Corporation law notes Sundiang.docx

Corporation Law Defnition - A corp corpor orat atio ion n is an arti artifc fcia iall bein being g crea create ted d by operation o law having the right o succession and the powers, attributes and properties expressly authorized by law or incident to its existence. brea!down" #. created by law $. %aving the right o succession &. 'osses ossesse ses s powe powers, rs, attri attribu bute tes s and and prop proper erti ties es authorized by law or its articles o incorporation or that that which which is inher inherent ent and incide incidental ntal to its existence Conse(uences o being a separate pers onality" -'roperty .it is entitled to properties o its own .prope .properti rties es it owns owns are not that that o the stoc!hold stoc!holders, ers, directors and o)cers .the .the inte interrest est o the the *D+ *D+s s over over the the corp corpor orat atio ions ns properties are erely inchoate -+bligations .the obligations o the corporation are not that o the *D+s and vice versa

-ights .rights exercised by the corporation cannot be invo!ed by the *D+s and vice versa e.g. the right o the *D+s against unreasonable searches and seizures cannot be invo!ed by the corporation since the right is personal with respect to the individuals -Constitutional ights .corporations are still entitled to certain constitutional rights rights"" the right right agains againstt unreaso unreasonab nable le searche searches s and seizures /since it is considered as a person by fction o law0, Due process. *oe rights that cannot be invo!ed by the the corp corpor orat atio ion n e.g. e.g. the the righ rightt agai agains nstt sel sel-incriination -1orts .the .the corp corpor orat atio ion n is liab liable le or or tort torts" s" when when the the act act coitted by the o)cer or agent is by the express direction or authority o the stoc!holders or ebers acting as a body /Directors0. -2ationality .1he .1he general general rule a corporat corporation ion is a nation national al o the coun countr try y whe where its its was inco incorp rpor orat ated ed /'la /'lace ce o 3ncorporation 1est0 4in the instance o war /public eney0- the nati nation onal alit ity y o a corpo corporat ratio ion n is dete deter rin ined ed by the the nationality o the controlling stoc!holders /Control 1est0

*ources" eviewer eviewer on Coercial Law by A(uino - *undiang Corpo - A *tudents *5 $6#7-$6#8 *9''+1 *9''+1 *5*1:;

4investent purposes- /oreign investent act o #<<#0 =" when is a corporation deeed a 'hilippine 2ational> A" #0when the corporation has been organized under oreign law $076? o the outstanding capital stoc! entitled to voted is owned@held by flipino citizens &0when the corporation is organized abroad the sae ust be registered as doing business in the 'hilippines under the corporation code and #66? o the outstanding capital stoc! entitle to vote belongs to flipino citizens. 2+1:" where a corporation and its non-flipino stoc!holders owns stoc!s in a *:C registered enterprise, at least 76? o the outstanding capital stoc! entitled to vote, each o both corporations ust be held or owned by flipino citizens including 76? o the Board o each o the corporations ust consist o flipino citizens. 1he rand ather ule -percentages shares held by the $nd corporation in the #st corporation is ultiplied to the latters own flipino e(uity, the product thereo will represents the true flipino ownership.1his rule is applied when the owning corporation, the flipino e(uity

thereo is less than 76? o the outstanding capital stoc! entitled to vote. Conse(uences o being an artifcial being -Action" the corporation can only act through its directors, o)cers and eployees. -Criinal Liability" the corporation is incapable o alice thereore it cannot be held liable or elonies under the evised 'enal Code. Corporations cannot coit cries under special law because such are personal in nature. 1he penalty o iprisonent cannot be iposed as a conse(uence o the corporation being and individual created by fction o law, however the sae aybe dissolve in the case o violation under the Corporation Code. 3 the crie is coitted by a corporation or other Euridical entities, the directors, o)cers and eployees or other o)cers thereo responsible or the coission o the oFense shall be charged and penalized or the crie. A corporation ay not be arrested and iprisoned. -;oral Daages" A corporation Cannot be awarded oral daages because such does not have eelings and a ental state, ental suFering ay only be experienced by one having a nervous syste, nor can

