Title I GENERAL PROVISIONS CORPORATION A corporation is an artificial being created by operation of
law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incidental to its existence. Corporation is an artificial being: -it is a juridical entity vested with legal personality separate and distinct from those acting for and its behalf. -it has a personality separate and distinct from the persons composing it. -when the corporation is just an alter ego of a person or of another corporation the corporate mask may be removed or the corporate veil pierced. Characteristics of a corporation 1. It is an artificial being. 2. Created by operation of law. 3. It has right of succession. 4. It has powers, attributes, and properties expressly authorized by law or incidental to its existence. Piercing the Veil of Corporate Fiction -corporation was used to justify a wrong, protect fraud, or perpetrate a deception. SUCCESSION (artificial succession) The continuation of a corporation’s legal status despite changes in ownership or management. TWO CLASSES OF CORPORATION: Stock corporation- corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends. Non-stock corporation- is one where no part of its income is distributable as dividends to its members, trustees, or officers. OTHER CLASSES OF CORPORATION: As to purpose: Public corporation- organized for the government of a portion of the state. Private corporation- formed for some private purposes. Government-owned or controlled corporation- corporation owned by the government directly to the extent of at least 51% of its capital stock. Quasi- public corporation- a private corporation which has accepted from the state the grant of franchise or involving the performance of public duties but which organized for profit (examples are electric, water, and transportation companies). As to legal right to corporate existence: De jure corporation- Corporation created in strict or substantial conformity with the mandatory statutory requirements for incorporation. De facto corporation- due incorporation of any corporation claiming in good faith to be a corporation under this code and its right to exercise corporate powers. Corporation by estoppel- all persons assume to act as a corporation knowing it to be without authority to do so. (Note: there is actually no corporation by estoppel.) Corporation by prescription- one which exercised corporate powers for an indefinite period without interference on the part of the government. As to laws of incorporation: Domestic corporation- a corporation incorporated under the laws of the Philippines. Foreign corporation- organized or existing under any laws other those of the Philippines. As to whether they are open to the public or not: Open corporation- open to any person who may wish to become a stockholder or member thereto. Close corporation- a close corporation is one whose articles of incorporation provide that: (1) All the corporation’s issued stock of all classes shall be held of record by not more than a specified number of persons, not exceeding 20; (2) All issued stock of all classes shall be subject to one or more specified restrictions on transfer; and (3) The corporation shall not list in any stock exchange or make any public offering of any of its stock of any classes. As to relationship of management and control: Parent or holding corporation- hold stocks in another corporation for purposes of control. Subsidiary corporation- more than 50% of the voting stock of which is controlled directly or indirectly by another corporation. As to the number of persons who compose them: Corporation aggregate- consist of more than one member. Corporation sole- consist of only one member. As to whether they are for religious purposes or not: Ecclesiastical corporation- organized for religious purposes. Lay corporation- organized for a purpose other than for religious. As whether they are for charitable purposes or not: Eleemosynary corporation- organized for charitable purposes. Civil corporation- organized for business or profit. COMPONENTS OF A CORPORATION: Corporators- those who compose a corporation, whether as stockholders or as members. Incorporators- the stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporations and who are signatories thereof. Stockholders (shareholders)-owners of shares in a stock corporation. Members- corporators of a non-stock corporation. Board of Directors or Board of Trustees- the board of directors is the governing body in a stock corporation, while the board of trustees is the governing body of a non-stock corporation. Corporate officers- the president, who shall be a director, a treasurer who may or may not be a director, a secretary who shall be a resident and citizen of the Philippines, and such other officers as may be provided for in the by-laws. If the corporation vested with public interest, the board shall also elect a compliance officer. Subscribers- a person who have agreed to take and pay for original, unissued shares of a corporation formed or to be formed. Underwriter- a person who guarantees on a firm commitment and/or declared best efforts basis the distribution and sale of securities of any kind by another company. Promoter- a person who brings about or cause to bring about the formation and organization of a corporation by: 1. Bringing together the incorporators or the persons interested in the enterprise; 2. Procuring subscriptions or capital for the corporation; 3. Setting in motion the machinery which leads to the incorporations of the corporation itself. Note: two or more persons, but not more than fifteen (15), may organize themselves and form a corporation. Doctrine of Equality of Share -each share shall be equal in all respects (rights and liabilities) to every other share. Who may classify shares? 