LAW ON PRIVATE CORPORATIONS Corporation Code of the Philippines – BP Blg. ! TITLE I " #ENERAL PROVISIONS SCOPE O$ T%E CO&E The Corporation Corporation Code is an act act which: 1. Provides Provides for the the incorporation, incorporation, organization organization and regulation regulation of private corporations; 2. Denes their powers and and provides provides for their dissolution; dissolution; . !i"es !i"es the duties duties and and lia#ilities of directors directors or trustees trustees and other o$cers thereof; %. Declares Declares the rights and lia#ilities lia#ilities of stoc&holders stoc&holders or 'e'#ers; (. Prescri#es Prescri#es the the conditions conditions under under which which corporations corporations including including foreign corporations 'a) transact #usiness; *. Provid Provides es penaltie penalties s for violations violations of the Code; Code; and +. epeal epeals s all laws and and parts parts of laws in con-ic con-ictt and inconsistent with the Code. T%EORIES ON $OR'ATION O$ A CORPORATION 1. Con(ession theor) / corporation is an articial creature without an) e"istence until it has received the i'pri'atur of the state according to law, through 0C 2. Theor) of (orporate enterprise or e(ono*i( +nit The corporation is not 'erel) an articial #eing, #ut 'ore of an aggregation of persons doing #usiness, or an underl)ing #usiness unit STAT,TOR STAT,TOR- &E$INITION Se(tion /0 – A (orporation is an arti1(ial 2eing (reated 2) operation of la34 ha5ing the right of s+((ession and the po3ers4 attri2+tes and properties e6pressl) a+thori7ed 2) la3 or in(ident to its e6isten(e. &o(trine of +ltra 5ires a(ts a(ts a corporation, #eing a 'ere •
creation of law, can e"ercise onl) those powers which are conferred #) law. 0ec. %(3
ATTRIB,TES O$ A CORPORATION8
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4t is an arti articia ciall #eing #eing;; 4t is created created #) operat operation ion of law; 4t has has the the right right of succe succession ssion;; and 4t has onl) onl) the powers, powers, attri#utes attri#utes and and properties properties e"pressl) e"pressl) authorized #) law or incident to its e"istence.
&ISTINCTIONS BETWEEN A PARTNERS%IP AN& A CORPORATION8 PARTNERS%IP CORPORATION 1. Creation 5ere 5ere agree agree'ent 'ent of the the partie parties s 6) law law or #) opera operation tion of law 2.7o. of incorporators incorporators /t least 2 persons (81( incorporators e"cept corporation sole3 .Co''ence'ent of 9uridical personalit) !ro' the 'o'ent of e"ecution !ro' the date of issuance of of the contract the Cert. of 4nc. #) the 0C %.Powers 5a) e"ercise an) power Can e"ercise onl) the powers authorized #) the partners e"pressl) granted #) law or provided it is not contrar) to i'plied fro' those granted or law, 'orals, good custo's, incident to its e"istence pu#lic order, pu#lic polic)3 (.5anage'ent hen 'anage'ent is not ested in the #oard of directors agreed upon, ever) partner is or trustees an agent of the partnership *.
T who 'is'anages 'ust #e in the na'e of the corporation +.ight of 0uccession 7o right ?as right of succession @."tent of lia#ilit) to third persons Partners are lia#le personall) A 0?s are lia#le onl) to the su#sidiaril) so'eti'es e"tent of the shares su#scri#ed solidar)3 for partnership partnership de#ts #) the' li'ited lia#ilit) to rd persons feature3 B.Transfera#ilit) of interest
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Partner cannot transfer his 0? has generall) the right to interest in the partnership so transfer his shares w>o prior as to 'a&e the transferee a consent of the other 0?s partner w>o the unani'ous #ecause corporation is not consent of all the e"isting #ased on this principle partners #ecause partnership is #ased on the principle of delectus personae 1E.Ter' of e"istence /n) period of ti'e stipulated 5a) not #e for'ed for a ter' #) the partners in e"cess of (E )ears e"tendi#le to not 'ore than (E )ears in an) 1 instance 11.!ir' na'e i'ited partnership is reFuired /n) na'e provided it is not the #) law to add the word Gtd.H sa'e as or si'ilar to an) reg. to its na'e r' na'e 12.Dissolution 5a) #e dissolved at an) ti'e Can onl) #e dissolved with the #) an) or all of the partners consent of the 0tate 1.Ioverning law 7ew Civil Code Corporation Code SI'ILARITIES BETWEEN A PARTNERS%IP AN& A CORPORATION8 1. uridical personalit) personalit) separate separate and distinct fro' that that of the individuals individuals co'posing it; 2. Can act act onl) onl) thro through ugh agents; agents; . Co'posed of an aggregate aggregate of individuals individuals e"cept e"cept corporation sole3; %. Distri#utes Distri#utes its prots to those those who contri#ut contri#ute e capital; (. Can #e organized organized onl) onl) where where there there is a law authorizing its organization; *. / partners partnership hip is ta"a#l ta"a#le e as a corporat corporation. ion. $O,R BASIC A&VANTA#ES O$ CORPORATE OR#ANI9ATIONS8 :. Strong separa separate te ;+ridi(al ;+ridi(al person personalit alit) ) Case: 4f /, 4nc. #u)s the share of , 4nc., which later turns out to #e insolvent, will /, 4nc. answer for the de#ts of , 4nc.J dward . 7ell vs. Pacic !ar's, 1( 0C/ %1(3
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I: here a corporation #u)s all the shares of another corporation, this will not operate to dissolve the other corporation and as the two corporations still 'aintain their separate corporate entities, one will not answer for the de#ts of the other. "ceptions: a.3 4f there is is an e"press e"press assu'ption assu'ption of lia#ilities; #.3 There is consolidation consolidation or 'erger; 'erger; c.3 4f the purchase purchase was was in fraud of creditors; creditors; d.3 4f the purchaser purchaser #eco'es #eco'es a continuation continuation of the seller. N.B. Knli&e N.B. Knli&e a partnership which 'a) #e dissolved #) 'an) causes, either #) the withdrawal, death, insolvenc), etc. of a partner, the right of succession of a corporation allows it to 'aintain its separate 9uridical personalit) in spite of what happens to the stoc&holders or 'e'#ers who constitute it. /. Li*ited Li*ited Lia2i Lia2ilit) lit) to In5estor In5estors s 8 0toc&hold 0toc&holders ers are are perso personall nall) ) lia#le lia#le for corpo corporate rate de#ts de#ts and lia#ilities onl) to the e"tent of what the) have invested paid8up capital3 and what the) have pro'ised to invest in the corporation unpaid su#scription3 <. $ree Transf Transfera2i era2ilit) lit) of ,nits of O3nership O3nership 8 Doctrine Doctrine of delec delectus tus persona personae e in partner partnership ship is not not applica#le and that stoc&holders hold their shares as personal propert) with rights to dispose, assign or encu'#er the' as the) 'a) desire =. Centra Centrali7 li7ed ed 'anage 'anage*e *ent nt 8 /ll corpo corporate rate powers powers are are vested vested in the the 6oard 6oard of of Directo Directors rs or Trustees 8 0toc&hold 0toc&holders ers or 'e'# 'e'#ers ers no no 'anage' 'anage'ent ent powers, powers, onl) to elect directors or trustees
&OCTRINE O$ CORPORATE CORPORATE PERSONALIT- 8 / corpor corporation ation is a legal legal or or 9uridic 9uridical al person person with with a personali personalit) t) separate and apart fro' its individual stoc&holders or
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Partner cannot transfer his 0? has generall) the right to interest in the partnership so transfer his shares w>o prior as to 'a&e the transferee a consent of the other 0?s partner w>o the unani'ous #ecause corporation is not consent of all the e"isting #ased on this principle partners #ecause partnership is #ased on the principle of delectus personae 1E.Ter' of e"istence /n) period of ti'e stipulated 5a) not #e for'ed for a ter' #) the partners in e"cess of (E )ears e"tendi#le to not 'ore than (E )ears in an) 1 instance 11.!ir' na'e i'ited partnership is reFuired /n) na'e provided it is not the #) law to add the word Gtd.H sa'e as or si'ilar to an) reg. to its na'e r' na'e 12.Dissolution 5a) #e dissolved at an) ti'e Can onl) #e dissolved with the #) an) or all of the partners consent of the 0tate 1.Ioverning law 7ew Civil Code Corporation Code SI'ILARITIES BETWEEN A PARTNERS%IP AN& A CORPORATION8 1. uridical personalit) personalit) separate separate and distinct fro' that that of the individuals individuals co'posing it; 2. Can act act onl) onl) thro through ugh agents; agents; . Co'posed of an aggregate aggregate of individuals individuals e"cept e"cept corporation sole3; %. Distri#utes Distri#utes its prots to those those who contri#ut contri#ute e capital; (. Can #e organized organized onl) onl) where where there there is a law authorizing its organization; *. / partners partnership hip is ta"a#l ta"a#le e as a corporat corporation. ion. $O,R BASIC A&VANTA#ES O$ CORPORATE OR#ANI9ATIONS8 :. Strong separa separate te ;+ridi(al ;+ridi(al person personalit alit) ) Case: 4f /, 4nc. #u)s the share of , 4nc., which later turns out to #e insolvent, will /, 4nc. answer for the de#ts of , 4nc.J dward . 7ell vs. Pacic !ar's, 1( 0C/ %1(3
