporation. So what would prevent that kase wala
namang ibang may control, wala namang magsasabi na “uy you cannot Personal liability may be imposed upon a sole stockholder when he has
use that!” kase ikaw din naman yung may ari. established a corporation with inadequate capital.
Let’s go into a more serious problem, what if may pera, your donut The courts have refused to permit a person to obtain the benefits of
business may 1 Million na utang, which sinabi mo sa banko kase you limited liability unless that person has honestly risked an adequate
have to state the purpose, sinabi mo for expansion. What would prevent amount of money.
you from using that loan to buy your personal wants? Kase wala ngang
magchecheck eh, wala namang Board eh, ikaw nga lang yung sole Now the problem with ordinary corporations is that when you try to
stock. So that is a problem for One Person Corporation. incorporate, you just have to submit treasurer’s affidavit. Ang treasurer
mag affidavit lang yan na merong ganitong capital. There’s even no
If the corporation is insolvent, and the claims of other creditors exist, the need to show a bank account na meron talaga itong perang ito. Kung
right of the trustee to recover from the recipient disbursements for non- mali yun, forgery lang ang habol duon sa treasurer. If we put that itong
corporate purposes made prior to insolvency will depend upon the one person corporation’s perspective, what would prevent a one person
financial status of the corporation at the time the payment was made. corporation to lie?
At the same time, it is granted that he may be permitted to risk only a

March 12, 2020 by Victor Alba 20:00-40:00 part of his own personal fortune, for otherwise, the aspect of limited
liability will be meaningless. In other words, there is an attainable happy
medium. Most of the problems in this field have arisen from parent
Examination and analysis:
subsidiary relationships, but those cases there are quite helpful in
• Use of Corporate Property for Personal Benefit of Sole
solving the same problems in the one man corporation situation.
Stockholder
If the corporation is insolvent, and the claims of other creditors exist, the (3) Express Assumption of Liability or Guarantee by the Sole
right of the trustee to recover from the recipient disbursements for non- Stockholder
If the sole stockholder personally agreed in writing to pay a corporate INCORPORATOR
obligation, then no problem exists. There is no reason why a sole
stockholder cannot contract for his company with the company in the The incorporator of an OPC being a natural person must be of legal age.
position of a co-obligor. Unfortunately statements made are generally As an incorporator, the “trust” as used by the law does not refer to a trust
oral and of an equivocal nature, and it is difficult to interpret the intention entity, but the subject being managed by a trustee.
of the sole stockholder.
If the single stockholder is a trustee, administrator, executor, guardian,
Remember meron kang one person corporation, meron ka ding conservator, custodian, or other person exercising fiduciary duties, proof
separate personality. So these are two different personalities. So what of authority to act on behalf of the trust or estate must be submitted at
if i-didisolve mo na yan but you have a claim against the corporation the time of incorporation.
which you also own?
Sir: Get a copy of SEC Memorandum Circular No. 07-19 (April 25,
Claims of a sole stockholder against his own corporation: 2019). It provides you the Guidelines on the Establishment of a One
A sole stockholder who has sold his stock to other interests now claims Person Corporation (OPC).
that the corporation is indebted to him, or the corporation becomes
insolvent and the sole stockholder seeks to share in the distribution of TERM OF EXISTENCE OF THE OPC
the remaining assets.
Section 2. Term of Existence of the OPC
So meron kang one person corporation pero ibinenta mo sa iba. Sinabi
mo sa iba na na ang value niyan is P100M at meron pa yang utang sa
The term of existence of the OPC shall be perpetual. However, in the
iyo na P50M. So kung bilhin mo ng P100M kunin mo yung P50M kasi case of a trust or estate being a shareholder of an OPC, its term of
may utang sa aking yung corporation ko. So pwede din itong gawin kasi
existence shall be co-terminous with the existence of the trust or estate.
ikaw din naman yung nagmamanage eh. This is very prone to this type
The OPC under the name of an estate may be dissolved upon proof of
of transaction. Partition such as an Order of Partition issued by the Court in case of
Judicial Settlement, or a Deed of Extrajudicial Settlement in case of a
When the corporation has been sold to other interests, and a claim is
summary settlement of an estate.
made, the former sole stockholder will recover where the claim was The OPC under the name of a trustee may be dissolved upon providing
properly present on the books at the time of the sale. If the parties had
proof of termination of the trust.
agreed that the sole stockholder was not to recover any debts from the
corporation, then recovery will be denied. If the books failed to indicate
any corporate obligations to the sole stockholder, recovery will also be
CORPORATE NAME REQUIREMENTS
denied.
The problems created by insolvency are more complex. The cases can Section 3. Corporate Name Requirements
be divided into two classifications. Where the sole stockholder
adequately capitalized the corporation and kept financial records, he will “The suffix “OPC” should be indicated by the one person
be allowed to share in the proceeds. corporation either below or at the end of its corporate name.”
Based on this jurisprudence, it becomes important that the one person

corporation is capitalized, and it has financial records. MINIMUM CAPITAL STOCK NOT REQUIRED
If the financial identities of the two parties were merged so that it is

SEC. 117. Minimum Capital Stock Not Required for One Person
impossible to determine accurately if the sole stockholder is really a
Corporation. – A One Person Corporation shall not be required to
creditor, then his claim will be denied.
have a minimum authorized capital stock except as otherwise
provided by special law.
It is obvious that there is a real danger of simulated claims. If the
corporation was inadequately capitalized, recovery will probably be
denied. It will be necessary to determine whether the capitalization was Further, unless otherwise required by applicable laws or regulations,
sufficient. The solution adopted by the federal court in Arnold v. Philips no portion of the authorized capital is required to be paid-up at the
is eminently sensible. It suggested that a sole stockholder should be time of incorporation. (Guidelines on the Establishment of a One
permitted to lend his corporation an amount equivalent to the capital Person Corporation, SEC Memorandum Circular No. 07-19, (April 25,
stock value. However, it is impossible to make an arbitrary ruling. The 2019).
rules of fair play should govern. The sole stockholder should be required
to invest a respectable sum without risking his own personal fortune. So can I have a capital that is 5pesos? Pwede ba?
Each case must be decided on its own merits.
ARTICLES OF INCORPORATION
DEFINED
SEC. 118. Articles of Incorporation. – A One Person Corporation
SEC. 116. One Person Corporation. – A One Person Corporation is a shall file articles of incorporation in accordance with the requirements
corporation with a single stockholder: Provided, That only a natural under Section 14 of this Code. It shall likewise substantially contain
person, trust, or an estate may form a One Person Corporation. the following:
Banks and quasi-banks, pre-need, trust, insurance, public and (a) If the single stockholder is a trust or an estate, the name,
publicly-listed companies, and non-chartered government-owned and - nationality, and residence of the trustee, administrator, executor,
controlled corporations may not incorporate as One Person guardian, conservator, custodian, or other person exercising fiduciary
Corporations: Provided, further, That a natural person who is licensed duties together with the proof of such authority to act on behalf of the
to exercise a profession may not organize as a One Person Corporation trust or estate; and
for the purpose of exercising such profession except as otherwise (b) Name, nationality, residence of the nominee and alternate
provided under special laws. nominee, and the extent, coverage and limitation of the authority.
It is a corporation with a single stockholder: Provided, that only a We now have the concept of “nominee” and “alternate nominee.” So
natural person, trust, or an estate may form a OPC. this is special specie created because of the OPC.
Please take note, why is it necessary to highlight this? Because juridical
entity can be an incorporator diba in a corporation. Except if that BY-LAWS
corporation is a OPC, because only natural person, or a trust, or an
estate is allowed to form OPC.
***The bond may be cancelled upon proof of appointment of another
SEC. 119. Bylaws. – The One Person Corporation is not required
person as the Treasurer and Filing of Amended Form of Appointment
to submit and file corporate bylaws.
of Officers.
Please take note that OPC is not required to submit and file corporate Pwede bang piso ang ACS mo? Pwede! Di lang siya pwede kapag?
By-laws because the By-Laws pertain to an internal rules and No-par value.
regulations governing the conduct and affairs of the Board of Directors.
Mag by-laws siya sa kanyang sarili? SPECIAL FUNCTIONS OF THE CORPORATE SECRETARY
DISPLAY OF CORPORATE NAME