1. Incorporators 2. Board of Directors and Stockholders What are voting shares? -Shares with a right to vote. There shall always be a class or series of shares which have complete vote rights. The right to vote in Stock corporations -only stock actually issued and outstanding may be voted. The right to vote in Non-stock corporations -members vote as persons -only those who are actually members with voting rights should be counted. What are non-voting shares? -shares without a right to vote. What are common stocks? -often called as capital stock. What is preferred stock? -one which entitles the holder thereof to certain preferences over the holders of common stock. What are par value shares? -shares with a value fixed in the articles of incorporation and he certificate of stock. What are no par value shares? -shares with no par value. What is Trust Fund Doctrine? -a fund to which the creditors have a right to look for the satisfaction of their claims. Title II INCORPORATION AND ORGANIZATION OF PRIVATE CORPORATIONS Note: Any person, partnership, association or corporation, singly or jointly with others but not more than fifteen (15) in number, may organize a corporation for any lawful purpose or purposes. General rule: A corporation shall have perpetual existence. Exception: If the article of incorporation provides otherwise or if it provides for a specific period. REVIVAL OF CORPORATE EXISTENCE -a corporation whose term has expired may apply for a revival of its corporate existence. General rule: upon approval by SEC, the corporations shall be deemed revived and a certificate of revival of corporate existence shall be issued, giving it a perpetual existence. Exception: if its application for revival provides otherwise or provides for a specific period. Note: The following corporations require the favorable recommendation of the appropriate government agency before the SEC will approve the application for revival of certificate of incorporation: 1. Banks 2. Banking and quasi-banking institutions 3. Preneed 4. Insurance and trust companies 5. Nonstock savings and loan associations 6. Pawnshops 7. Corporations engaged in money service business 8. Other financial intermediaries Subscription- a written contract to purchase newly issued shares of stock or bonds. Also termed stock subscription ARTICLES OF INCORPORATION -it has been described as one of that defines the charter of the corporation and the contractual relationships between the State and the corporation, the stockholders and the state, and between the corporation and its stockholders. Three-fold nature of the articles of incorporation 1. A contract between the State and the corporation 2. A contract between the corporation and its stockholders 3. A contract between the stockholders inter se. THE NAME OF THE CORPORATION -its name is one of its attributes, an element of its existence, and essential to its identity. Limitations on the use of corporate name -must not be identical to existing corporation names. -must not be deceptive or confusing. -must contain the word “Inc., Corporation, or OPC”. Change of Corporate name A corporation can change its name by amending its article of incorporation. PRINCIPAL OFFICE OF THE CORPORATION Purposes: 1. To fix the residence of the corporation in a definite place. 2. To determine the venue of court cases involving the corporation. 3. For purpose of stockholders or members meetings. 4. To determine the place where the books and records of the corporation are ordinarily kept. NUMBER OF BOARD OF DIRECTORS OR TRUSTEES The number of directors shall not be more than fifteen (15). The number of trustees may be more than fifteen (15). Sec. 21. Effects of Non- use of corporate charter and continuous inoperation.- if a corporation does not formally organize and commence its business within five (5) years from the date of its incorporation, its certificate of incorporation shall be deemed revoked a of the day following the end of five (5)- year period. However, if a corporation has commenced its business but subsequently becomes inoperative for a period of at least five (5) consecutive years, the Commission may, after due notice and hearing, place the corporation in under the delinquent status. A delinquent corporation shall have a period of two (2) years to resume operations and comply with all requirements that the Commission shall prescribe. Title III BOARD OF DIRECTORS /TRUSTEES AND OFFICERS Board of Directors or Trustees -they are in-charged with the management of the corporation. -governing body of a corporation. Officers -they carry out the management functions on a day-to-day basis Stockholders- or members have residual powers over fundamental and major corporate changes. Derivative suit- is the right of a stockholder to sue on behalf of the corporation. Authority of the Board of Directors -the authority of board of directors is restricted to the management of the regular business affairs of the corporation. Corporation exercise its powers through its board of directors A corporation’s board of directors is understood to be that body which: 1. Exercises all powers provided for under the Corporation Code; 2. Conducts all business of the corporation 3. Controls and holds all property of the corporation. Accordingly, the property of the corporation is not the property of its stockholders or members and may not be sold by the stockholders or members without express authorization from the corporation’s board of directors. Moreover, unless duly authorized, a treasurer, whose powers are limited, cannot bind the corporation in sale of its assets. THREE LEVELS OF CONTROL 1. Board of Directors- they are responsible for the corporate policies and the general management of the business affairs of the corporation. 