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I: here a corporation #u)s all the shares of another corporation, this will not operate to dissolve the other corporation and as the two corporations still 'aintain their separate corporate entities, one will not answer for the de#ts of the other. "ceptions: a.3 4f there is is an e"press e"press assu'ption assu'ption of lia#ilities; #.3 There is consolidation consolidation or 'erger; 'erger; c.3 4f the purchase purchase was was in fraud of creditors; creditors; d.3 4f the purchaser purchaser #eco'es #eco'es a continuation continuation of the seller. N.B. Knli&e N.B. Knli&e a partnership which 'a) #e dissolved #) 'an) causes, either #) the withdrawal, death, insolvenc), etc. of a partner, the right of succession of a corporation allows it to 'aintain its separate 9uridical personalit) in spite of what happens to the stoc&holders or 'e'#ers who constitute it. /. Li*ited Li*ited Lia2i Lia2ilit) lit) to In5estor In5estors s 8 0toc&hold 0toc&holders ers are are perso personall nall) ) lia#le lia#le for corpo corporate rate de#ts de#ts and lia#ilities onl) to the e"tent of what the) have invested paid8up capital3 and what the) have pro'ised to invest in the corporation unpaid su#scription3 <. $ree Transf Transfera2i era2ilit) lit) of ,nits of O3nership O3nership 8 Doctrine Doctrine of delec delectus tus persona personae e in partner partnership ship is not not applica#le and that stoc&holders hold their shares as personal propert) with rights to dispose, assign or encu'#er the' as the) 'a) desire =. Centra Centrali7 li7ed ed 'anage 'anage*e *ent nt 8 /ll corpo corporate rate powers powers are are vested vested in the the 6oard 6oard of of Directo Directors rs or Trustees 8 0toc&hold 0toc&holders ers or 'e'# 'e'#ers ers no no 'anage' 'anage'ent ent powers, powers, onl) to elect directors or trustees
&OCTRINE O$ CORPORATE CORPORATE PERSONALIT- 8 / corpor corporation ation is a legal legal or or 9uridic 9uridical al person person with with a personali personalit) t) separate and apart fro' its individual stoc&holders or
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'e'#ers co'posing it and fro' other corporations to which it 'a) #e connected. udi'e udi'entar ntar) ) is the the rule rule that that a corpor corporation ation is investe invested d #) law with a personalit) distinct and separate fro' its stoc&holders or 'e'#ers #) legal ction and convenience, it is shielded #) a protective 'antel and i'#ued #) law with a character alien to the persons co'prising it. i' vs. C/, 2 0C/ 1E23 Certi1(ate of Registration>In(orporation 2) the SEC SEC issuance thereof is the operative act for the e"istence of a corporation =nce =nce Certica Certicate te of egis egistrat tration ion is issued issued,, the corpo corporati ration on acFuires a personalit) distinct and separate fro' that of its stoc&holders or 'e'#ers. E?e(ts of &o(trine of Separate Personalit)8 1. The corpor corporatio ation n 'a) not #e held held lia#le lia#le for acts acts or lia#ilities of shareholders; 2. 5a) acFuire acFuire and and possess properties properties as well as #ring legal action in its na'e; . Properties Properties so acFuired acFuired or conve)ed to the corporation is the propert) of the corporation, vice versa %. 7o personalit) personalit) to #ring action for recover) recover) of propert) propert) #elonging to individual shareholders or 'e'#ers (. 7ot entitle entitled d to 'oral da'age da'ages s e"cept: e"cept: when when it has esta#lished a good reputation that is de#ased, resulting in its hu'iliation in the #usiness real'3 Note: Note: 4t was held that a 9uridical person such as a corporation can validl) co'plain for li#el or an) for' of defa'ation and clai' for 'oral da'ages #ecause /rt. 221B +3 of the Civil Code does not Fualif) whether the plainti< is a natural or a 9uridical person. !ilipinas 6roadcasting vs. /go 5ed., I7 1%1BB%, une 1+, 2EE(3
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0o'e cases on separate 9uridical personalit): 1. alter alter 0'ith vs. !ord I7 %2%2E, %2%2E, 7ov. 7ov. 2E, 1B*3 1B*3 o#ligation of the President of a corporation incurred in
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his personal capacit) cannot #e collected fro' the corporation where he is an o$cer 2. 6usinessda) 6usinessda) 4nfor'ation 4nfor'ation 0)ste's 0)ste's vs. 7C 221 0C/ B3 President>'anager cannot #e held personall) lia#le for the 'one) clai's of discharged corporate e'plo)ees unless he acted with evident #ad faith in ter'inating their e'plo)'ent. &OCTRINE O$ PIERCIN# T%E VEIL O$ CORPORATE ENTIT- 8 Knder Knder this this doctrin doctrine, e, a corpor corporatio ation n will #e loo&e loo&ed d upon upon as a separate legal entit) as a general rule, and until su$cient reason to the contrar) appears; #ut when the notion of legal entit) is used to defeat pu#lic convenience, 9ustif) wrong, protect fraud, defend cri'e, or when used as a 'ere alter ego, the law will regard the corporation as an association of persons the corporation and the persons who co'pose it are treated as identical3. 8 To do this, this, the the courts courts 'ust 'ust #e sure sure that the the corpor corporate ate ction ction was 'isused, to such an e"tent that in9ustice, fraud or cri'e was co''itted upon another. 4t is the protection of the interests of innocent third persons dealing with the corporate entit) which the law ai's to protect #) this doctrine. Traders o)al 6an& vs. C/, 2*B 0C/ 1(3 8 There There 'ust 'ust #e a clear clear and and convinc convincing ing evide evidence. nce. The wrongdoing 'ust #e clearl) and convincingl) esta#lished. 4t cannot #e presu'ed. •
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< Classes of Pier(ing8 1. !raud !raud cases when a corporation corporation is used as a cloa& to cover fraud or to do wrong 2. /lter ego ego cases when the the corporation corporation is 'erel) 'erel) a farce farce since the corporation is an alter ego, #usiness conduit or instru'entalit) of a person or another corporation . Fuit) Fuit) cases cases to achieve achieve 9ustic 9ustice e or eFuit) eFuit) Control Test Test used in deter'ining the applica#ilit) of the doctrine /lter ego cases3
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1. Control 'ust #e co'plete do'ination, not onl) of nances #ut of polic) and #usiness practice in respect to the transaction attac&ed so that the corporate entit) as to this transaction had at the ti'e no separate 'ind, will or e"istence of its own; 2. 0uch control 'ust have #een used #) the defendant to co''it fraud or wrong, to perpetuate the violation of a statutor) or other positive dut), or dishonest and un9ust acts in contravention of plainti
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Cases 3here pier(ing applied8 1. The corporate entit) is #eing 'erel) used as an alter8ego of the controlling o$cers or stoc&holders, such as when the o$cers and directors of two corporations are practicall) the sa'e and #oth corporations hold o$ce in the sa'e roo'; 2. hen the corporate o$cers do fraudulent or illegal acts in the na'e of the corporation, such as illegal dis'issal or unfair la#or practices; . hen one tries to evade civil lia#ilit) #) incorporating the properties or the #usiness; %. here the corporate ction was used as a 'eans to perpetrate a social in9ustice or as a vehicle to evade o#ligations or confuse the legiti'ate issues; (. here it was used to avoid a 9udg'ent credit, to avoid inclusion of corporate assets as part of the estate of a decedent, to avoid lia#ilit) arising fro' de#t; *. hen used to avoid a contractual co''it'ent #) the 'ain stoc&holders or o$cers against his contracted non8 co'petition co''it'ent. When pier(ing not appli(a2le8 1. hen other re'edies are still availa#le #ecause piercing is a re'ed) of last resort, e.g. when the corporation e'plo)ed fraud in the foreclosure proceedings where the
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re'ed) of annul'ent #ased on vice of consent is availa#le K'ali vs. C/, 1@B 0C/ (2B3; 7ot allowed in fraud cases unless the re'ed) sought is to 'a&e the o$cer or another corporation pecuniar) lia#le for corporate de#ts; Cannot #e allowed when there is no wrong co''itted; here there is no allegation, 'uch less even a scintilla of su#stantiation that the partiesL interest in the corporation are so considera#le as to 'erit a declaration of unit) of their civil personalities; Cannot #e e'plo)ed to allow fraud, e.g. where seller of real propert) wishes to avoid the conseFuences of a sale to a corporate entit) #) clai'ing that the #ro&er through who' the seller transacted sale was also the President of the corporate #u)er, when such fact was &nown to her fro' the #eginning /raneta 4nc. vs. Tuazon de Paterno, B1 Phil +@*3.