SEC. 123. Special Functions of the Corporate Secretary. – In
addition to the functions designated by the One Person
SEC. 120. Display of Corporate Name. – A One Person Corporation, the corporate secretary shall:
Corporation shall indicate the letters “OPC” either below or at the
end of its corporate name. a. Be responsible for maintaining the minutes book and/or records of
the corporation;
SINGLE STOCKHOLDER AS DIRECTOR, PRESIDENT b. Notify the nominee or alternate nominee of the death or incapacity
of the single stockholder, which notice shall be given no later than
five (5) days from such occurrence;
SEC. 121. Single Stockholder as Director, President. – The single c. Notify the Commission of the death of the single stockholder within
stockholder shall be the sole director and President of the One five (5) days from such occurrence and stating in such notice the
Person Corporation. names, residence addresses, and contact details of all known legal
heirs; and
TREASURER, CORPORATE SECRETARY AND OTHER OFFICERS d. Call the nominee or alternate nominee and the known legal heirs
to a meeting and advise the legal heirs with regard to, among others,
the election of a new director, amendment of the articles of
SEC. 122. Treasurer, Corporate Secretary, and Other Officers. – incorporation, and other ancillary and/or consequential matters.
Within fifteen (15) days from the issuance of its certificate of
incorporation, the One Person Corporation shall appoint a treasurer,
corporate secretary, and other officers as it may deem necessary, NOMINEE AND ALTERNATE NOMINEE
and notify the Commission thereof within five (5) days from
appointment. SEC. 124. Nominee and Alternate Nominee. - The single
The single stockholder may not be appointed as the corporate stockholder shall designate a nominee and an alternate nominee
secretary. who shall, in the event of the single stockholder’s death or incapacity,
A single stockholder who is likewise the self-appointed treasurer of take the place of the single stockholder as director and shall
the corporation shall give a bond to the Commission in such a sum manage the corporation’s affairs.
as may be required: Provided, That the said stockholder/treasurer The articles of incorporation shall state the names, residence
shall undertake in writing to faithfully administer the One Person addresses and contact details of the nominee and alternate
Corporation’s funds to be received as treasurer, and to disburse and nominee, as well as the extent and limitations of their authority
invest the same according to the articles of incorporation as in managing the affairs of the One Person Corporation.
approved by the Commission. The bond shall be renewed every two The written consent of the nominee and alternate nominee
(2) years or as often as may be required. shall be attached to the application for incorporation. Such
consent may be withdrawn in writing any time before the death
Therefore, a Corporate Secretary, Treasurer and other officers need or incapacity of the single stockholder.
not own a stock. So if you encounter a true or false question- must a
corporate secretary own atleast one share of stock? Of course no, Si single stockholder ang dedesignate kung sino si nominee and
kasi when it comes to OPC hindi niya kailangan mag own ng stock. alternate nominee. The role of the nominee and alternate nominee is
that in the event that of the single stockholder’s death or incapacity,
Now there is a bond requirement for self-appointed treasurer. take the place of the single stockholder as director and shall
The single stockholder shall not be appointed as Corporate manage the corporation’s affairs.
Secretary but may assume the role of a Treasurer (Guidelines
on the Establishment of a One Person Corporation, SEC Memo. Paano kung nasa same helicopter si nominee and alternate nominee?
Cir. No. 07-19). Therefore hindi dapat sila pwede pagsabayin.
The single stockholder who assumes the position of the treasurer March 12, 2020 by Trisha Ann Samantha Aligato
shall post a surety bond to be computed based on the authorized
capital stock (ACS) of the OPC as shown in the table below.
The articles of incorporation shall state the names, residence addresses
ACS SURETY BOND and contact details of the nominee and alternate nominee, as well as the
COVERAGE extent and limitations of their authority in managing the affairs of the One
1.00 to 1,000,000.00 1,000,000.00 Person Corporation.
1,000,001.00 to 2,000,000.00 2,000,000.00 The written consent of the nominee and alternate nominee shall be
2,000,001.00 to 3,000,000.00 3,000,000.00 attached to the application for incorporation.
3,000,001.00 to 4,000,000.00 4,000,000.00
So kailangan mo ng consent from that particular nominee.
4,000,001.00 to 5,000.000.00 5,000,000.00
P5,000,001.00 and above = Amount of surety bond Such consent may be withdrawn in writing any time before the death or
coverage shall be equal to the OPC’s ACS. incapacity of the single stockholder.
*Subject to renewal every two (2) years or as may be required upon So what is the term?
review of the annual submission of the Audited Financial
Statements/Financial Statements certified under oath by the SEC. 125. Term of Nominee and Alternate Nominee. – When the
company’s President and Treasurer. incapacity of the single stockholder is temporary, the nominee shall sit
as director and manage the affairs of the One Person Corporation until
**The bond is a continuing requirement for so long as the single the stockholder, by self determination,* regains the capacity to assume
stockholder is the self-appointed Treasurer of the OPC. such duties
In case of death or permanent incapacity of the single stockholder, the Now, it is required that the report be audited by a CPA and kung merong
nominee shall sit as director and manage the affairs of the One Person adverse opinion or qualified opinion ang CPA or independent auditor,
Corporation** until the legal heirs of the single stockholder have been the single stockholder must include an explanation or comment to every
lawfully determined, and the heirs have designated one of them or have qualification or reservation, or adverse remark or disclaimer made by the
agreed that the estate shall be the single stockholder of the One Person auditor. So that is necessary. Kailangang idefend nya.
Corporation.
(c) A disclosure of all self-dealings and related party transactions
*please take note walang ibang magdedetermine ng kanyang entered into between the One Person Corporation and the single
presumption of capacity. For example, na stroke sya, tapos sabi nya, stockholder; and
pwede na sya mag trabaho. So that’s a self determination. So pwede na
syang mag assume ulit. So the assumption of nominee shall now be Again, because of the propensity of OPC to be used a way of evading
considered erminated. liability, you create a self-dealing contracts. Then all self-dealing
contracts entered into between the One Person Corporation and the
**Hindi po permanent ang assumption ng nominee and alternate single stockholder must be reported to the Commission.
nominee.
(d) Other reports as the Commission may require. For purposes of
The alternate nominee shall sit as director and manage the One Person this provision, the fiscal year of a One Person Corporation shall be
Corporation in case of the nominee’s inability, incapacity, death, or that set forth in its articles of incorporation or, in the absence thereof,
refusal to discharge the functions as director and manager of the the calendar year.
corporation, and only for the same term and under the same conditions
applicable to the nominee The Commission may place the corporation under delinquent status
should the corporation fail to submit the reportorial requirements
Single stockholder Nominee three (3) times, consecutively or intermittently, within a period of five
(5) years.
Incapacity or Inability
death Incapacity
Death What is the liability of a single shareholder?
Refusal to discharge the SEC. 130. Liability of Single Shareholder. – A sole shareholder
function as director and
claiming limited liability has the burden of affirmatively showing that
manager
the corporation was adequately financed.