2. The Officers- execute the policies laid down by the board. 3. The stockholders- residual power over fundamental corporate changes. Interlocking Directors- these are the members of the board of directors in a certain corporation who are also directors in another corporation. Title IV POWERS OF CORPORATION A corporation exercises powers through its boards of directors and/or its duly authorized officers and agents. Appraisal rights- means that a stockholder who dissented and voted against the proposed corporate action, may choose to get out of the corporation by demanding payment of the fair market value of his shares. When to use the appraisal rights: 1. Extension of corporate term 2. Selling of corporate assets 3. Investment THREE INSTANCES OF DISTRIBUTION OF CORPORATE CAPITAL The trust fund doctrine provides that subscriptions of the capital stock of a corporation constitute a fund which creditors have a right to look for the satisfaction of their claims. 1. Amendment of the articles of incorporation to reduce the authorized capital stock 2. Purchase of redeemable shares by the corporation regardless of the existence of unrestricted retained earnings 3. Dissolution and eventful liquidation of the corporation Bonded Indebtedness- it is a long-term indebtedness secured usually by real property. Registration of the Bonds Bonds issued by a corporation shall be registered with the Securities and Exchange Commission, which shall have the authority to determine the sufficiency of the terms thereof. Pre-emptive Rights- it is the preferential right of all stockholders of a stock corporation to subscribe to all issues or disposition of shares of any class, in proportion to their respective shareholdings. Sec. 39. Sale or other disposition of assets – Subject to the provision of republic act no. 10667, otherwise known as the “The Philippine Competition act”, and other related laws, a corporation may, by a majority vote of its board of directors or trustees, sell, exchange, mortgage, pledge, otherwise dispose of its property and assets, upon such terms and conditions and for such consideration, which may be money, stocks, bonds, or other instruments for the payment of money or other property or consideration, as its board of directors or trustees may deem expedient. A sale of all or substantially all of the corporation’s properties and assets, including its goodwill must be authorized by the vote of the stockholders representing at least two- thirds (2/3) of the outstanding capital stock, or at least two-thirds (2/3) of the members in a stockholder’s or members’ duly called for the purpose. Retained earnings- the accumulated profits realized out of normal and continuous operations of the business after deducting therefrom distributions to stockholders and transfers to capital or other accounts. Unrestricted retained earnings- the retained earnings which have not been reserved or set aside by the board of directors for some corporate purpose. Dividends- corporate profits, set aside, declared, and ordered to be paid by the directors for distribution among stockholders at a fixed time. Cash dividends vs. Stock dividends Cash dividends Stock dividends It is part of general fund. It is part of capital. It results a cash outlay. It does not result in cash outlay. It is not subject to levy by corporate creditors. It can be levied by corporate creditors because they are part of corporate capital. It is declared by the majority of the quorum of the board of directors. It is declared by the majority of the quorum of the board of directors with the occurrence of the stockholders representing at least 2/3 of the outstanding capital stock. It does not increase the corporate capital. The corporate capital is increased. Its declaration creates a debt from the corporations to its stockholders. No debt is created by is declaration. Ultra vires act- the term ultra vires refers to an act outside or beyond corporate powers, including those that may ostensibly be within such powers but are, by general or special laws, prohibited or declared illegal. TITLE V BYLAWS By-laws signifies the rules and regulations or private laws enacted by the corporation to regulate, govern, and control its own actions, affairs and concerns and its stockholders or members and directors and officers with relation thereto and among themselves in their relation to it. Purpose: to regulate the conduct and define the duties of the members towards the corporation and among themselves. ADOPTION OF BY- LAWS 1. Before incorporation (pre-incorporation) The by-laws must be signed and approved by all the incorporators and filed with the SEC together with the articles of incorporation. 