CLASSI$ICATION O$ CORPORATIONS Se(. <08 1. Sto(@ Corporation one whose capital stoc& is divided into shares and which is authorized to distri#ute to shareholders dividends or allot'ents of the surplus prots on the #asis of the share held; created and operated for the purpose of 'a&ing a prot 2. Non"sto(@ Corporation does not issue stoc&s nor distri#ute dividends to its 'e'#ers; not created for prot #ut for the pu#lic good and welfare OT%ER CLASSI$ICATIONS8 1. /s to nu'#er of persons who co'pose the' a.3 Corporation aggregate 'ore than one 'e'#er or corporator #.3 Corporation sole co'posed of one 'e'#er or corporator onl) and his successors, such as a #ishop 2. /s to whether for religious purposes or not a.3 E((lesiasti(al organized for religious purposes #.3 La) organized for a purpose other than for religion . /s to whether the) are for charita#le purposes or not
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a.3 Elee*os)nar) for charita#le purposes #.3 Ci5il for #usiness or prot %. /s to 0tate or #) whose laws the) have #een created a.3 &o*esti( incorporated under the laws of the Philippines #.3 $oreign for'ed, organized, or e"isting under an) laws other than those of the Philippines (. /s to their legal right to corporate e"istence a.3 &e ;+re e"isting in fact and in law #.3 &e fa(to 0ec 2E3 e"isting in fact #ut not in law; there e"ists a -aw in its incorporation 7ote: illustrate case where /,6,C,D, for'ed a corporation #ut D and failed to sign #) o'ission in good faith3 8=ne which has not co'plied with all the reFuire'ents necessar) to #e a de 9ure corporation #ut has co'plied su$cientl) to #e accorded corporate status as against third parties although not against the state. E6a*ples8 1.3 /=4 fails to state all 'atters reFuired #) law; 2.3 7a'e of the corp. closel) rese'#les that of a pre8 e"isting corp. that it will tend to deceive the pu#lic; .3 4ncorporators or certain nu'#er of the' are not residents of the Philippines; %.3 /c&nowledge'ent of the /=4 or certicate of incorporation is insu$cient or defective in for' or ac&nowledged #efore the wrong o$cer; (.3 iolation of !ilipino ownership; *.3 5ini'u' paid8up capital stoc& has not #een paid to and received #) the corporate treasurer contrar) to his a$davit The onl) wa) to Fuestion its corporate e"istence is in a direct proceeding #) the state Fuo warranto3 through the 0olicitor Ieneral. Private individuals cannot raise the o#9ection in such a case either directl) or indirectl), and no#od) can raise the o#9ection collaterall). *. /s to whether the) are open to the pu#lic or not a.3 Close li'ited to selected persons or 'e'#ers of a fa'il) •
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#.3 Open open to an) person who 'a) wish to #eco'e a stoc&holder or 'e'#er thereto +. /s to their relation to another corporation a.3 Parent or %olding one which is so related to another corporation that it has the power either, directl) or indirectl) to, elect the 'a9orit) of the directors of such other corporation #.3 S+2sidiar) one which is so related to another corporation that the 'a9orit) of its directors can #e elected either, directl) or indirectl), #) such other corporation @. /s to whether the) are corporations in a true sense or onl) in a li'ited sense a.3 Tr+e one which e"ists #) statutor) authorit) #.3 +asi"(orporation e"ists without for'al legislative grant, e"ception to the rule that a corporation can e"ist onl) #) authorit) of law 1.3 Corporation 2) pres(ription one which has e"ercised corporate powers for an indenite period without interference on the part of the sovereign power and which, #) ction of law, is given the status of a corporation, e.g The o'an Catholic Church 2.3 Corporation 2) estoppel Se( /:0 one which in realit) is not a corporation, either de 9ure or de facto, #ecause it is so defectivel) for'ed, #ut is considered a corporation in relation to those onl) who, #) reason of their acts or ad'issions, are precluded fro' asserting that it is not a corporation B. /s to whether pu#lic or private a.3 P+2li( for'ed or organized for the govern'ent of a portion of the 0tate #.3 Pri5ate for'ed for so'e private purpose, #enet or end; it 'a) either #e a stoc& or non8stoc&, govern'ent8 owned or controlled or Fuasi8pu#lic
I'PORTANT CLASSES O$ PERSONS Se( 0 1. Pro*oter one who #) contract of lease or services or agenc), initiates and underta&es the pre8incorporation steps
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until the actual for'ation of the corporation; la)s the groundwor& for corporate e"istence Corporators those who co'pose the corporation, whether stoc&holders or 'e'#ers; includes incorporators, stoc&holders or 'e'#ers In(orporators those corporators 'entioned in the articles of incorporation as originall) for'ing and co'posing the corporation and who e"ecuted and signed the articles of incorporation as such Sto(@holders owners of shares of stoc& in a stoc& corporation; also called shareholders 'e*2ers corporators of a corporation which has no capital stoc& S+2s(ri2ers persons who have agreed to ta&e and pa) for original unissued shares of a corporation for'ed or to #e for'ed ,nder3riter a person who guarantees on a r' co''it'ent and>or declared #est e5e'#ers, Pro'oter, 6oard of Directors>Trustees, "ecutive Co''ittee, =$cers of the corporation
CLASSI$ICATION O$ S%ARES Se( 0 #eneral R+le8 The shares of stoc& in a corporation 'a) #e divided into classes or series of shares, or #oth, an) of which classes of series of shares 'a) have such rights, privileges or restrictions as 'a) #e stated in the articles of incorporation. E6(eptions8 1.3 7o share 'a) #e deprived of voting rights e6(ept those classied and issued as GpreferredH or Gredee'a#leH shares. 2.3 There shall alwa)s #e a class or series of shares which have co'plete voting rights. .3 /n) or all of the shares or series of shares 'a) have a par value or have no par value as 'a) #e provided for in the articles of incorporation, e6(ept that #an&s, pu#lic utilities, insurance co'panies, trust co'panies, and
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#uilding and loan associations 6P48T63 shall not #e per'itted to issue no par value shares of stoc&. N.B. There can #e no privilege or restriction on an) share other than what is provided for in the articles of incorporation. W%O CAN CLASSI$- S%ARES8 1. 4ncorporators The classes and nu'#er of shares which a corporation shall issue are rst deter'ined #) the incorporators as stated in the /=4 led with the 0C. 2. 6=D and 0?s /fter the corporation co'es into e"istence, the) 'a) #e altered #) the 6=D and the 0?s #) a'ending the /=4 pursuant to 0ec. 1* •
&o(trine of E+alit) of Shares – Knder the law, e"cept as otherwise provided #) the /=4 and stated in the certicate of stoc&, each share shall #e in all respects eFual to ever) other share. 0ec. *, par. (3
CAPITAL STR,CT,RE 1. Capital sto(@ a'ount "ed in the corporate charter to #e su#scri#ed and paid in cash, in &ind or in propert) at the organization of the corporation or afterwards and upon which the corporation is to conduct its operation 2. Capital value of the actual propert) of the corporation whether in 'one) or propert) . A+thori7ed (apital sto(@ capital stoc& divided into shares of par values as specied in the /=4 %. S+2s(ri2ed (apital sto(@ a'ount of the capital stoc& su#scri#ed whether full) paid or not (. O+tstanding (apital sto(@ portion of the capital stoc& issued to su#scri#ers e"cept treasur) shares *. Paid"+p (apital sto(@ portion of the su#scri#ed or outstanding capital stoc& that is paid +. ,niss+ed (apital sto(@ portion of the capital stoc& that is not issued or su#scri#ed; does not vote and draws no dividends @. Legal (apital a'ount eFual to the aggregate par value and>or issued value of the outstanding capital stoc&. CLASSES O$ S%ARES