Please take note na pag single stockholder, incapacity or death lang.
yung alternate nominee will take over the place in case of INABILITY of This is my problem with OPC. It is very easy to promote this when you
nominee also. Or even refusal to discharge the functions as director and market OPC. But the problem with OPC is that it is not that attractive at
manager of the corporation. all.
Now, as a single stockholder, can you change your nominee or alternate The burden of proving of the doctrine of limited liability nandun na sa
nominee? Of course. single stockholder.
In ordinary corporation, there is that presumption that there is separate
liability. There is a presumption na iba ang liability ng corporation at iba
SEC. 126. Change of Nominee or Alternate Nominee. – The din ang sa may-ari. But in OPC, you have the burden of proving na hindi
single stockholder may, at any time, change its nominee and mo sya ginamit for fraudulent purposes. Kugn ikaw ang OPC, ikaw ang
alternate nominee by submitting to the Commission the names of may burder of proof na it was adequately financed, etc.
the new nominees and their corresponding written consent. For this
purpose, the articles of incorporation need not be amended.
Where the single stockholder cannot prove that the property of the
SEC. 127. Minutes Book. – A One Person Corporation shall One Person Corporation is independent of the stockholder’s
maintain a minutes book which shall contain all actions, decisions, personal property, the stockholder shall be jointly and severally
and resolutions taken by the One Person Corporation. liable for the debts and other liabilities of the One Person
Corporation.
SEC. 128. Records in Lieu of Meetings. – When action is needed
on any matter, it shall be sufficient to prepare a written resolution, You see, para ding wala? Kasi pag hindi mon a prove na it is adequately
signed and dated by the single stockholder, and recorded in the financed o hindi mo ma prove na the properties are independent from
minutes book of the One Person Corporation. The date of recording your own properties, for my example in my case of Doughnut Delivery,
in the minutes book shall be deemed to be the date of the meeting you have to prove that that delivery van is used only for doughnuts.
for all purposes under this Code Because if you cannot prove that it is not used for personal use, then the
creditors of your doughnut company can go after your properties.
pagrerecord ka lang ng resolution. No need for meeting. Kasi nga, ikaw Now, this is the first time that the Doctrine of Peiring the Corporate veil
lang mag-isa. No need for attendance. was expressly stated in a provision.
Before this one, it was only state in jurisprudence. But this is the first
time it has been expressly provided in the provisions.
SEC. 129. Reportorial Requirements. – The One Person
Corporation shall submit the following within such period as the
Commission may prescribe: The principles of piercing the corporate veil applies with equal force
to One Person Corporations as with other corporations
(a) Annual financial statements audited by an independent certified
public accountant: Provided, That if the total assets or total liabilities Can I convert an OPC?
of the corporation are less than Six Hundred Thousand Pesos Example:
(P600,000.00), the financial statements shall be certified under oath Lima kami stockholders. Pumunta ng Wuhan yung apat. Nagkavirus
by the corporation’s treasurer and president. lahat, namatay. So is ana lang naiwan. Pwede bang i-convert ko na lang
to OPC? Let’s say, 4 ang namatay tapos walang tagapagmana o yung
(b) A report containing explanations or comments by the president isang naiwan yung tagapagmana.
on every qualification, reservation, or adverse remark or disclaimer
made by the auditor in the latter’s report; SEC. 131. Conversion from an Ordinary Corporation to a One
Person Corporation. – When a single stockholder acquires all the
This is a peculiar requirement. Because remember, it is prone to stocks of an ordinary stock corporation, the latter may apply for
manipulation. Kasi ikaw lang naman yung gumagawa nyan. At ikaw din conversion into a One Person Corporation, subject to the
ang nag-mamanage. submission of such documents as the Commission may require. If
the application for conversion is approved, the Commission shall for a maximum period of twenty (20) days, without prejudice to the
issue a certificate of filing of amended articles of incorporation order being made permanent after due notice and hearing.
reflecting the conversion. The One Person Corporation converted
from an ordinary stock corporation shall succeed the latter and be So, ex parte- ano meaning ng exparte? Meaning di na kailangan ng
legally responsible for all the latter’s outstanding liabilities as of the submit ng other party.
date of conversion.
This is what happened with KAPA. Hindi na hiningtay ang position
Note: application lang, hindi petition. KAPA. So kaya nga pag issue ng cease and desist order, there are
giving opportunity to KAPA to reply to that cease and desist order.
Can you do it vise-versa?
thereafter, the Commission may proceed administratively against such
SEC. 132. Conversion from a One Person Corporation to an
person in accordance with Section 158 of this Code, and/or transmit
Ordinary Stock Corporation. – A One Person Corporation may be
evidence to the Department of Justice for preliminary investigation or
converted into an ordinary stock corporation after due notice to the
criminal prosecution and/or initiate criminal prosecution for any violation
Commission of such fact and of the circumstances leading to the
of this Code, rule, or regulation.
conversion, and after compliance with all other requirements for
stock corporations under this Code and applicable rules. Such
notice shall be filed with the Commission within sixty (60) days from SEC. 157. Contempt. – Any person who, without justifiable cause,
the occurrence of the circumstances leading to the conversion into fails or refuses to comply with any lawful order, decision, or
an ordinary stock corporation. If all requirements have been subpoena issued by the Commission shall, after due notice and
complied with, the Commission shall issue a certificate of filing of hearing, be held in contempt and fined in an amount not exceeding
amended articles of incorporation reflecting the conversion. Thirty thousand pesos (P30,000.00). When the refusal amounts to
clear and open defiance of the Commission’s order, decision, or
subpoena, the Commission may impose a daily fine of One
Ditto naman, after due notice.
thousand pesos (P1,000.00) until the order, decision, or subpoena
In case of death of the single stockholder, the nominee or alternate is complied with.
nominee shall transfer the shares to the duly designated legal heir
or estate within seven (7) days from receipt of either an affidavit of SEC. 158. Administrative Sanctions. – If, after due notice and
heirship or self-adjudication executed by a sole heir, or any other hearing, the Commission finds that any provision of this Code, rules
legal document declaring the legal heirs of the single stockholder or regulations, or any of the Commission’s orders has been violated,
and notify the Commission of the transfer. Within sixty (60) days the Commission may impose any or all of the following sanctions,
from the transfer of the shares, the legal heirs shall notify the taking into consideration the extent of participation, nature, effects,
Commission of their decision to either wind up and dissolve the One frequency and seriousness of the violation:
Person Corporation or convert it into an ordinary stock corporation
The ordinary stock corporation converted from a One Person (a) Imposition of a fine ranging from Five thousand pesos
Corporation shall succeed the latter and be legally responsible for (P5,000.00) to Two million pesos (P2,000,000.00), and not more
all the latter’s outstanding liabilities as of the date of conversion. than One thousand pesos (P1,000.00) for each day of continuing
violation but in no case to exceed Two million pesos
INVESTIGATIONS, OFFENSES, AND PENALTIES (P2,000,000.00);
(b) Issuance of a permanent cease and desist order;