2. After incorporation (post-incorporation) The affirmative vote of the stockholders representing at least a majority of the outstanding capital stock, or at least a majority of the members shall be necessary. The by-laws shall be signed by the stockholders or members voting for them. Articles of incorporation vs. By-laws Articles of incorporation By-laws It is a condition precedent in the acquisition of corporate existence. It is a condition subsequent. Its absence merely furnishes a ground for the revocation of the franchise or certificate of registration. It constitutes the charter or fundamental law of the corporation. It is the rules and regulations adopted by the corporation. It is executed before incorporation. It is executed before and after incorporation. It is amended by a majority of the board of directors or trustees and stockholders representing 2/3 of the outstanding capital stock, or 2/3 of the members in case of non- stock corporation. It may be amended by a majority vote of the board of directors and majority vote of outstanding capital stock or a majority of the members in non-stock corporation. The power to amend or repeal the articles of incorporation cannot be delegated by the stockholders or members to the board of directors or trustees. The power to amend or repeal by laws or adopt new by-laws may be delegated by the 2/3 of the outstanding capital stock or 2/3 of the members in the case of non-stock corporation. TITLE VI MEETINGS Meetings are called for the purpose of electing directors or trustees and transacting some other business calling for or requiring the action or consent of the shareholders or members, such as the amendment of the articles of incorporation and by-laws, 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 meeting. Note: those who are not stockholders or members have no right to vote. Generally, the right to be present and to vote in a meeting is determined by the time in which the meeting is held. Definition of terms a. Remote communication It means the transfer of data between two or more devices not located at the same site. b. Teleconferencing It is holding of a conference among people remote from one another by means of telecommunication devices such as telephone or computer terminals. c. Videoconferencing Holding a conference among people in remote locations by means of transmitted audio and video signals. d. Computer conferencing It is teleconferencing supported by one or more computers. e. Audio conferencing It is a conference in which people are at different locations speak to each other via telephone or internet connections. Sec. 48. Kinds of meetings- meetings of directors, trustees, stockholders, or members may be regular or special. Sec. 49. Regular and special meetings of stockholders or members regular meetings of stockholders or members shall be held annually on a date fixed in the bylaws, or if not so fixed, on any date after April 15 of every year as determined by the board of directors or trustees: provided, that the written notice of regular meetings shall be sent to all stockholders or members or record at least twenty-one (21) days prior to the meeting, unless a different period is required in the bylaws, law, or regulation. Note: written notice of regular meetings may be sent to all stockholders or members of record through electronic mail or such other manner as the Commission shall allow under its guidelines. Special meetings of stockholders or members shall be held at any time deemed necessary or as provided in the bylaws: provided, however, that at least one (1) week written notice shall be sent to all stockholders or members, unless a different period is provided in the bylaws, law or regulation. Note: the stock and transfer book or membership books shall be closed at least twenty (20) days for regular meetings and seven (7) days for special meeting before the scheduled date of the meeting. MEETINGS OF DIRECTORS OR TRUSTEES 1. Regular meeting When: Monthly, unless by-laws provide otherwise. Where: anywhere in or outside of the Philippines, unless the bylaws provide otherwise. 2. Special meeting When: anytime upon the call of the president or as provided in the bylaws. Where: anywhere in or outside of the Philippines, unless the bylaws provide otherwise. KINDS OF MEETINGS OF STOCKHOLDERS OR MEMBERS 1. Regular meeting When: annually on a date fixed in the by-laws, or if not fixed, on any date after April 15 of every year as determined by the board of directors or trustees. Where: in the principal office of the corporation as set forth in the articles of incorporation, or, if not practicable, in the city or municipality where the principal office of the corporation is located. 2. Special meeting When: at any time deemed necessary or as provided in the bylaws. Where: in the principal office of the corporation as set forth in the articles of incorporation, or, if not practicable, in the city or municipality where the principal office of the corporation is located. Three Tests of Voting Trust Agreement 1. Voting rights of the stock are separated. 2. Voting rights granted are intended to be irrevocable for a definite period. 3. Principal purpose of the grant of voting rights is to acquire voting control. Note: the voting trustee or trustees may vote by proxy or in any manner authorized under the bylaws unless the agreement provides otherwise.