*ources" eviewer on Coercial Law by A(uino - *undiang Corpo - A *tudents *5 $6#7-$6#8 *9''+1 *5*1:;

the corporation clai oral daages or a besirched reputation /2'C vs 'hilipp Brothers +ceanic 3nc.0. %owever, the corporation ay recover oral daages under art. $$#
:xaples where the doctrine o Gpiercing the veil o corporate fction was applied" #. evading obligations to eployees or pretext to disiss eployees $. :vade lawul obligations or oney Eudgent &. 1he corporation is a ere alter ego, adEunct, or business conduit by doinating o)cers and stoc!holders I. 9sed to deeat public convenience J. 9sed to Eustiy a wrong 7. 9sed to protect raud 8. 9sed to deend crie K. 9sed to conuse legal and Eudicial issues <. 9sed to perpetuate deception or to circuvent the law

=" what do you understand by the doctrine o piercing the veil o o corporate entity> A" Gthe veil o corporate entityH eans that the corporation has a separate and distinct personality ro that o the persons coposing, however when the veil o corporate fction 3 used as a shield to perpetuate raud, to deeat public convenience, and Eustiy a wrong or deend a crie, the sae shall be disregarded and the individuals coposing the corporation will be treated identically. /also the corporate veil cannot be used or a blatant violation on the prohibition against oru shopping0. 2ote" Although there are instances when a corporation aybe held liable or the obligations o stoc!holders or o)cer under the doctrine o piercing the veil o corporate fction, the sae doctrine cannot be used to support an action or the enorceent o obligations o Directors, o)cers and incorporators /rancisco vs CA0. 1he doctrine is norally invo!ed to a!e directors, o)cers and shareholders liable or the obligations o the corporation.

=" what are the circustances that aybe considered to Eustiy the application o the doctrine to a!e parent corporation liable or the obligations o its subsidiary> A" A cobination o or all o the ollowing /'2B vs itratto roup 3nc.0


#. parent corporation owns all or ost o the capital stoc! o the subsidiary $. 'arent and subsidiary have coon directors or o)cers &. 1he parent fnances the subsidiary

I. 1he parent subscribes to all o the capital stoc! o the subsidiary or causes or its incorporation J. 1he subsidiary has grossly inade(uate capital 7. 1he subsidiary has substantially no other business other than the parent or has no other assets except those conveyed to or by the parent corporation 8. 3n the papers o the parent the subsidiary is described as a departent or division or that its business responsibilities are reerred by the parent as its own K. 'arent uses the property o the subsidiary as its own <. 1he directors and executives o the subsidiary ta!e orders ro the parent /dependent, and act not o their own interest0 #6. oral legal re(uireent o the subsidiary not observed =" is ownership o a substantial portion o the corporation enough to Eustiy the application o the doctrine> A" 2o, ;ere single ownership by a single stoc!holder or by another corporation o all or nearly all o the capital stoc! o the corporation does no Eustiy the application o the doctrine. the other circustances ust be present /rancisco v ;eEia0

:leents that ust be present to Eustiy application o doctrine" #. Control- eans coplete and total doination, not ere stoc! control, such that the corporate entity has no separate ind or existence o its own. $. *uch control ust have been utilized to coit raud or wrongdoing, to perpetuate violative or unEust act in contravention to a legal right &. 1he control ust have proxiately caused the inEury or loss coplained C:A1:D B5 +':A13+2 + LA Concession 1heory" concession- grant o privilege 1he theory that the existence o the corporation as an artifcial creature is dependent on the ipriatur o the senate acting through the *:C. 1he lie o a corporation is a concession ade by the state. A2C%3*:* + C+'+A13+2


#. 'riary, corporate or general ranchises- the priary ranchise o a corporation, that is right to exist as such is vested in the incorporators and

not the corporation itsel. 3t cannot be transerred without approval o congress $. *pecial@secondary ranchises- the rights conerred upon existing corporations such as the right to use streets o the unicipality, lay pipes o trac!s, erect poles or string wires or to engage in delivery service.