SEC. 154. Investigation and Prosecution of Offenses. – The
Commission may investigate an alleged violation of this Code, or of
(c) Suspension or revocation of the certificate of incorporation; and
rule, regulation, or order of the Commission.
(d) Dissolution of the corporation and forfeiture of its assets under
The Commission may publish its findings, orders, opinions,
the conditions in Title XIV of this Code.
advisories, or information concerning any such violation, as may be
relevant to the general public or to the parties concerned, subject to
the provisions of Republic Act No. 10173, otherwise known as the Meron ding mga admin sactions. Again, it has increased the sanctions.
“Data Privacy Act of 2012”, and other pertinent laws. Mind you, kung magpapa-amend yan sila ng artcles, iche-check ang
compliance kung nag submit ka ba ng GIS, etc. ngayon, 5,000 na.
The Commission shall give reasonable notice to and coordinate with
the appropriate regulatory agency prior to any such publication It has become a revenue measure. Hindi naman dapat.
involving companies under their special regulatory jurisdiction. This should be properly addressed.
(d) Dissolution of the corporation and forfeiture of its assets under

Just like what happened to KAPA. Nag issue sya ng Cease and Desist
the conditions in Title XIV of this Code.
order.
Take note: this is one example of involuntary dissolution. Kasi ang
Pwede din mag issue ng subpoena. When you read this, think KAPA.
commission mismo ang magsasabing dissolved ka na.
SEC. 155. Administration of Oaths, Subpoena of Witnesses and