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1. Co**on shares #asic class which is ordinaril) and usuall) issued without e"traordinar) rights and privileges and the owners thereof are entitled to a pro8rata share in the prots of the corporation and in its assets / stoc&holder who owns at least one co''on share has the following rights: a.3 ight to vote at 'eetings; #.3 ight to dividends; c.3 ight to e"a'ine corporate #oo&s. 2. Preferred Shares those which entitle the shareholder to so'e priorit) on dividends and asset distri#ution; alwa)s with par value and en9o) preferences in dividends, voting, and corporate propert) upon dissolution 0ec. *3 Preferences 'a) #e: a.3 0tated in the /=4; or #.3 !i"ed #) 6=D when authorized #) /=4, provided such ter's and conditions shall #e e
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%. Treas+r) shares earlier issued as full) paid and have thereafter #een acFuired #) the corporation #) purchase, donation, rede'ption, or through so'e lawful 'eans 0ec. B3; onl) surplus earnings 'a) #e used for its purchase; 'a) again #e disposed for a reasona#le price; no voting right, no right to dividends while the) re'ain in the treasur) DelinFuent shares the corporation 'a) #id at a pu#lic sale (. $o+nders shares issued to organizers and pro'oters of a corporation in consideration of so'e supposed right or propert) 0ec. +3 *. Par 5al+e share one with a specic 'one) value "ed in the /=4 and appearing in the certicate of stoc& for each share of stoc& of the sa'e issue; pri'ar) purpose is to " the 'ini'u' su#scription or issue price of the shares, thus, assuring creditors that the corporation would receive a 'ini'u' a'ount for its stoc&s +. No par 5al+e share one without an) stated or par value appearing on the face of the certicate of stoc&; has alwa)s an Gissued valueH; sa'e rights with holders of par value stoc& i'itations: a.3 Cannot have an issued price of less than P(.EE; #.3 ntire consideration for its issuance constitutes capital so that no part of it should #e distri#uted as dividends; c.3 Cannot #e issued as preferred stoc&s; d.3 Cannot #e issued #) 6P48T6; e.3 /=4 'ust state the fact that it issued no par value shares as well as the nu'#er of said shares; f.3 =nce issued, dee'ed full) paid and non8assessa#le @. Voting share with right to vote; given to co''on stoc&, withheld fro' preferred N.B. The r+le is not Fone sto(@holder4 one 5oteG 2+t Fone share4 one 5oteG 2e(a+se representation in a (orporation is (o**ens+rate to e6tent of o3nership. B. Non"5oting share without right to vote; preferred or redee'a#le shares N 'atters 3here non"5oting shares (an 5ote +pon 'AI&S0 a.3 'erger or Consolidation •
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#.3 A'end'ent of /=4 c.3 Adoption A a'end'ent of #)8laws d.3 Incurring, creating or increasing #onded inde#tedness e.3 Increase>decrease of capital stoc& f.3 Invest'ent of corporate funds g.3 &issolution h.3 Sale, lease, e"change, 'ortgage, pledge or other disposition of all or su#stantiall) all of the corporate propert) 7ote: election of directors or trustees 0ec. 2%3 not included 1E. Pro*otion share issued to pro'oters, or those in so'e wa) interested in the co'pan), for incorporating the co'pan), or for services rendered in launching or pro'oting the welfare of the co'pan), such as advancing fees for incorporating, advertising, attorne)Ls fees, surve)ing 11. Share in es(ro3 su#9ect to an agree'ent wherein share is deposited #) the grantor with a third person to #e &ept #) the depositar) until the perfor'ance of a certain condition or the happening of a certain event contained in the agree'ent 12. Watered sto(@ issued not in e"change for its eFuivalent value either in cash, propert), share, stoc& dividends, or services 8 includes stoc&s: a.3 issued without consideration #onus share3 #.3 issued as full) paid when the corporation has received a lesser su' of 'one) than its par or issued value c.3 issued for a consideration other than actual cash such as propert) or services, the fair valuation of which is less than its par or issued value d.3 issued as stoc& dividend when there are no su$cient retained earnings to 9ustif) it
TITLE II " INCORPORATION H OR#ANI9ATION O$ PRIVATE CORPORATIONS N,'BER H ,ALI$ICATIONS O$ INCORPORATORS Se( :0 1. natural persons; 2. not less than ( #ut not 'ore than 1(;
aw Private Corporations
. of legal age; %. 'a9orit) 'ust #e resident of the Philippines not necessaril) citizens of the Philippines e"cept when the law reFuires 'ini'u' !ilipino participation3; Nota Bene8 !ilipino Citizenship reFuire'ent a.3 1EEO !ilipino owned 1.3 5ass 'edia; 2.3 etail trade less than K0 2,(EE,EEE3; .3 0'all8scale 'ining; %.3 Private securit) agencies; #.3 @EO !ilipino owned private radio co''unications networ& c.3 +EO !ilipino owned 1.3 Pawnshop; 2.3 /dvertising d.3 *EO !ilipino owned 1.3 Ktilization, e"ploration, develop'ent of natural resources 2.3 Pu#lic utilities .3 6an&ing e.3 %EO !ilipino owned 1.3 !inancing co'panies regulated #) the 0C; 2.3 4nvest'ent houses regulated #) the 0C (. each 'ust own or su#scri#e to at least one share There 'ust #e at least ve (3 stoc&holders in a stoc& corporation. •
STEPS IN T%E CREATION O$ A CORPORATION 1. Pro*otion a pro'oter is a person who, acting alone or with others, ta&es initiative in founding and organizing the #usiness or enterprise of the issuer and receives consideration therefore. a.3 Discover) #.3 4nvestigation c.3 /sse'#l) /. In(orporation a.3 Drafting and e"ecution of /=4 #) the incorporators and other docu'ents reFuired for registration of the corp; #.3 !iling with the 0C of the /=4; c.3 Pa)'ent of ling and pu#lication fees; and d.3 4ssuance #) the 0C of the certicate of incorporation.
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<. $or*al organi7ation and (o**en(e*ent of the transa(tion of the 2+siness a.3 /doption of 6)8aws and ling of the sa'e with the 0C; #.3 lection of 6=D>T and o$cers; c.3 sta#lish'ent of principal o$ce; d.3 Providing for su#scription A pa)'ent of capital stoc&. In(orporators 5s. Corporators8 47C=P=/T=0 C=P=/T=0 signator) to articles of stoc&holder of stoc& corporation incorporation or 'e'#er of non8stoc& corporation do not cease to #e such =nce cease to #e such if the) are no an incorporator, forever an longer stoc&holders incorporator3 nu'#er is li'ited to (81( no restriction as to nu'#er 'ust have contractual capacit) 'a) #e such through a guardian CORPORATE TER' Se( ::0 8 (E )ears 'a"i'u', e"tendi#le to not 'ore than (E )ears at an) single instance 8 5a) #e shortened or e"tended 8 /n) nu'#er of e"tensions, no li'its, Gperpetual lifeH 8 Can onl) #e e"tended #efore it e"pires and within the last ( )ears of its e"istence "ception: unless there are 9ustia#le reasons for an earlier e"tension as 'a) #e deter'ined #) 0C 8 4f there is an e"tension, the /=4 'ust #e a'ended; reFuires the 2> votes of the =C0 0ec. 1*3; those opposing stoc&holders can e"ercise their appraisal right 0ec. +3 • •
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&o(trine of Relation The ling and recording of a certicate of e"tension after the ter' cannot relate #ac& to the date of the passage of the resolution of the stoc&holders to e"tend the life of the corporation. ?owever, the doctrine of relation applies if the failure to le the application for e"tension within the ter' of the corporation is due to the neglect of the o$cer with who' the certicate is reFuired to #e led or to a wrongful refusal on his part to receive it.