1he capacity to have continuity o existence despite the changes in the persons who copose it, thus personality continues even with the change o stoc!holders, ebers, board ebers or o)cers. '+:*, A113B91:*, A2D '+':13:* A0 theory o special Capacities@Liited capacity doctrine - the corporation shall only possess and exercise powers those that are expressly authorized by the law, its articles o incorporation or that which are inherent, incidental to its existences /derivative0.

1hese special or secondary ranchises aybe conveyed or ortgaged under a general power granted to a corporation to dispose o its property, except such special or secondary ranchises as charged with public use. 1he sae is subEect to levy@execution together and including all property necessary or the enEoyent thereo. %+ A: C+'+A13+2* C:A1:D" #. eneral law- private corporations are created generally under the corporation code. $. *pecial Law- public corporations are created by special laws. 'rivate corporations cannot be created by special laws, except" +CCs /which actually private corporations0 3%1 + *9CC:**3+2

+rganizer s

unctions

overnin g laws


'rivate

'ublic

state

'rivate persons@ state

ovt o a portion o the state *pecial Law@LC

'roft a!ing Law on 'rivate Corporation

$. An attept in good aith to incorporate &. 9se o corporate powers

s

Legal status

Classifcation

2ote" the issuance o certifcate o incorporation by the *:C is a re(uireent or continued good aith

De Mure

3 there is substantial copliance the result is a de Eure corporation only colorable copliance results in a de acto corporation.

De acto

:xistence *toc! o stoc!s Laws o Doesti incorpora c tion

2on*toc! oreign

B0 3 the act o the corporation is not within those those express, iplied or incidental powers, the act is ultra vires /separate activities at odds w@ its charter@invalid and in excess o power or authority0 De Eure- corporation organized in accordance with the law De acto- a corporation where there exists a Naw in its incorporation. 1he re(uisites or existence are" #. existence o incorporated

valid

law

o

which

it

aybe

*toc! Corporation- corporation with capital stoc! divided into shares and is authorized to distribute to holders thereo dividends or allotent o surplus profts on the basis o shares held. 2on-stoc! Corporation- a corporation which does not issue stoc!s and does not distribute dividends to their ebers Corporation by estoppel- a group o persons which holds itsel as a corporation and enters into contracts with third persons on the strength on such appearance is not allowed to deny its existence in an action under said contracts. Corporation by 'rescription- a corporation that was not orally organized as such but has been duly recognized by ieorial usage as a corporation with


rights and duties aintainable at law e.g. oan Catholic Church +ther Corporations" #. Close Corporation $. *pecial Corporation &. :ducational Corporation I. eligious Corporation a0 Corporation sole b0 eligious societies Corporations going public- when the corporation decides to lists its share in the stoc! exchange. 3nclude corporations that will a!e initial public oFering o its shares. Corporations going private- when the corporation would restrict the shareholders to a certain group. 3n a sense includes closely held corporations. eal :state 3nvestent 1rust- a stoc! corporation which operations involve the owning o incoe generating real estate assets.

;ere ;anner o agreeen Creation t O o +rganizer s

$ or ore

'owers

As aybe agreed by the partners

Liited personality

+rganizer Authority

;utual Agency

2o agency

;ust be 1ranser o with interest consent o partners 2o right *uccessio o n successio n

;aybe without consent @ right o succession

De acto vs De Mure Corporations

De Mure

Corporation vs 'artnership 'artnershi p

certifcate + incorporatio n ;iniu o J axiu o #J

Corporation


De acto

Created in strict conority w@ statutory re(uireents

Actually exists or practical purposes as a corporation but w@o legal right to corporate existence as against the state ight to exist ight to exist cannot be can be successully successully attac!ed even attac!ed in a in a direct direct proceeding by proceeding by the state the state /=uo arranto0

Coponents + A corporation 3ncorporators- those who originally or@copose the corporation whose naes appear on the articles o incorporation ac!nowledged by a notary public #.ust be natural persons $.At least J but not ore than #J &.+ legal aage I.;aEority are residents o the philippines J.:ach ust subscribe or own atleast on share