SEC. 159. Unauthorized Use of Corporate Name; Penalties. –
Documents. – The Commission, through its designated officer, may
The unauthorized use of a corporate name shall be punished with a
administer oaths and affirmations, issue subpoena and subpoena
fine ranging from Ten thousand pesos (P10,000.00) to Two hundred
duces tecum, take testimony in any inquiry or investigation, and may
thousand pesos (P200,000.00).
perform other acts necessary to the proceedings or to the
investigation.
SEC. 160. Violation of Disqualification Provision; Penalties. –
When, despite the knowledge of the existence of a ground for
SEC. 156. Cease and Desist Orders. – Whenever the Commission
disqualification as provided in Section 26 of this Code, a director,
has reasonable basis to believe that a person has violated, or is
trustee or officer willfully holds office, or willfully conceals such
about to violate this Code, a rule, regulation, or order of the
disqualification, such director, trustee or officer shall be punished
Commission, it may direct such person to desist from committing the
with a fine ranging from Ten thousand pesos (P10,000.00) to Two
act constituting the violation.
hundred thousand pesos (P200,000.00) at the discretion of the
court, and shall be permanently disqualified from being a director,
The Commission may issue a cease and desist order ex parte to
trustee or officer of any corporation. When the violation of this
enjoin an act or practice which is fraudulent or can be reasonably
provision is injurious or detrimental to the public, the penalty shall be
expected to cause significant, imminent, and irreparable danger or
a fine ranging from Twenty thousand pesos (P20,000.00) to Four
injury to public safety or welfare. The ex parte order shall be valid
hundred thousand pesos (P400,000.00).
SEC. 161. Violation of Duty to Maintain Records, to Allow their Now it is a violation to act as an intermediary for graft and curropt
Inspection or Reproduction; Penalties. – The unjustified failure or practices. Bakit ito inilagay?
refusal by the corporation, or by those responsible for keeping and
maintaining corporate records, to comply with Sections 45, 73, 92, Rationale: In the time of Napoles, ang ginagawa nyan pork barrel.
128, 177 and other pertinent rules and provisions of this Code on Gumagawa ng NGO. Tapos may magsopsponsor na politician. Now this
inspection and reproduction of records shall be punished with a fine NGO is not existing. That is why foundations now heavily regulated.
ranging from Ten thousand pesos (P10,000.00) to Two hundred Okay lang naman na i-regulate kaya lang it will discourage people who
thousand pesos (P200,000.00), at the discretion of the court, taking really want to make foundation for a legitimate purpose. You see the
into consideration the seriousness of the violation and its impact of these scrupulous individuals who are trying to circumvent the
implications. When the violation of this provision is injurious or law.
detrimental to the public, the penalty is a fine ranging from Twenty
thousand pesos (P20,000.00) to Four hundred thousand pesos SEC. 167. Engaging Intermediaries for Graft and Corrupt
(P400,000.00). Practices; Penalties. – A corporation that appoints an intermediary
who engages in graft and corrupt practices for the corporation’s
The penalties imposed under this section shall be without prejudice benefit or interest shall be punished with a fine ranging from One
to the Commission’s exercise of its contempt powers under Section hundred thousand pesos (P100,000.00) to One million pesos
157 hereof. (P1,000,000.00).
SEC. 162. Willful Certification of Incomplete, Inaccurate, False, or SEC. 168. Tolerating Graft and Corrupt Practices; Penalties. –
Misleading Statements or Reports; Penalties. – Any person who A director, trustee, or officer who knowingly fails to sanction, report,
willfully certifies a report required under this Code, knowing that the or file the appropriate action with proper agencies, allows or
same contains incomplete, inaccurate, false, or misleading tolerates the graft and corrupt practices or fraudulent acts committed
information or statements, shall be punished with a fine ranging from by a corporation’s directors, trustees, officers, or employees shall be
Twenty thousand pesos (P20,000.00) to Two hundred thousand punished with a fine ranging from Five hundred thousand pesos
pesos (P200,000.00). When the wrongful certification is injurious or (P500,000.00) to One million pesos (P1,000,000.00).
detrimental to the public, the auditor or the responsible person may
also be punished with a fine ranging from Forty thousand pesos SEC. 169. Retaliation Against Whistleblowers. – A whistleblower
(P40,000.00) to Four hundred thousand pesos (P400,000.00). refers to any person who provides truthful information relating to the
commission or possible commission of any offense or violation
under this Code. Any person who, knowingly and with intent to
SEC. 163. Independent Auditor Collusion; Penalties. – An retaliate, commits acts detrimental to a whistleblower such as
independent auditor who, in collusion with the corporation’s directors interfering with the lawful employment or livelihood of the
or representatives, certifies the corporation’s financial statements whistleblower, shall, at the discretion of the court, be punished with
despite its incompleteness or inaccuracy, its failure to give a fair and a fine ranging from One hundred thousand pesos (P100,000.00) to
accurate presentation of the corporation’s condition, or despite One million pesos (P1,000,000.00).
containing false or misleading statements, shall be punished with a
fine ranging from Eighty thousand pesos (P80,000.00) to Five SEC. 170. Other Violations of the Code; Separate Liability. –
hundred thousand pesos (P500,000.00). When the statement or Violations of any of the other provisions of this Code or its
report certified is fraudulent, or has the effect of causing injury to the amendments not otherwise specifically penalized therein shall be
general public, the auditor or responsible officer may be punished punished by a fine of not less than Ten thousand pesos
with a fine ranging from One hundred thousand pesos (P10,000.00) but not more than One million pesos (P1,000,000.00).
(P100,000.00) to Six hundred thousand pesos (P600,000.00). If the violation is committed by a corporation, the same may, after
notice and hearing, be dissolved in appropriate proceedings before
This is prevalent. Ang ginagawa, ang auditor’s report binababaan ang the Commission: Provided, That such dissolution shall not preclude
income. That is punishable violation. the institution of appropriate action against the director, trustee, or
officer of the corporation responsible for said violation: Provided,
further, That nothing in this section shall be construed to repeal the
SEC. 164. Obtaining Corporate Registration Through Fraud; other causes for dissolution of a corporation provided in this Code.
Penalties. – Those responsible for the formation of a corporation
through fraud, or who assisted directly or indirectly therein, shall be Liability for any of the foregoing offenses shall be separate from any
punished with a fine ranging from Two hundred thousand pesos other administrative, civil, or criminal liability under this Code and
(P200,000.00) to Two million pesos (P2,000,000.00). When the other laws.
violation of this provision is injurious or detrimental to the public, the
penalty is a fine ranging from Four hundred thousand pesos
(P400,000.00) to Five million pesos (P5,000,000.00). If you violate the revised corporation code, ibang liability yun and you
violate the SRC, ibang liability yun. Yung SRC violations may civil, may
SEC. 165. Fraudulent Conduct of Business; Penalties. – A criminal.
corporation that conducts its business through fraud shall be
punished with a fine ranging from Two hundred thousand pesos SEC. 171. Liability of Directors, Trustees, Officers, or Other
(P200,000.00) to Two million pesos (P2,000,000.00). When the Employees. – If the offender is a corporation, the penalty may, at
violation of this provision is injurious or detrimental to the public, the the discretion of the court, be imposed upon such corporation and/or
penalty is a fine ranging from Four hundred thousand pesos upon its directors, trustees, stockholders, members, officers, or
(P400,000.00) to Five million pesos (P5,000,000.00). employees responsible for the violation or indispensable to its
commission.
SEC. 166. Acting as Intermediaries for Graft and Corrupt
Practices; Penalties. – A corporation used for fraud, or for So kahit empleyado ka lang, pwede kang maging liabile.
committing or concealing graft and corrupt practices as defined
under pertinent statutes, shall be liable for a fine ranging from One
hundred thousand pesos (P100,000.00) to Five million pesos SEC. 172. Liability of Aiders and Abettors and Other Secondary
(P5,000,000.00). Liability. – Anyone who shall aid, abet, counsel, command, induce,
or cause any violation of this Code, or any rule, regulation, or order
of the Commission shall be punished with a fine not exceeding that
When there is a finding that any of its directors, officers, employees, imposed on the principal offenders, at the discretion of the court,
agents, or representatives are engaged in graft and corrupt practices, after taking into account their participation in the offense.
the corporation’s failure to install:
(a) safeguards for the transparent and lawful delivery of services; and
(b) policies, code of ethics, and procedures against graft and corruption
shall be prima facie evidence of corporate liability under this section.
REPORTORIAL REQUIREMENTS final resolution. The Commission shall retain jurisdiction over
pending suspension of payment/rehabilitation cases filed as of 30
SEC. 177. Reportorial Requirements of Corporations. – Except June 2000 until finally disposed;
as otherwise provided in this Code or in the rules issued by the
Commission, every corporation, domestic or foreign, doing business (c) Impose sanctions for the violation of this Code, its implementing
in the Philippines shall submit to the Commission: rules and orders of the Commission;
(a) Annual financial statements audited by an independent certified (d) Promote corporate governance and the protection of minority
public accountant: Provided, That if the total assets or total liabilities investors, through, among others, the issuance of rules and
of the corporation are less than Six hundred thousand pesos regulations consistent with international best practices;
(P600,000.00), the financial statements shall be certified under oath
by the corporation’s treasurer or chief financial officer; and (e) Issue opinions to clarify the application of laws, rules, and
regulations;
(b) A general information sheet.
(f) Issue cease and desist orders ex parte to prevent imminent fraud
Corporations vested with public interest must also submit the or injury to the public;
following: (1) A director or trustee compensation report; and
(g) Hold corporations in direct and indirect contempt;
(2) A director or trustee appraisal or performance report and the
standards or criteria used to assess each director or trustee. (h) Issue subpoena duces tecum and summon witnesses to appear
in proceedings before the Commission;
The reportorial requirements shall be submitted annually and within
such period as may be prescribed by the Commission. (i) In appropriate cases, order the examination, search and seizure
of documents, papers, files and records, and books of accounts of
The Commission may place the corporation under delinquent status any entity or person under investigation as may be necessary for the
in case of failure to submit the reportorial requirements three (3) proper disposition of the cases, subject to the provisions of existing
times, consecutively or intermittently, within a period of five (5) laws;
years. The Commission shall give reasonable notice to and
coordinate with the appropriate regulatory agency prior to placing (j) Suspend or revoke the certificate of incorporation after proper
under delinquent status companies under their special regulatory notice and hearing;
jurisdiction. (k) Dissolve or impose sanctions on corporations, upon final court
order, for committing, aiding in the commission of, or in any manner
Any person required to file a report with the Commission may redact furthering securities violations, smuggling, tax evasion, money
confidential information from such required report: Provided, That laundering, graft and corrupt practices, or other fraudulent or illegal
such confidential information shall be filed in a supplemental report acts;
prominently labelled “confidential”, together with a request for
confidential treatment of the report and the specific grounds for the (l) Issue writs of execution and attachment to enforce payment of
grant thereof. fees, administrative fines, and other dues collectible under this
Code;
VISITORIAL POWERS
(m) Prescribe the number of independent directors and the minimum
criteria in determining the independence of a director;
SEC. 178. Visitorial Power and Confidential Nature of
Examination Results. – The Commission shall exercise visitorial (n) Impose or recommend new modes by which a stockholder,
powers over all corporations, which powers shall include the member, director, or trustee may attend meetings or cast their votes,
examination and inspection of records, regulation and supervision as technology may allow, taking into account the company’s scale,
of activities, enforcement of compliance, and imposition of sanctions number of shareholders or members, structure, and other factors
in accordance with this Code. consistent with the basic right of corporate suffrage;
Should the corporation, without justifiable cause, refuse or obstruct (o) Formulate and enforce standards, guidelines, policies, rules and
the Commission’s exercise of its visitorial powers, the Commission regulations to carry out the provisions of this Code; and
may revoke its certificate of incorporation, without prejudice to the
imposition of other penalties and sanctions under this Code. (p) Exercise such other powers provided by law or those which may
be necessary or incidental to carrying out the powers expressly
All interrogatories propounded by the Commission and the answers granted to the Commission.
thereto, as well as the results of any examination made by the
Commission or by any other official authorized by law to make an In imposing penalties and additional monitoring and supervision
examination of the operations, books, and records of any requirements, the Commission shall take into consideration the size,
corporation, shall be kept strictly confidential, except when the law nature of the business, and capacity of the corporation.
requires the same to be made public, when necessary for the
Commission to take action to protect the public or to issue orders in No court below the Court of Appeals shall have jurisdiction to issue
the exercise of its powers under this Code, or where such a restraining order, preliminary injunction, or preliminary mandatory
interrogatories, answers or results are necessary to be presented as injunction in any case, dispute, or controversy that directly or
evidence before any court. indirectly interferes with the exercise of the powers, duties and
responsibilities of the Commission that falls exclusively within its
POWERS, FUNCTIONS, AND JURISDICTION jurisdiction.
SEC. 179. Powers, Functions, and Jurisdiction of the ARBITRATION