aw Private Corporations
'INI',' CAPITAL STOCD RE,IRE& O$ STOCD CORPORATIONS Se( :/ H :<0 capital stoc& no 'ini'u' reFuire'ent as long as the paid up capital is not less than P(,EEE.EE at least 2(O of authorized capital stoc& 'ust #e su#scri#ed #) the stoc&holders at the ti'e of incorporation at least 2(O of the total su#scription 'ust #e paid at the ti'e of su#scription •
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N.B. These are 'andator) reFuire'ents. CONTENTS>$OR'S O$ AOI Se( :=4 :0 Arti(les of In(orporation AOI0 the docu'ent prepared #) the persons esta#lishing a corporation and led with the 0C containing the 'atters reFuired #) the code CONTENTS O$ ARTICLES O$ INCORPORATION8 1. 7a'e of corporation; 2. Purpose>s, indicating the pri'ar) and secondar) purposes; . Place of principal o$ce; %. Ter'>duration; (. 7a'es, citizenship, and residences of incorporators; *. 7u'#er, na'es, citizenship and residences of directors>trustees +. 4f stoc& corporation, a'ount of capital stoc&, nu'#er of share and in case of par value stoc& corporation, the par value of each share; @. 7a'es, residences, nu'#er of shares and a'ounts of su#scription of su#scri#ers which shall not #e less than 2(O of authorized capital stoc&; B. 7a'es, residences and a'ount paid #) each su#scri#er on their su#scription, which shall not #e less than 2(O of total su#scription; 1E. 7a'e of treasurer elected #) su#scri#ers; and 11. 4f a corporation engages in a nationalized industr), a state'ent than no transfer of stoc& will #e allowed if it will reduce the stoc& ownership of !ilipinos to a percentage #elow the reFuired legal 'ini'u'. CORPORATE NA'E Se( :!0 The corporation acFuires 9uridical personalit) under the na'e stated in the certicate of incorporation. 4t is the na'e of the
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corporation which identies and distinguishes it fro' other corporation, r's, or entities. Li*itations8 1. 7a'es which are identical, deceptivel) si'ilar to that of an) e"isting corporation; 2. / na'e alread) protected #) law; . / na'e which is patentl) deceptive, confusing or contrar) to e"isting laws G0tateH can no longer #e used as the rst word of a corporate na'e 0C Circular3 Gdeceptivel) si'ilarH there is tendenc) that the ordinar) person will #e 'isled into thin&ing that such na'e is the sa'e with another one Case: Converse vs. Kniversal u##er Products 1%+ 0C/ 1(%3 GKniversal ConverseH is confusingl) si'ilar to Converse eFuisites: a.3 Co'plainant corporation acFuired prior right over the use of the na'e #.3 Proposed na'e is either identical, deceptivel) or confusingl) si'ilar to that of an) e"isting corporation or patentl) deceptive, confusing or contrar) to e"isting laws
PRINCIPAL O$$ICE 8 5ust #e the e"act co'plete address 0C reFuire'ent3; 'ust #e the cit) or town, not 'erel) the province 8 5etro 5anila can no longer #e stated as principal o$ce 8 Change of address a.3 Change of cit) or 'unicipalit) a'end'ent of the /=4 to #e led with the 0C #.3 4f located within the sa'e cit) or 'unicipalit) notice onl) regarding the change of address
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CO''ENCE'ENT O$ CORPORATE EKISTENCE 8 / corporation co''ences to have 9uridical personalit) and legal e"istence onl) fro' the 'o'ent the 0C issues to the incorporators a certicate of incorporation under its o$cial seal. =nce issued, the certicate #eco'es the charter or corporate franchise fro' which the authorit) of the corporation to operate as such -ows. eligious corporations fro' and after the ling with the 0C of the /=4, the chief arch#ishop, etc. shall #eco'e a corporation sole Cooperatives upon registration with the Cooperatives Develop'ent /uthorit) / *B@, 0ec. 1*3
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A'EN&'ENT O$ AOI Se( :0 Corporate Charter – an instru'ent or authorit) fro' the sovereign power #estowing the right or privilege to #e and act as a corporation.
Change of na*e 'ust co'pl) with the for'alities prescri#ed #) law 1. /'end'ent of the /=4 2. !iling of the a'end'ent with the 0C . =nce approved, 0C issues an a'ended certicate of incorporation under the a'ended na'e P,RPOSES O$ CORPORATION 8 5ust #e lawful; if purpose is patentl) unconstitutional, illegal, i''oral, or contrar) to govern'ent rules and regulations, the sa'e is a ground for the re9ection or disapproval #) the 0C of the /=4; cannot #e for'ed for the practice of a profession, e.g., law, 'edicine, etc. 8 5ust #e denitel) stated 8 Pri'ar) purpose 'ust #e stated 8 0econdar) purposes 'ust #e co'pati#le with the pri'ar) purpose and with one another
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PROCE&,RE $OR A'EN&'ENT O$ AOI 1. resolution #) at least a 'a9orit) vote of the 6oard; and 2. vote in a 'eeting or 'ere assent of 2> of the =C0, or in case of non8stoc&, #) the 'e'#ers su#9ect to the appraisal right of dissenting stoc&holders Appraisal Right right of a stoc&holder to de'and the fair value of his share after dissenting fro' a proposed corporate action involving a funda'ental change in the corporation in the cases provided #) law; 0ec @18@* Corporations #o5erned 2) Spe(ial La3 #an&s, #an&ing A Fuasi8#an&ing institutions, #uilding A loan associations, trust •
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co'panies A other nancial inter'ediaries, insurance co'panies, pu#lic utilities, educational institutions3 /=4 or a'end'ent thereto 'ust #e acco'panied #) a favora#le reco''endation of the appropriate govern'ent agenc), to the e&ISAPPROVAL O$ AOI or A'EN&'ENT Se( :M0 1. 7o su#stantial co'pliance with the reFuired for' 2. Purpose>s are patentl) unconstitutional, illegal, i''oral, or contrar) to govern'ent rules and regulations . TreasurerLs a$davit is false %. Citizenship reFuire'ent has not #een co'plied with Qe)word: 7KT8C W%AT CANNOT BE A'EN&E& IN T%E AOI8 8 Those 'atters referring to facts e"isting as of the date of the incorporation, such as: 1. 7a'e of incorporators; 2. 7a'es of original su#scri#ers to the capital stoc& of the corporation and their su#scri#ed and paid up capital; . Treasurer elected #) the original su#scri#ers; %. 5e'#ers who contri#uted to the initial capital of a non8stoc& corporation; (. Date and place of e"ecution of the /=4; *. itnesses to and ac&nowledg'ent of the articles. ARTICLES O$ INCORPORATION /rticles of 4ncorporation ssentiall) a contract #etween the corporation and the stoc&holders>'e'#ers; #etween the stoc&holders>'e'#ers inter se; and #etween the corporation and the 0tate 'ust #e notarized3 "ecuted #efore incorporation
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aw Private Corporations
5s. B-"LAWS8 6)8aws ule for the internal govern'ent of the corporation #ut has the force of a contract #etween the corporation and the stoc&holders>'e'#ers and #etween the stoc&holder and 'e'#ers the'selves Ksuall) e"ecuted after the incorporation although 0ec. %* allows si'ultaneous ling of the two / condition su#seFuent
acFuisition of corporate e"istence /'ended #) a 'a9orit) of the directors>trustees and stoc&holders representing 2> of the outstanding capital stoc& or 2> of the 'e'#ers in case of non8stoc& corporations Power to a'end>repeal articles cannot #e delegated #) the stoc&holders>'e'#ers to the 6=D>6=T
5a) #e a'ended #) a 'a9orit) vote of the 6=D and 'a9orit) vote of =C0 or a 'a9orit) of the 'e'#ers in non8stoc& corporations Power to a'end>repeal #)8laws or adopt new #)8laws 'a) #e delegated #) the 2> of the =C0 or 2> of the 'e'#ers in case of non8stoc& corporation
NON",SE O$ CORPORATE C%ARTER H CONTIN,O,S INOPERATION Se( //0 1. Non"+ser for / )ears when the corporation does not for'all) organize and co''ence the transaction of its #usiness or the construction of its wor&s within two 23 )ears fro' the date of its incorporation, its corporate powers cease and the corporation shall #e dee'ed dissolved auto'atic3. 2. Non"+ser for )ears when the corporation has co''enced the transaction of its #usiness #ut su#seFuentl) #eco'es continuousl) inoperative for a period of at least ve )ears, the sa'e shall #e a ground for the suspension or revocation of its corporate franchise or certicate of incorporation; not auto'atic, reFuires notice and hearing. TITLE III – BOAR& O$ &IRECTORS>TR,STEES>O$$ICERS BOAR& O$ &IRECTORS H TR,STEES Se( /<0 ,ALI$ICATIONS8 1. !or a stoc& corporation, ownership of at least one share of the capital stoc& of the corporation in his own na'e, and if he ceases to own at least one share in his own na'e, he auto'aticall) ceases to #e a director. !or a non8stoc& corporation, onl) 'e'#ers of the corporation can #e elected to the 6=T.