Corporators- all the stoc!holders and ebers o the corporations *toc!holders and ebers- those who hold or own shares in a stoc! corporation the latter copose the non-stoc! corporation Directors and trustees- Directors is the governing body in a stoc! corporation while trustees is the governing body in a non-stoc! corporation 'rooter- help ventures attract investors, ors a corporation and launches its business with the view o prootion o profts. Corporators vs 3ncorporators 43ncorporators #. signatory to articles $. Do not cease to be as such &. 2uber is liited ro J to #J I. ;ust have contractual capacity 4Corporators #.*toc!holder o a stoc! corporation and eber o a non-stoc! corporation $.Cease to be such i no longer stoc!holders or ebers &.2o restriction as to nuber


I.;aybe such through a guardian I. upto I6? oreign *toc!holders =" can all the stoc!holders in a corporation be oreigners> A" yes, except corporations

in

ully

or

partly

-realty copanies and other corporations that own private lands -+peration and anageent o public utilities -AdEustent copanies

nationalized

:xaples o ully or partly nationalized corporations"

J. upto 76? -fnancing copanies -investent houses

#. where no oreign stoc!holder is a llowed" Corporators vs incorporators -ass edia except recording -retail trade business with paid up capital o less than 9*P $.J; -private security agency -*all scale ining -coc!pits $. upto $6? oreign e(uity -private radio counications networ! &. upto $J?

Corporators *toc!holder@e ber o stoc! corporation@ nonstoc! corpo Cease to be such i they are no longer stoc!holders 2o restriction as to nuber

-private recruitent /whether local@overseas -Construction o deense related structures


3ncorporators *ignatory articles incorporation

to o

Do not cease to be such 2uber liited ro J to #J

;aybe be through guardian

8. *toc! corporation" aount o authorized capital stoc!

such ith contractual his capacity

K. 'ar value o each share /stoc! corporations0

+;A13+2 + A C+'+A13+2

<. 2uber o shares and aounts o subscriptions o subscribers which is not less than $J? o authorized capital stoc!

1he lie o a corporation coences ro the issuance o the certifcate o registration ro the *:C upon the fling o the articles o incorporation and other docuents.

#6. Aount paid by subscriber on their subscription which shall be not less than $J? o the subscribed capital and not less than J,666

Articles + 3ncorporation Contents"

##. 2ationalized industry" stateent Gno stoc! will be allowed i it will reduce stoc! ownership o flipinos below the legal re(uireent

#. nae o the corporation $. 'urposes priary and secondary

Docuents fled with or the issuance o the Certifcate + egistration

&. 'lace o principal o)ce I. 1er J. 2aes, citizenship, incorporators

residences

o

the

7. 2aes, citizenship, residences o the directors


#. Articles + 3ncorporation $. 1reasurers certifcation" $J? o the authorized capital stoc! is subscribed and $J? have been ully paid in cash or property &. Ban! certifcate covering the paid up capital I. Letter Authority" authorizing the *:C exaine ban! deposit, boo!s and records to deterine existence o paid-up capital

J. 9nderta!ing to change the corporate nae in case the sae was registered previously by another person 7. Certifcate o Authority ro proper governent agency wherever appropriate. hat corporate nae cannot be used> -those deceptively, deceivingly siilar to that o any existing corporation -nae already protected by law -nae contrary to public orals or policy *ignifcance o the principal place o business -'rincipal place o business deterines the venue o court cases involving corporations ;axiu 1er o Corporations -the axiu ter o corporation is J6 years -ay be extended or a period not exceeding J6 yrs -enewal" shall no be earlier than J years prior to the expiration o the J6 year ter. 1:;*"

Aount that is fxed in the articles o incorporation, that is to be subscribed and paid or by the stoc!holders o the corporation. *ubscribed Capital" 'ortion o the authorized capital stoc! covered by subscription agreeents, whether or not ully paid 'aid-up Capital" 'ortion o the capital stoc! which has been subscribed and actually paid +utstanding Capital *toc!" 1otal shares o stoc! issued to subscribers whether or not ully paid. Capital" 'roperties and assets o the corporation that are used or business and operation. Aendent o the Articles + 3ncorporation 'rocedure" -;aEority vote o the directors@trustees -ritten assent o stoc!holders representing $@& o the outstanding capital or $@& o ebers in a non-stoc! corporation