Commission. – The Commission shall have the power and
authority to: SEC. 181. Arbitration for Corporations. – An arbitration
agreement may be provided in the articles of incorporation or bylaws
(a) Exercise supervision and jurisdiction over all corporations and of an unlisted corporation. When such an agreement is in place,
persons acting on their behalf, except as otherwise provided under disputes between the corporation, its stockholders or members,
this Code; which arise from the implementation of the articles of incorporation
or bylaws, or from intra-corporate relations, shall be referred to
(b) Pursuant to Presidential Decree No. 902-A, retain jurisdiction
over pending cases involving intra-corporate disputes submitted for
arbitration. A dispute shall be nonarbitrable when it involves criminal VOLUNTARY DISSOLUTION WHERE NO CREDITORS ARE
offenses and interests of third parties. AFFECTED
•The dissolution may be effected by majority vote of the BOD
The arbitration agreement shall be binding on the corporation, its or trustees, and by a resolution adopted by the affirmative vote
directors, trustees, officers, and executives or managers. of the stockholders owning at LEAST MAJORITY OF THE
OUTSTANDING CAPITAL STOCK or majority of the
To be enforceable, the arbitration agreement should indicate the members
number of arbitrators and the procedure for their appointment. The •At least 20 days prior to the meeting, notice shall be given to
power to appoint the arbitrators forming the arbitral tribunal shall be each shareholder or member of record personally, by
granted to a designated independent third party. Should the third registered ail, or by means authorized under its bylaws,
party fail to appoint the arbitrators in the manner and within the whether or not entitled to vote at the meeting
period specified in the arbitration agreement, the parties may •Notice of the time, place, and object of the meeting shall be
request the Commission to appoint the arbitrators. In any case, published once prior to the date of the meeting in a newspaper
arbitrators must be accredited or must belong to organizations published in such place, in a newspaper of general circulation
accredited for the purpose of arbitration. in the Philippines.
•A VERIFIED REQUEST FOR DISSOLUTION shall be filed
The arbitral tribunal shall have the power to rule on its own with the Commission stating:
jurisdiction and on questions relating to the validity of the arbitration
agreement. When an intra-corporate dispute is filed with a Regional a) the reason for the dissolution
Trial Court, the court shall dismiss the case before the termination b) the form, manner, and time when the notices
of the pretrial conference, if it determines that an arbitration were given
agreement is written in the corporation’s articles of incorporation, c) names of the stockholders and directors or
bylaws, or in a separate agreement. members and trustees who approved the
dissolution
The arbitral tribunal shall have the power to grant interim measures d) The date, place and time of the meeting in which
necessary to ensure enforcement of the award, prevent a the vote was made, and
miscarriage of justice, or otherwise protect the rights of the parties. e) details of publication
A final arbitral award under this section shall be executory after the It is not a petition, it is just a request.
lapse of fifteen (15) days from receipt thereof by the parties and shall Also, it must be verified. You have your legforms so
be stayed only by the filing of a bond or the issuance by the appellate you know what is a verification.
court of an injunctive writ.
Remember, pag nag-vovoluntary dissolve ka, ikaw lang yung
The Commission shall formulate the rules and regulations, which magsasabing wala nang utang. So kelangang i-publish to give
shall govern arbitration under this section, subject to existing laws opportunity to your creditors to oppose.
on arbitration.
Within 15 days from receipt of the verified request for dissolution, and in
the absence of any withdrawal within the said period, the commission
So pwede nang ilagay ang arbitration clause in the bylaws. It’s the shall approve the request and issue of the certificate of dissolution. The
problem nowadays pag nag aaway-away ang stockholders, pwede na dissolution shall take effect only upon the issuance by the commission
aglagay ng arbitration clause. of a certificate of dissolution.
Take note: There are industries which require a recommendation from a
JURISDICTION OVER PARTY-LISTS regulatory agency. For example, banks.
SEC. 182. Jurisdiction Over Party-List Organizations. – The From 2018 TSN:
powers, authorities, and responsibilities of the Commission involving Good question: Can the commission refuse to issue a certificate of
party-list organizations are transferred to the Commission on dissolution? Can you file a petition for mandamus? Is it ministerial to
Elections (COMELEC). issue a certificate of dissolution or do they have to decide on the merits
of the dissolution? Pag nag submit sila, pwede ba yan ideny ng
Within six (6) months after the effectivity of this Act, the monitoring, commission? Can they refuse to issue a certificate of incorporation? No.
supervision, and regulation of such corporations shall be deemed Dito sa end, can they refuse to issue a certificate of dissolution? No they
automatically transferred to the COMELEC. cannot once the requirements have been complied with. They should
issue a certificate of dissolution. Pwede ba mag file ka ng application for
For this purpose, the COMELEC, in coordination with the request for dissolution tapos you change your mind, you withdrew it.
Commission, shall promulgate the corresponding implementing Pwede, kasi you have this provision.
rules for the transfer of jurisdiction over the abovementioned
corporations. VESAGAS VS. COURT OF APPEALS
It is a welcomed revision kasi before it is very weird kasi pag partylist ka, HELD: The club, according to the SEC‘s explicit finding, was duly
ang SEC may jurisdiction pa. it is now transferred to the Comelec by registered and a certificate of incorporation was issued in its favor.
express provision.
The question of whether the club was indeed registered and issued
That endd our discussion on investigations. a certification or not is one which necessitates a factual inquiry. The
finding of the Commission, as the administrative agency tasked with
DISSOLUTION among others the function of registering and administering
corporations, is given great weight and accorded high respect.
TYPES AND MODES
Moreover, by their own admission contained in the various pleadings
VOLUNTARILY
which they have filed in the different stages of this case, Vesagas
-CREDITORS ARE AFFECTED
and Asis themselves have considered the club as a corporation.
-CREDITORS ARE NOT AFFECTED
Otherwise, there is no cogency in spearheading the move for its
INVOLUNTARILY
dissolution. Vesagas and Asis were therefore well aware of the
incorporation of the club and even agreed to get elected and serve
So if gusto mong magpakamatay (the corporation), iba yung pag may
as its responsible officers before they reconsidered dissolving its
utang ka pa at yung wala ka nang utang. So mas stringent yung pag
corporate form.
may utang ka pa.
On the other hand, at the time of the institution of the case with the
Debt does not survive death.
SEC, the club was not dissolved by virtue of an alleged Board
resolution.
The Corporation Code establishes the procedure and other formal shall be posted for 3 consecutive weeks in 3 public places in such
requirements a corporation needs to follow in case it elects to municipality or city.
dissolve and terminate its structure voluntarily and where no rights of
creditors may possibly be prejudiced. Section 118 (Voluntary Upon 5 days notice, given after the date on which the right to file
dissolution where no creditors are affected) of the Corporation Code objections as fixed in the order has expired, the Commission shall
provides that ―If dissolution of a corporation does not prejudice the proceed to hear the petition and try any issue raised in the objections
rights of any creditor having a claim against it, the dissolution may be filed; and if no such objection is sufficient and the material allegations of
effected by majority vote of the board of directors or trustees and by the petition are true, it shall render judgement dissolving the corporation
a resolution duly adopted by the affirmative vote of the stockholders and directing such disposition of its assets as justice requires, and may
owning at least two-thirds (2/3) of the outstanding capital stock or at appoint a receiver to collect such assets and pay the debts of the
least two-thirds (2/3) of the members at a meeting to be held upon corporation.
call of the directors or trustees after publication of the notice of time,
place and object of the meeting for three (3) consecutive weeks in a DISCUSSION: This is really problematic because gumawa ng
newspaper published in the place where the principal office of said Corporation. Dun nakappangalan ang property. Non operating na,
corporation is located; and if no newspaper is published in such ngayon ang property is still under the name of the corporation. Siddolved
place, then in a newspaper of general circulation in the Philippines, na. paano na nila mabenta> ano ang kanilang gagawin? That’s a good
after sending such notice to each stockholder or member either by question. What will you prepare? What is your remedy? Kayo na bahala
registered mail or by personal delivery at least 30 days prior to said dyan.
meeting.
The dissolution shall take effect only upon the issuance by the
A copy of the resolution authorizing the dissolution shall be certified commission of certificate of dissolution.
by a majority of the board of directors or trustees and countersigned Given that this is a petition, there has to be a hearing. Unlike a request,
by the secretary of the corporation. The Securities and Exchange then no need for hearing.
Commission shall thereupon issue the certificate of dissolution.ǁ We
note that to substantiate their claim of dissolution, petitioners CAN THE CORPORATION WITHDRAW THE PETITION TO
submitted only two relevant documents: the Minutes of the First WITHDRAW? If you withdraw REQUEST, here’s the procedure:
Board Meeting held on January 5, 1997, and the board resolution
issued on April 14, 1997 which declared to continue o consider the Sec 137. Withdrawal of request and petition for dissolution. A
club as a non-registered or a noncorporate entity and just a social withdrawal of the request for dissolution shall be made in writing, duly
association of respectable and respecting individual members who verified by any incorporator, director, trustee, shareholder, or
have associated themselves, since the 1970s, for the purpose of member and signed by the same number of incorporators, directors,
playing the sports of tennis x x x.[12] Obviously, these two documents trustees, shareholders, or members necessary to request for
will not suffice. The requirements mandated by the Corporation Code dissolution as set forth in the coregoing sections. The withdrawal
should have been strictly complied with by the members of the club. shall be submitted no later than 15 days from receipt by the
commission of the request for dissolution. Upon receipt of a
The records reveal that no proof was offered by the petitioners with withdrawal of request for dissolution, the commission shall withhold
regard to the notice and publication requirements. Similarly wanting action on the request for dissolution and shall after investigation:
is the proof of the board members certification. Lastly, and most [a] make a pronouncement that the request for dissolution is deemed
important of all, the SEC Order of Dissolution was never submitted withdrawn;
as evidence. [b] direct a joint meeting of the board of directors or trustees and the
stockholders or members for the purpose of ascertaining whether to
VOLUNTARY DISSOLUTION WHERE CREDITORS ARE AFFECTED proceed with dissolution; or
A verified petition for dissolution shall be filed with the Commission. The [c] issue such other orders as it may deem appropriate.
petition shall be:
•signed by a majority of the corporation’s board of directors or
trustees, So if you withdraw a PETITION, it shall be in the form of a MOTION.
•verified by it’s president or secretary or one of its directors or Hindi lang request.
trustees, and
•shall set forth all claims and demands against it, and A withdrawal of the petition for dissolution shall be in the form of a
•that its dissolution was resolved upon by the affirmative vote motion and similar in substance to a withdrawal of request for
of the stockholders representing dissolution but shall be verified and filed prior to a publication of the
at least two-thirds (2/3) of the outstanding capital stock or at order setting of the deadline for filing objections to the petitions.
least two-thirds (2/3) of the members at a meeting of its
stockholders or members called for the purpose.
The petition shall likewise state: Kasi pag meron nang publication, you can no longer withdraw.
(a)the reason for the dissolution; DISSOLUTION BY SHORTENING CORPORATE TERM