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hat is 'aterial is the legal title to4 not 2ene1(ial o3nership of the stoc&s appearing on the #oo&s of the corporation. / person who does not own a stoc& at the ti'e of his election or appoint'ent does not disFualif) hi' as a director if he #eco'es a shareholder #efore assu'ing the duties of his o$ce. / 'a9orit) of the directors>trustees 'ust #e residents of the Philippines. 5ust not have #een convicted #) nal 9udg'ent of an otrustees. =ther Fualications as 'a) #e prescri#ed in the #)8laws of the corporation or in special laws or regulations.
TER' O$ O$$ICE 8 ?old o$ce for one 13 )ear until their successors are elected and Fualied %oldo5er Prin(iple 4f no election is conducted or no Fualied candidate is elected, the directors or trustees shall continue to act as such in a hold8over capacit) until an election is held and a Fualied candidate is so elected. •
#ENERAL R,LE Knless otherwise provided in the Code, all corporate powers and prerogatives are vested directl) in the 6oard of Directors or Trustees. E6(eptions8 1. 4n case of an "ecutive Co''ittee authorized in the #)8 laws; 2. Contracted 'anager which 'a) #e an individual, a partnership or another corporation 7ote 0ec. %% if contracted 'anager is another corporation3; . Close corporations stoc&holders 'a) directl) 'anage the #usiness of the corporation instead, if the /=4 so provide.
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Prin(iple on delegation of 2oard po3er the 6oard 'a) validl) delegate so'e of its functions and powers to o$cers, co''ittees or agents
N.B. The power to purchase real propert) is vested in the #oard. hile a corporation 'a) appoint agents to negotiate for the purchase of real propert) needed #) the corporation, the nal sa) will have to #e with the #oard, whose approval will nalize the transaction. / corporation can onl) e"ercise its powers and transact its #usiness through its #oard of directors and through its o$cers and agents when authorized #) a #oard resolution or #) its #)8laws. 0ps. !ir'e vs. 6u&al nterprises, I7 1%**E@, =ct. 2, 2EE3 ELECTION O$ &IRECTORS OR TR,STEES Se( /=0 STOCD CORPORATION NON"STOCD Presence during election =wners of a 'a9orit) of the 5a9orit) of the 'e'#ers =C0, in person or #) pro"), entitled to vote in person or #) 'ust #e present at the election pro"), if allowed in its /=4 or of the directors. #)8laws, 'ust #e present. 5anner of voting Cu'ulative voting is Cu'ulative voting is generall) 'andator); a 'atter of right not availa#le unless allowed #) granted #) law to each 0? with the /=4 or #)8laws, since each voting rights 'e'#er is entitled onl) to one vote 'ET%O&S O$ VOTIN# /. Straight Voting ever) 0? 'a) vote such nu'#er of shares for as 'an) persons as there are directors to #e elected. To illustrate: 4f / owns 1E shares of stoc& in a corporation and there are ( directors to #e elected, he is entitled to (E votes which he 'a) give to the ( candidates he chose #) giving 1E votes each. The votes are distri#uted eFuall) a'ong the ( candidates of his choice without preference. 6. C+*+lati5e Voting for one (andidate a 0? is allowed to concentrate his votes and give one candidate as 'an) •
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votes as the nu'#er of directors to #e elected 'ultiplied #) the nu'#er of his shares shall eFual. To illustrate: 4n the a#ove e"a'ple, / 'a) cast all the (E votes in favor of an) one candidate. 0uppose there are (E shares and %E of these shares are owned #) / while the re'aining 1E shares are owned #) 6, C, D and . if there are ( directors to #e elected, / is entitled to 2EE votes. The highest nu'#er of votes that / can give each of his % candidates is (E. 0o, there is one re'aining slot to co'plete the ( directors. 6, C, D and can now cu'ulate their votes in favor of one candidate and thus secure representation in the #oard. C. C+*+lati5e Voting 2) distri2+tion a 0? 'a) cu'ulate his shares #) 'ultipl)ing also the nu'#er of his shares #) the nu'#er of directors to #e elected and distri#ute the sa'e a'ong as 'an) candidates as he shall see t. To illustrate: 4f / owns 1E shares, he is entitled to (E votes if there are ( directors to #e elected. / 'a) distri#ute his votes to candidates , ! and I #) giving , 2E votes, !, 1( and I, 1(. /n) co'#ination 'a) #e adopted as long as the total nu'#er of votes cast #) hi' does not e"ceed (E votes which is the nu'#er of shares owned #) hi' 'ultiplied #) the nu'#er of directors to #e elected. 7ote8 $or*+la for deter*ining the 5otes needed in (+*+lati5e 5oting8 D R S/ " 6 > SC M 1 M 1 RD"C / Total nu'#er of outstanding shares entitled to vote 6 7u'#er of directors desired to #e elected C Total nu'#er of directors to #e elected D 7u'#er of shares necessar) to elect desired nu'#er of directors 7u'#er of votes reFuired to elect desired nu'#er of directors 5e'#ers of non8stoc& corporations 'a) cast as 'an) votes as there are trustees to #e elected #ut 'a) not cast 'ore than one vote for one candidate, unless otherwise provided in the /=4. Li*itations8 :. /t an) 'eeting of 0?>'e'#ers called for the election of D>T, there 'ust #e present either in person or #) pro"),
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the owners of the 'a9orit) of the =C0 or 'a9orit) of the 'e'#ers entitled to vote. lection 'ust #e #) #allot if reFuested #) an) voting 'e'#er>0?. / 0? cannot #e deprived in the /=4>#)8laws of his statutor) right to use an) of the 'ethods of voting in the election of directors. 7o delinFuent stoc& unpaid su#scription3 shall #e voted. The candidates receiving the highest nu'#er of votes shall #e declared elected. / 'a9orit) vote is not necessar), onl) pluralit). %o3e5er4 it is ne(essar) that there is a +or+* and in t he a2sen(e thereof4 ele(tion shall 2e (onsidered in5alid.