Authorized Capital *toc!" hen :Fective"


-upon approval o the *:C -non action o *:C" 7os ater the date o fling. 'rovided" delay is not attributed to the corporation Congress" -Congress ay pass statutes aending the Articles o incorporation provided that no vested right is ipaired /*ec #IJ, CC'0 *uspention@Cancellation o Certifcate o egistration" /;-3-B+0 -A9D in procuring registration -serious ;3*:':*:21A13+2 as to obEectives o the corporation -eusal to coply with the lawul order o t he *:C -continuous 32+':A13+2 or atleast J years -ailure to fle B5-LA* -ailure to fle 3L: :'+1* -+1%: siilar grounds B5-LA*- relatively peranent and continuing rules o the corporation, intended or the individuals coposing it and those that ta!e part in the anageent o corporate aFairs.

-consistent with the corporation pertinent rules and regulations

code

and

other

-ust reasonable and not arbitrary -ust not disturb vested rights@property rights o stoc!holders@ebers, ipair contracts or create obligations un!nown to law no absolute restriction on the right to transer interest ust not underine the security o tenure o an eployee /salaranca vs 'hilaLie0 Adoption Q Aendent" A0 +riginal By-Laws -aybe fled along with the fling o the Articles o 3ncorporation or -fled # onth ater the notice o issuance o the certifcate o incorporation, 'rovided"

e(uisites" -ust be consistent with the Articles + 3ncorporation


#.the sae is approved by the aEority o the stoc!holders@ebers constituting a aEority o the outstanding capital stoc! $.Copy is fled with the *:C, /signed by the approving stoc!holders@ebers, certifed by a aEority o the aEority o the

directors@ebers, corporate secretary0

countersigned

by

the

2+1:" the non-fling o the by-laws within one onth is a ground to oreit the ranchise but will not result to an autoatic dissolution B0 Aendent -aybe ade by the stoc!holders together with the board or the board only. #. *toc!holders R Board ;ebers" aEority o the board and aEority o the stoc!holders/ representing te outstanding capital stoc!0 $. Board +2L5" as delegated by $@& o the stoc!holders representing aEority o the outstanding capital stoc! or $@& aEority o ebers

B0 as to third persons" it is not binding against & rd persons, S'2" when there is actual !nowledge. /&rd persons are not even bound to investigate the content o the by-laws because they are provisions or governent o the corporation, 2+13C: 1+ 1%:; 3LL 2+1 B: ':*9;:D0 '+:* + 1%: C+'+A13+2 Tinds" #. :xpress- those that have been provided or@authorized by law and its articles o incorporation or charter. $. 3plied- those that can be inerred ro the exercise o express powers &. 3ncidental- incidental to the existence o the corporation :xpress 'owers 9nder the Corporation" /**-AAA-3@A-D:D-:+0

Binding eFect o the 'rovisions o the By-Laws A0 as to the corporation and its coponents" binding upon the corporation but also on its stoc!holders, ebers and those o)cers having direction, anageent and control o its aFairs.


#. $. &. I. J.

to sue and be sued *uccession Adopt and use corporate seal Aend Articles o 3ncorporation Adopt, aend, repeal by-laws

7. *toc! corporation- issue stoc!s to subscribers and to sell treasury shares non-stoc! corporationadit ebers 8. Deal with real and personal property pursuant to its lawul business K. :nter into erger and consolidation <. ;a!e reasonable donations or publice welare, charitable and cultural purposes /prohibition" partisan political party0 #6. :stablish pension, retireent and other plans or the beneft directors, o)cers, trustees and eployees ##. +ther essential powers necessary to carry out its purposes

#6. Aend the Articles + 3ncorporation 9ltra Uires Acts" are acts coitted outside or beyond the powers granted@authorized by the law, the articles o incorporation or charter. 9ltra Uires Acts vs 3llegal Acts" -9ltravires acts are erely voidable which ay still be enorced by" perorance, ratifcation or estoppel -3llegal Acts" are void and cannot be validated :Fects o an 9ltra Uires Act