(b)the form, manner, and time when the notice were (SPECIAL MODE OF DISSOLUTION)
given, and Sec 136. Dissolution by shortening the corporate term. – A
(c)the date, place, and time of the meeting in which voluntary dissolution may be effected by amending the articles of
the vote was made. incorporation to shorten the corporate term pursuant to the
provisions of this Code. A copy of the amended articles of
The corporation shall submit to the Commission the following: incorporation shall be submitted to the Commission in accordance
1. copy of the resolution authorizing the dissolution, certified with this Code. Upon the expiration of the shortened term, as stated
by a majority of the board of directors and countersigned by in the approved amended articles of incorporation, the corporation
the secretary of the corporation , and shall be deemed dissolved without any further proceedings, subject
2.a list of all its creditors to the provisions of the Code on liquidation. In the case of expiration
if the petition is sufficient in form and substance, the of corporate term, dissolution shall AUTOMATICALLY take effect on
commission shall by an order reciting the purpose of the the day following the last day of the corporate term stated in the
petition, articles of incorporation without the need for the issuance by the
Commission of a certificate of dissolution.
•fix a deadline for filing objections to the petition which date shall not be
less than 30 days nor more than 60 days after the entry of the order This is still under voluntary dissolution but it is a special mode of
before such date, a copy of the order shall be published at least once a dissolution. Let the life pass. Paano magpadissolve na hindi na
week for 3 consecutive weeks in a newspaper of general circulation magpasa ng petition? Because it is very tedious. Amend mo yung term.
published in the municipality or city where the principal office of the Shorten it. Once ma-approve yan. And hintayin mo lang mag lapse yan,
corporation is situated, or if there be no such newspaper, then in a then it is already dissolved.
newspaper of general circulation in the Philippines, and a similar copy
In the Revised Corporation Code, there is no period when you should to any creditor or stockholder or member who is known or cannot be
amend your corporate term. Pero there is a SEC memorandum circular found shall be escheated in favor of the national government.
which provides that you cannot amend to shorten your term if the
shortening is made within one year from filing your amendment. So you
have to amend it beyond one year. Comment: abangers ang government. Remember our discussion on
unclaimed balances? Abangers din yung government.
INVOLUNATRY DISSOLUTION
Sec 138. Involuntary dissolution – A corporation may be dissolved

