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Note For Finals Starting From by Laws
Note For Finals Starting From by Laws
Note For Finals Starting From by Laws
Post/after incorporation procedure in the adoption of by laws – first paragraph of Section 45 provides
for it. And the procedures or how the post
-matter of practical
-Section 161 – revocation and suspension but after notice and hearing
5. Section 47 Amendment
6. What is a by law?
Treasury Shares
Pre incorporation subscription – contracts entered into before the submission of the articles of
incorporation
AMLA
Stock and Transfer Book “contains the records of all stocks in the names of the stockholders
alphabetically arranged; the installment paid and unpaid on all stock for which subscription has been
made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock
made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe.”
Section 63 of the corporation code affirms that the owner of a share of stock in a
corporation has the right to transfer his shares. It is the provision that outlines the
fundamental requirements which must be complied with if a stockholder in a corporation
wishes to transfer his shares to another. Section 63 reads:
“Sec. 63. Certificate of stock and transfer of shares. – The capital stock of stock
corporations shall be divided into shares for which certificates signed by the president or
vice president, countersigned by the secretary or assistant secretary, and sealed with the
seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so
issued are personal property and may be transferred by delivery of the certificate or
certificates endorsed by the owner or his attorney-in-fact or other person legally authorized
to make the transfer. No transfer, however, shall be valid, except as between the parties,
until the transfer is recorded in the books of the corporation showing the names of the
parties to the transaction, the date of the transfer, the number of the certificate or
certificates and the number of shares transferred.
No shares of stock against which the corporation holds any unpaid claim shall be
transferable in the books of the corporation.“
Being intangible personalty, the corporation code requires that, before a share of
capital stock is validly sold, transferred, assigned or in any manner conveyed, it
must be covered by a stock certificate. This requirement is borne out of practical
considerations. It is a fundamental principle of contract law (be it of sale, assignment or any
other conveyance) in the Philippines and probably in any jurisdiction, that the parties to any
contract must be aware of the subject matter – what is being sold, transferred or otherwise
conveyed. On the other hand, shares of stock in a corporation do not have physical form,
unlike ordinary chattel such as goods or vehicles, where a person has a clear notion of what
is being sold or conveyed.
The stock certificate is evidence of the personalty owned by the stockholder. It defines the
nature and extent of his ownership over the share/s of stock. It also outlines the regulations
and limitations of ownership, which must be considered and made known to the parties prior
to any conveyance. Obviously, without the stock certificate, these matters would be
unknown to a prospective buyer or transferee of shares of stock. Simply stated, the subject
matter of the conveyance will not be clear. Therefore, only shares of stock covered by a
stock certificate can be subject of a legally demandable and binding sale or disposition.
There may be instances where shares of stock are sold or transferred prior to the issuance
of stock certificates. At best, these transactions are only binding between the parties, and
will not bind the corporation. As a matter of fact, the corporation can legally refuse to
recognize such transfers, especially if the shares which were sold have not yet been fully
paid. The last paragraph of Section 63 states that no shares of stock against which the
corporation holds any unpaid claim shall be transferable in the books of the corporation.
This means that the corporation can altogether refuse to recognize the validity of a sale or
transfer of a share of capital stock that has not been fully paid, or which the corporation has
a lien. In this case, the purchaser’s only remedy lies with the stockholder.
In the case of De los Santos, et al. vs. MacGrath, et al., G.R. No. L-4818, 28 February
1955, the Supreme Court interpreted the provisions of Section 63 of the corporation code.
The Supreme Court held that any voluntary transfer of shares of stock in a corporation that
is represented by a certificate of stock must strictly comply with the following conditions:
c. To be valid to the corporation and third parties, the transfer must be recorded in the
books of the corporation.
One of the requirements to effect a valid transfer of shares of stock is that the
certificate of stock must be endorsed by the owner or his agent. Mere delivery or
handing over of the stock certificate is insufficient, and does not produce the effects of a
transfer or conveyance to another. Endorsement of the stock certificate is one of the
operative acts which validates the transfer. Without the act of endorsement by the
stockholder, the sale or disposition will not be binding upon the corporation. Of course,
there are remedies under the law to compel the owner to endorse the stock certificate which
he or she has already conveyed to another. But before endorsement of the stock certificate,
the corporation can refuse recognize the transferee stockholder.
Moreover, as between the corporation on one hand, and its shareholders and third persons
on the other, the corporation looks only to its books for the purpose of determining who its
shareholders are. Thus, as between the “real” owner of a stock certificate and the registered
owner or the person actually registered in the Stock and Transfer Book of a corporation, it is
the person registered in the Stock and Transfer Book who must sign or endorse the
certificate of stock to allow its sale or transfer.
Further, the Supreme Court in the case of Padgett vs. Babcock & Templeton, Inc., G.R.
No. 38684, 21 December 1933, held that shares of corporate stock are regarded as
personal property and may be disposed by the owner as he sees fit, unless the corporation
is dissolved, or unless the right to do so is properly restricted or the owner’s privilege is
hampered by his actions. A corporation cannot impose undue restrictions upon the owner’s
right to sell, transfer or otherwise convey his shares of stock.