*pecifc 'owers" /:33-DC'-3D;A0 #. $. &. I. J. 7. 8. K. <.

power to extend or shorten corporate ter 3ncrease@decrease corporate stoc! 3ncur@create bonded indebtedness Deny pre-eptive right *ell, dispose, Lease, encuber all or substantially all o the corporate assets 'urchase or ac(uire own shares 3nvest in another corporation, business other than the priary purpose Declare dividends :nter into ;anageent Contract

#. executed contract- courts shall not set aside or interere with such contracts $. :xecutory contracts- shall not be given any eFect, even at the suit o either party &. 'artly executed and executory- principle o unEust enrichent shall apply. Distinguished with acts that do not coply with oralities -An act that does not coply with the oralities prescribed is not an ultra vires act /e.g. non copliance with the by-laws prescribing a procedure in entering into contracts0


Distinguished ro unauthorized acts -the act aybe within the powers o the corporation but not the o)cer /9L1A U3:* AC1 + 1%: +3C:0. ho ay exercise the powers o the corporation> -eneral ule" the board alone without the need o concurrence o the stoc!holders@ebers ay exercise corporate powers, the decision o the stoc!holders do not overrule that o the board.

I. Aendent@repeal o a board resolution which by its ters cannot be aended@repealed J. 1he distribution o cash dividend 1he executive coittee" coposed o at least three /&0 ebers coing ro the board. 1he executive coittee is created under the by-laws 2+1:" the board by itsel cannot create an executive coittee under section &J o the corporation code, the board however, ay create an executive coittee to %:L' in the anageent o the aFairs o the corporation.

'owers not exercise by the board alone" #. there is a anageent contract $. 1he powers o the board is delegated to a aEority vote o an executive coittee roup o directors appointed to act on behal o, and within the powers granted to the by, the board o directors. hat are the powers that cannot be exercised by the :xecutive Coittee> #. approval o an action needing the concurrence o the stoc!holders $. flling in vacancies in the board &. Adoption, aendent, repeal o by-laws

-in other cases, the other corporate o)cers ay bind the corporation li!e the president. 1he authority o such individuals to bind the corporation is generally derived ro" 3. Law 33.by-laws 333.authorization ro the board either expressly or ipliedly by habit, custo,ac(uiescence in the course o business -or a corporate o)cer@agent to bind & rd persons and the corporation" A91%+315 to do so ust have been conerred to hi -an o)cer ay also bind the corporation i he has apparent authority. 3t is derived not erely ro practice, its existence aybe ascertained through"


#. general anner in which the corporation holds out its agent@o)cer having the power to act. $. 1he ac(uiescence in his acts o a particular nature, with actual or constructive !nowledge thereo, within or beyond the scope o his ordinary powers. 3nstances when the concurrence o the stoc!holders is necessary or the exercise o the powers o the corporation":33@DC@3D;A A0 approval o the aEority o the board and the concurrence o the board representing $@& o the outstanding capital /or $@& o the ebers, whenever applicable is necessary" /:33-DC-3D;A0 2+1:" the sae powers as the specifc powers however the denial o pre-eptive right is not included and, declare dividends" stoc!. notes" anageent contract - a agreeent under which operation control o an enterprise is vested by contract with a separate enterprise that perors the necessary anagerial unctions in return o a ee. to enter into a anageent contract" #. stoc!holder@s representing the sae interest o both anaging and the anaged corporation sown or control ore than #@& o total

outstanding capital entitled to vote in the anaging corporation or $. ;aEority o the ebers o the board o directors o the anaging corporation also constitute a aEority o the ebers o the board o the anaged corporation B0 Approval o the stoc! holders representing aEority o the outstanding capital is necessary together with the board approval in the ollowing circustances" #. to enter into a anageent contract i any o the two insances entioned above are absent $. Adopt, aend, repeal the by-laws C0 without board resolution, the st oc!holders ay by" #. $@& outstanding capital- delegate to the board the power to aend by-laws $.aEority o outstanding capital- revo!e the power o the board to aend the by-laws which was previously delegated. 3nstances when the corporation ay ac(uire its own shares" -the corporation has unrestricted retained earnings in its boo!s to cover the shares to be purchased.