by the Commission motu proprio or upon filing of a verified complaint
by any interested party. The following may be grounds for dissolution
of the corporation:
[1] Non use of corporate charter as provided under section 21 of this
Code;
[2] Continuous inoperation of a corporation as provided under
Section 21 of this Code; [3] Upon receipt of a lawful court order
dissolving the corporation;
[4] Upon finding by final judgement that the corporation procured its
incorporation through fraud; [5] Upon finding by final judgement that
the corporation:
[a] Was created for the purpose of committing, concealing or aiding
the commission of securities violations, smuggling, tax evasion,
money laundering or graft and corrupt practices
[b] Committee or aided in the commission of securities violations,
smuggling, tax evasion, money laundering or graft and corrupt
practices and its stockholders knew; and
[c] Repeatedly and knowingly tolerated the commission of graft and
corrupt practices or other fraudulent or illegal acts by its directors,
trustees, officers or employees.
If the corporation is ordered dissolved by final judgement pursuant

to the ground un subparagraph 5 hereof, its assets, after payment
of its liabilities shall, upon petition of the Commission with the
appropriate court, be forfeited in favor of the national government.
Hindi mapupunta sa stockholders
Such forfeiture shall be without prejudice to the rights of innocent
stockholders and employees for services rendered, and to the
application of other penalty or sanction under this Code or other
laws.
COMMENT: We have very good law on graft and corrupt practices it is

the implementation that is really lacking.walang political will.
LIQUIDATION
Sec. 139. Corporate liquidation. – Except for banks, which shall

be covered by the applicable provisions of RA 7653, otherwise
known as the New Central Bank Act as amended, and RA 3591,
otherwise known as the Phlippine Deposit Insurance Corporation
Charter, as amended, every corporation whose charter expires
pursuant to its articles of incorporation, is annulled by forfeiture, or
whose corporate existence is terminated in any other manner, shall
nevertheless remain as a body corporate for 3 years after the
effective date of dissolution,
Merong tinatawag na winding up period. Yung 3 years.
for the purpose of prosecuting and defending suits by or against it

and enabling it to settle and close its affairs; dispose of and convey
its property, and distribute its assets, but not for the purpose of
continuing the business for which it was established.
Similar to your laws on partnership, merong period to liquidate.
At any time during said 3 years, the corporation is authorized and

empowered to convey all of its property to trustees for the benefit of
stockholders, members, creditors and other persons in interest.
After any such conveyance by the corporation of its property in trust
for the benefit of its stockholders, members, creditors and others in
interest, all interest which the corporation had in the property
terminates, the legal interest vests in the trustees, and the beneficial
interest in the stockholders, members, creditors or other persons in
interest.
Except as otherwise provided for in Sections 94 and 95 of this Code,
upon the winding up of its corporate affairs, any asset distributable

Corpo 3rd Exam TSN 2020

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Atty. Raymund Christian S.

Ong Abrantes BUSINESS ORGANIZATION II Ateneo de Davao University College of Law

SEC OGC OPINION 16-05

CHUA vs CA Please take note of the nature of derivative suit.

RULING: NO REYES vs RTC OF MAKATI

2019 TSN MERGER AND ACQUISITION PROCESS

(g) Such other information as may be prescribed by the Commission.

Poliand Industrial vs. National Development Company PHILIPPINE COMPETITION ACT

February 29, 2020 by Belle Fabe https://phcc.gov.ph/videos/anti-cartel/

Section 14. Anti-Competitive Agreements. –

(b) The following agreements, between or among competitors which

(1) Setting, limiting, or controlling production, markets, technical

SIZE OF THE TRANSACTION TEST

When there is compulsory notification with the PCC regarding mergers

Section 12. Finality of rulings on mergers and acquisitions. Merger

A: Please take note it’s not cheap if you undergo for a

Q: What is the penalty if you do not comply with the notification

A: Section 3(g) of the Act.

Provided that any stockholder of a close corporation may by written

SEC. 107. Classes of Religious Corporations. – Religious

At the same time, it is granted that he may be permitted to risk only a

Based on this jurisprudence, it becomes important that the one person

If the financial identities of the two parties were merged so that it is

DISPLAY OF CORPORATE NAME

(b) Issuance of a permanent cease and desist order;

(d) Dissolution of the corporation and forfeiture of its assets under

SEC. 155. Administration of Oaths, Subpoena of Witnesses and

SEC. 179. Powers, Functions, and Jurisdiction of the ARBITRATION

(a)the reason for the dissolution; DISSOLUTION BY SHORTENING CORPORATE TERM

Sec 138. Involuntary dissolution – A corporation may be dissolved

If the corporation is ordered dissolved by final judgement pursuant

COMMENT: We have very good law on graft and corrupt practices it is

Sec. 139. Corporate liquidation. – Except for banks, which shall

Merong tinatawag na winding up period. Yung 3 years.

for the purpose of prosecuting and defending suits by or against it

Similar to your laws on partnership, merong period to liquidate.

At any time during said 3 years, the corporation is authorized and

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