According to the Supreme Court, a restriction imposed upon a stock certificate, which
unduly prohibits the owner from conveying his property, is null and void on the ground that it
constitutes and unreasonable limitation of the right of ownership and is in restraint of trade.
It was also held that any restriction on a stockholder’s right to dispose of his shares must be
construed strictly; and any attempt to restrain a transfer of shares is regarded as being in
restraint of trade, in the absence of a valid lien upon its shares, and except to the extent that
valid restrictive regulations and agreements exist and are applicable. Subject only to such
restrictions, a stockholder cannot be controlled in or restrained from exercising his right to
transfer by the corporation or its officers or by other stockholders, even though the sale is to
a competitor of the company, or to an insolvent person, or even though a controlling interest
is sold to one purchaser.
However, recognizing the right of the corporation to regulate the transfer of shares of stock
in a corporation, the Supreme Court stated that there can be restrictive regulations or
agreements which can be entered into between the corporation and the stockholder, to
regulate ownership of the shares of stock. These regulations or agreements pertain to those
indicated in the certificates of stock, and also those that may be found in the By-Laws of the
corporation. The Supreme Court emphasized that these regulations are construed strictly
against the corporation, and in favor of the ownership rights of the stockholder. An absolute
prohibition from selling shares of stock was held as null and void on the ground that it
constitutes and unreasonable limitation of the right of ownership and is in restraint of trade.
The Supreme Court declared that any restriction in the by-laws which exceeds what is
provided in the corporation code is ultra vires, violative of the property rights of
shareholders, and in restraint of trade. This is because the by-laws of a corporation cannot
contradict the general policy of the laws of the land, and must always be strictly subordinate
to Philippine laws.
In Rural Bank of Salinas vs. Court of Appeals, G.R. No. 96674, 26 June 1992, the
Supreme Court held that a corporation, either by its board, its by-laws, or the act of its
officers, cannot create restrictions in stock transfers. The corporation code contemplates no
restriction as to whom the stocks may be transferred. It does not suggest that any
discrimination may be created by the corporation in favor of, or against a certain purchaser.
The owner of shares, as owner of personal property, is at liberty, under said section to
dispose them in favor of whomever he pleases, without limitation in this respect, than the
general provisions of law. The only limitation imposed by Section 63 of the corporation
code is when the corporation holds any unpaid claim against the shares intended to be
transferred, which was not present in the case.
A merger is when one or more business entities merge into a single surviving entity. For example, if you
have Company A, Company B, and Company C, and Companies B and C merge into Company A, then
Company A continues to exist with Companies B and C as a part of it. During a merger, essentially other
corporate entities become a part of an existing entity. This can be useful for smaller companies merging
into larger companies that have greater brand recognition and market traction.
Conversely, a consolidation is when multiple companies join to form a new entity. In this example, when
Companies A and B consolidate together, the end result is a new operating entity, Company C. This can
be useful when seeking brand differentiation from former entities, or starting anew with a brand refresh
based on past reputation. It can also be useful if attempting to leverage the market capital of both
brands by forming a new hybrid entity.
What Is an Appraisal Right? May be the right to go out of the corporation (sabi ni Sir)
You must attend the meeting and register your dissenting vote
KEY TAKEAWAYS
Shareholders typically invoke their appraisal rights when their company is being acquired or
merged and they believe the price being offered is too low.
*Only the secretary can validly enter entries in the STB Stock and Transfer Books
Requisites for the inspection: good faith, bound by the data privacy act, intellectual property code
Why is the securities Regulation Code called the Blue Sky Law?
These laws generally require the registration of issuers and dealers with regulatory
agencies. The term 'blue sky” is derived from being able “to sell the sky” to an
investor without limitations and restriction, designed to protect investors against
fraudulent sales practices and activities
Squeezing the float – refers to taking advantage of a shortage of securities in the market by
controlling the demand side and exploiting market congestion during such shortages in
a way to create artificial prices.
a. Wash Sale – engaging in transaction in which there is no genuine change in the actual
ownership of a security
b. Matched Sale – There is a change of ownership in the securities by entering an order for the
purchase/sale of security with the knowledge that a simultaneous order of substantially the
same size, time, and price, for the sale or purchase of any such security, has or will be entered
by or for the same or different parties.
a. Marking the close – buying and selling securities at the close of the market to alter the
closing price of the security.
b. Painting the tape – engaging in a series of transactions in securities that are reported
publicly to give the impression of activity or price movement in a security.
c. Squeezing the float – refers to taking advantage of a shortage of securities in the market by
controlling the demand side and exploiting market congestion during such shortages in a way
to create artificial prices.
d. Hype and dump – engaging in buying activity at increasingly higher prices and then selling
securities in the market at the higher prices.
e. Boiler room operations – the use of high pressure sale tactics to promote purchase and sale
of securities
f. Daisy chain – it refers to a series of purchase and sales of the same issue at successively
higher prices by the same group of people with the purpose of manipulating prices are
drawing unsuspecting investors into the market leaving them defrauded of their money and
securities.