CORPORATE O$$ICERS ,OR,' Se( /0 +or+* such nu'#er of the 'e'#ership of a collective #od) as is co'petent to transact its #usiness or do an) other corporate act 1. /s stipulated in the /=4>#)8laws greater 'a9orit)3; or 2. 5a9orit) of the nu'#er of directors or trustees U plus 1 ver) decision of at least a 'a9orit) of the directors or trustees present at a 'eeting at which there is a Fuoru' shall #e valid as a corporate act, e"cept: election of o$cers which shall reFuire the vote of a 'a9orit) of all the 'e'#ers of the #oard. Directors or trustees cannot attend or vote #) pro") at #oard 'eetings. •
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CORPORATE O$$ICERS 1. President 'ust #e a director and 'a) not concurrentl) #e the treasurer or secretar) 2. ice8President has the authorit) to act or to perfor' an) dut) of the o$ce in the a#sence of the president or if the position of president #eco'es vacant . Treasurer 'a) or 'a) not #e a director %. 0ecretar) need not #e a director unless reFuired #) the #)8 laws; 'ust #e a resident and citizen of the Philippines (. =ther o$cers as 'a) #e provided in the #)8laws
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N.B. An) t3o /0 or *ore positions *a) 2e held (on(+rrentl) 2) the sa*e person4 e6(ept that no one shall a(t as8 a.0 President and Se(retar)4 or 2.0 President and Treas+rer at the sa*e ti*e. /uthorit) of o$cers is generall) derived fro' law; #)8laws; or authorization fro' the #oard, either e"pressl) or i'pliedl) #) ha#it, custo' or acFuiescence in the general course of #usiness. •
Re+isites8 1. ith or without cause, #) a vote of 2> of =C0 or #) 2> of the 'e'#ers in a non8stoc& corporation "ception: when a director has #een elected #) virtue of the 'inorit)Ls e"ercise of cu'ulative voting rights, such director 'a) #e re'oved onl) for cause. 0ec. 2@3 2. Ta&es place either at a regular>special 'eeting called for the purpose . ith previous notice of the ti'e and place of such 'eeting, as well as of the intention to propose such re'oval 5a) #e called at the instance of an) 0? or 'e'#er: a.3 4f o$cers refuse to call a 'eeting to consider the re'oval of the director #.3 ith due notice VACANCIES IN T%E O$$ICE O$ &IRECTOR OR TR,STEE / vacanc) in the o$ce of director or trustee 'a) #e lled as follows: :. B) the Sto(@holders or 'e*2ers8 a.3 4f the vacanc) results fro' the re'oval #) the 0?s>'e'#ers; #.3 "piration of ter'; c.3 4f the vacanc) occurs other than #) re'oval or #) e"piration of ter' such as death, a#andon'ent, resignation or disFualication, if the re'aining directors>trustees do not constitute a Fuoru' for the purpose of lling the vacanc); d.3 4f the vacanc) 'a) #e lled #) the re'aining directors>trustees #ut the #oard refers the 'atter to the 0?s>'e'#ers; e.3 4f the vacanc) is created #) reason of an increase in the nu'#er of directors or trustees. 2. B) the *e*2ers of the Board if still with Fuoru'3 at least a 'a9orit) of the' are e'powered to ll an) vacanc) occurring in the #oard =T? than #): a.3 e'oval #) the 0?s>'e'#ers; or #.3 "piration of ter'. •
&o(trine of Apparent A+thorit) 4f a corporation &nowingl) per'its one of its o$cers, or an) other agent, to act within the scope of an apparent authorit), it holds hi' out to the pu#lic as possessing the power to do those acts; and thus, the corporation will, as against an)one who has in good faith dealt with it through such agent, #e stopped fro' den)ing the agentLs authorit). CLASSI$ICATION O$ POWERS OR A,T%ORIT-8 1. Inherent authorit) to act and #ind the corporation which the o$cer has #) reason of his o$ce although it 'a) not #e sanctioned #) e"press authorit) 2. E6press ever) power or authorit) e"pressl) conferred upon hi' #) law and the #)8laws of the corporation . I*plied includes all incidental authorit) as is necessar), usual and proper to eTR,STEES VACANCIES Se( /!4 /0
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CO'PENSATION O$ BOAR& 'E'BERS Se( <0 #.R.8 Directors are not entitled to receive an) co'pensation e"cept for reasona#le per die's. E6(eptions8
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1. hen their co'pensation is "ed in the #)8laws; 2. hen granted #) the vote of stoc&holders representing at least a 'a9orit) of the =C0 at a regular or special 'eeting Li*itation8 the a'ount of co'pensation shall not e"ceed 1EO of the net inco'e #efore inco'e ta" of the corporation during the preceding )ear. LIABILIT- O$ &IRECTORS>TR,STEES H O$$ICERS Se( <:0 Three"fold d+ties of &ire(tors8 1. &+t) of O2edien(e to direct the a
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Nat+re of Po3ers of Board of &ire(tors or Tr+stees 1. Theor) of original power powers of the #oard are original and undelegated. The 0?s or 'e'#ers do not confer, nor can the) revo&e those powers. 2. The) are derivative onl) in the sense of #eing received fro' the 0tate in the act of incorporation. •
aw Private Corporations
B,SINESS ,&#'ENT R,LE 8 The #oard is the #usiness 'anager of the corporation, and so long as it acts in good faith, its orders are not reviewa#le #) the courts. 5onteli#ano vs. 6acolod85urcia 5illing, I7 1(EB2, 5a) 1@, 1B*23 8 Courts cannot underta&e to control the discretion of the #oard of directors a#out ad'inistrative 'atters as to which the) have the legiti'ate power of action, and contracts intra vires entered into #) the #oard of directors are #inding upon the corporation and courts will not interfere unless such contracts are so unconsciona#le and oppressive as to a'ount to a wanton destruction of the rights of the 'inorit). Ia'#oa vs. ictoriano, I7 %E*2E, 5a) (, 1B+B3 •
Conse+en(es8 a.3 esolution, contracts and transactions of the 6oard cannot #e overturned or set aside #) the 0? or 'e'#ers and not even #) the courts under the principle that the #usiness of the corporation has #een left to the hands of the 6oard; and #.3 Directors and dul) authorized o$cers cannot #e held personall) lia#le for acts or contracts done with the e"ercise of their #usiness 9udg'ent. E6(eptions8 1.3 hen the Corporation Code e"pressl) provides otherwise; 2.3 hen the Directors or o$cers acted with fraud, gross negligence or in #ad faith; .3 hen Director or o$cers act against the corporation in con-ict8of8interest situation.
LI'ITATIONS ON POWERS O$ BO&>T 1. i'itations i'posed #) the Constitution, statutes, /=4 or #)8 laws 2. Cannot perfor' constituent or those acts which involve funda'ental changes in the corporation which reFuire the approval of its 0?s>'e'#ers. . Cannot e"ercise powers not possessed #) the corporation. PERSONAL LIABILIT- O$ &IRECTORS
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#.R. Directors and o$cers are not solidaril) lia#le with the corporation. E6(eptions8 4n the following cases, personal lia#ilit) 'a) #e incurred #) directors and trustees or the o$cers in so'e cases, when the): 1. illfull) and &nowingl) vote for and assent to patentl) unlawful acts of the corporation 0ec 13; 2. /re guilt) of gross negligence or #ad faith in directing the a
a.3 The presence of such D>T in the #oard 'eeting approving the contract was not necessar) to constitute a Fuoru' for such 'eeting; #.3 The vote of such D>T in the #oard 'eeting approving the contract was not necessar) for the approval of the contract; c.3 The contract is fair and reasona#le under the circu'stances; d.3 4n the case of an o$cer, there was previous authorization #) the 6=D. If (onditions a or 2 is a2sent, said contract 'a) #e rati1ed #) the vote of the 0?s representing at least 2> of the =C0 or 2> of the 'e'#ers in a 'eeting called for the purpose, provided that full disclosure of the adverse interest of the director>trustee involved is 'ade at such 'eeting and the contract is fair and reasona#le. •
CONTRACTS BET. CORPORATIONS WIT% INTERLOCDIN# &IRECTORS Se( <<0 Corporation with 4nterloc&ing Directors one, so'e or all of the directors in one corporation is>are also a director in another corporation. 4nterloc&ing directorship #) itself is not prohi#ited under the Corporation Code. ?owever, the #)8laws 'a) contain provisions that disallow the sa'e. / contract #etween two or 'ore corporations having interloc&ing directors shall not #e invalidated on that ground alone. These contracts are valid provided that: 1.3 The contract is not fraudulent; and 2.3 The contract is fair and reasona#le under the circu'stances. 6ut if the interloc&ing directorLs interest in one corporation or corporations is su#stantial e"ceeding 2EO of the =C03, then all the conditions prescri#ed in 0ec. 2 on self8dealing directors 'ust #e present with respect to the corporation in which he has no'inal interest. •