-or legitiate corporate purposes including but not liited to the ollowing" #. eliinate fctional shares arising out o stoc! dividends $. Collect@coproise and indebtedness to the corporation arising out o unpaid subscription and to purchase delin(uent shares sold during the sale &. 1o pay dissenting@withdrawing stoc!holders entitled to the payent o their shares. D3U3D:2D*

-the declaration o dividends is discretionary -payable only when there are profts by the corporation -even i there are profts the B+D has the discretion whether or not to issue dividends S'2" surplus profts are prohibited to be retained by stoc! corporations in excess o #66? o their paid-up capital S'2 to the c!in S'2" even i retained surplus profts is in excess o #66? o the paid-up capital o the corporation, the board ay still reuse to declare dividends, i"

A0 ho ay declare dividends> 1he B+D alone- cash and property dividends B+D with the approval o stoc!holders representing not less than $@& o the outstanding capital- *1+CT dividends

a0 Eustifed by corporate expansion approved by he board b0 Corporation is prohibited by a load agreeent with a fnancial institution@by a creditor to issue dividends without its consent c0 etention is necessary under special circustances e.g. need or special reserve or probable contingencies

B0 what are the conditions that ust be present to declare dividends> #. unrestricted earnings $. esolution o the board or i stoc! dividends the concurrence o $@& o the outstanding capital. C0 can the board be copelled to declare dividends>

Dividends cannot be declared out o the capital, :xceptionasting assets corporation- corporations engaged in the exploitation o wasting assets /wasting assetsVproperty@security that has liited lie and loses value over its lie


#. Dividends ro investents in wasting assets $. Li(uidating dividends hat can be included in the unrestricted retained earnings> -accuulated profts@gains realized out o the noral and continuous operations ater the deduction o distributions to stoc!holders and transers to capital stoc!@other accounts -surplus profts are a condition precedent to the declaration dividends 3tes not available or dividend declaration" a0 unrealized oreign exchange gains b0 *hare@e(uity in net incoe o the associate@Eoint venture c0 air value adEustent d0 ecognized deFered tax asset e0 'aid-in-surplus 0 evaluation surplus g0 eduction surplus -ains ro the sale o real properties o the corporation can be considered as part o retained earnings provided that there is surplus profts, the corporation cannot issue gains ro the sale o its real properties as dividends i the value o the reaining

assets ater distribution is less than the aount o legal@stated capital and liabilities. -treasury shares aybe issued as property dividend. 1hey cannot be issued as stoc! or cash dividends because they are not part o earned or surplus profts. 1:A*95 *%A:* aybe declared as property dividends to be issued out o the retained earnings previously used to supporttheir ac(uisition '+U3D:D" the aount o the said retained earnings has not been subse(uently ipaired by losses. -+ther rules concerning dividends" dividends are based on the total nuber o shares and not on the aount paid or the shares. stoc!holders at the tie o the declaration o the dividends are entitled to dividends those declared ater transer the owner shall be the transeree those declared beore transer the owner is the transeror stoc!holders right to be paid dividends accrues ro the oent o declaration, ro then on he ay already deand payent stoc! dividends can be declared at a preiu /at a value higher than par0 even unpaid subscribers are entitled to payent o dividends


*AL: + ALL + *9B*1A213ALL5 ALL '+':13:* :=93*31:*" #. Approval o aEority o the directors or trustees $. Assent o $@& stoc!holders@ebers in a eeting &. ;ust coply with the oralities o the bul! sales law hen is the sales deeed to be all or substantially all> -when such sale renders the corporation incapable o continuing operations or the purpose or which it was incorporated

:Fect on creditors" -the transeree@buyer o all or substantially all the assets/or even shares0 will not be liable or the debts o the transeror S'2*" a0 is there is a n express assuption o liabilities b0 1here is a consolidation or erger c0 1he purchase was in raud o creditors d0 1he purchaser becoes the continuation o the seller


Corporation law notes Sundiang.docx

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