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RE'E&IES IN CASE O$ 'IS'ANA#E'ENT The re'edies of the stoc&holders in the event of 'is'anage'ent or a#use of powers are the following: a.3 eceivership; #.3 4n9unction if the act has not )et #een done; c.3 Dissolution if a#use a'ounts to a ground for Fuo warranto #ut 0olicitor Ieneral refuses to act; d.3 Derivative suit or co'plaint led with 0C
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CONTRACTS O$ SEL$"&EALIN# &IRECTORS4 TR,STEES OR O$$ICERS Se( T>O those who personall) contract with the corporation in which the) are directors, trustees or o$cers 8 0uch contracts are =4D/6 at the option of the corporation K700: •
aw Private Corporations
&ISLO-ALT- O$ A &IRECTOR Se( <=0 &o(trine of Corporate Opport+nit) / director who, #) virtue of his o$ce, acFuires for hi'self a #usiness opportunit) which should #elong to the corporation, there#) •
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o#taining prots to the pre9udice of such corporation, is guilt) of dislo)alt) and should therefore account to the latter for all such prots #) refunding the sa'e. Appli(ation8 Knless his act is ratied, a director shall refund to the corporation all the prots he realizes on a #usiness opportunit) which: 1.3 The corporation is nanciall) a#le to underta&e; 2.3 !ro' its nature, is in line with corporationLs #usiness and is of practical advantage to it; and .3 The corporation has an interest or a reasona#le e"pectanc). Note8 The rule shall appl) notwithstanding the fact that the director ris&ed his own funds in the venture. / #usiness opportunit) ceases to #e corporate opportunit) and transfor's to personal opportunit) where the corporation refuses or is denitel) no longer a#le to avail itself of the opportunit). •
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EKEC,TIVE CO''ITTEE Se( <0 8 / #od) created #) the #)8laws and co'posed of not less than 'e'#ers of the #oard which, su#9ect to the statutor) li'itations, has all the authorit) of the #oard to the e"tent provided in the #oard resolution or #)8laws. 8 5a) act #) a 'a9orit) vote of all of its 'e'#ers. 8 4ts decisions are not su#9ect to appeal to the #oard. ?owever, if the resolution of the "eCo' is invalid, i.e., not one of the powers conferred to it, it 'a) #e ratied #) the #oard. 8 4f the "eCo' is not validl) constituted, the 'e'#ers thereof 'a) #e considered as de facto o$cers. Li*itations of the po3ers of the E6eCo* 8 4t cannot act on the following: 1. 5atters needing stoc&holder approval; 2. !illing up of #oard vacancies; . /'end'ent, repeal or adoption of #)8laws; %. /'end'ent or repeal of an) resolution of the #oard which #) its e"press ter's is not a'enda#le or repeala#le; and (. Cash dividend declaration Code of Corporate #o5ernan(e Appli(a2ilit)8
aw Private Corporations
The Code of Corporate Iovernance shall #e applica#le to: 1. Corporations whose securities are registered or listed; 2. Corporations which are grantees of per'its>licenses and secondar) franchise fro' the Co''ission; and . Pu#lic co'panies. P+2li( Co*pan) an) corporation with a class of eFuit) securities listed on an e"change or with assets in e"cess of (E 'illion pesos and having 2EE or 'ore holders, at least 2EE of which are holding at least 1EE shares of a class of its eFuit) securities. Corporate #o5ernan(e a s)ste' where#) shareholders, creditors and other sta&eholders of a corporation ensure that 'anage'ent enhances the value of the corporation as it co'petes in an increasingl) glo#al 'ar&et place. 5andator) corporate governance rules are necessar) for 2 reasons: 1.3 To overco'e the collective action pro#le' resulting fro' the dispersion a'ong stoc&holders; and 2.3 To ensure that the interests of all relevant constituencies are represented. •
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APPRAISAL RI#%T Title K4 Se(s. !:"!0 8 efers to the right of stoc&holders to de'and the fair value of his shares after dissenting fro' a proposed corporate action involving a funda'ental change in the corporation in cases provided #) law A. When Right of Appraisal *a) 2e e6er(ised8 1.3 "tend or shorten corporate ter' 0ec. 113; 2.3 estriction of rights or privileges of shares through a'end'ent of the /=4 0ec. 1*3; .3 0ale of all or su#stantiall) all corporate assets 0ec. %E3;
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%.3 Fuit) invest'ent in non8pri'ar) purpose #usiness 0ec. %23; (.3 5erger or consolidation 0ec. ++3; /ll the a#ove reFuire the 2> votes of the =C0. The appraisal right refers onl) to stoc&holders who have actuall) dissented fro' the a#ove transactions. B. Pro(ed+re for the E6er(ise of the Right8 1.3 ritten de'and 'ust #e su#'itted #) the dissenting stoc&holder on the corporation for the pa)'ent of the fair value of the shares within E da)s fro' the date the vote was ta&en. !ailure to do so shall 'ean waiver of the right.3 E?e(t8 The dissenting stoc&holder loses all rights as a stoc&holder including dividend rights; onl) one right re'ains and that is the right to receive pa)'ent of the fair value of his shares. 2.3 ithin 1E da)s fro' de'and, the dissenting stoc&holder 'ust su#'it his certicates of stoc&s for notation that such certicates represent dissenting shares. !ailure to do so shall 'ean waiver of the right.3 N.B. 4f such shares are su#seFuentl) disposed of and new certicates are issued to the transferee, the right of appraisal is auto'aticall) e"tinguished, the transferee #eco'es a regular stoc&holder of the corporation. a.3 *E da)s fro' the approval of the corporate action, the corporation and the dissenting stoc&holders shall agree as to the fair value of the dissenting shares. 4f no agree'ent is reached after the *E8da) period, it shall #e deter'ined and appraised #) disinterested persons: one appointed #) the 0?; another appointed #) the corporation; and the third person to #e chosen #) the two thus appointed. .3 !indings of the 'a9orit) of the appraisers shall #e nal and the award shall #e pa)a#le within E da)s after it is 'ade. %.3 The dissenting stoc&holder can onl) #e paid if there are unrestricted retained earnings. •
aw Private Corporations
Nota Bene8 4f the dissenting stoc&holder is not paid within E da)s fro' after the award, he shall auto'aticall) #e restored to all his rights as stoc&holder. C. O+tline of Instan(es 3hen Right of Appraisal is Lost8 1.3 !ailure to 'a&e written de'and within E da)s after the vote was ta&en on the corporate act; 2.3 !ailure to surrender the certicate of stoc& within 1E da)s fro' de'and for notation; .3 7on8e"istence of unrestricted prots to cover pa)'ent of the fair value of dissenting shares within E da)s fro' date of award; %.3 0u#seFuent transfer of the shares which have #een annotated when new certicates of stoc& are issued; (.3 hen the corporation consents a de'anding stoc&holder to withdraw the e"ercise of appraisal right; *.3 /#andon'ent of corporate action; +.3 Disapproval of action #) 0C. &. Who shall 2ear the Cost of Appraisal :.0 Corporation a.3 where the value as deter'ined #) the appraisers is higher than what was o
TITLE IV – POWERS O$ CORPORATIONS CORPORATE POWERS AN& CAPACIT- Se( <0 Dinds8 1. "press those e"pressl) authorized #) the Corporation Code and other laws, and its /=4 2. 4ncidental those that are incidental to the e"istence of the corporation
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. 4'plied those that can #e inferred fro' or necessar) for the e"ercise of the e"press powers. Classication of 4'plied Powers: a.3 /cts in the usual course of #usiness; #.3 /cts to protect de#ts owing to the corporation; c.3 /cts which involve e'#ar&ing in a di
#ENERAL POWERS H CAPACIT- 2 0ources of "press Powers: a.3 Those enu'erated in 0ec. *, generall); #.3 Purpose clause of the /=4, specicall) •
*. 4nvest corporate funds in another corporation or #usiness or for an) other purpose other than the pri'ar) purpose 0ec %23; +. Power to declare dividends out of unrestricted retained earnings 0ec %3; @. Power to enter into 'anage'ent contract 0ec %%3. ,LTRA VIRES acts perfor'ed #) a corporation in e"cess of its corporate powers and which are generall) not #inding on the corporation. /n ultra vires act is 'erel) voida#le which 'a) #e enforced #) perfor'ance, ratication, or estoppel, while an illegal act is void and cannot #e validated. Re+isites for 5alid rati1(ation of an +ltra 5ires a(t8 1.3 /ct or contract 'ust #e consu''ated, not 'erel) e"ecutor); 2.3 Creditors are not pre9udiced, or all of the' have given their consent; .3 ights of the pu#lic or the 0tate are not involved; and %.3 /ll the stoc&holders 'ust give their consent. R+les on the e?e(ts of +ltra 5ires a(ts8 1.3 / wholl) e"ecutor ultra vires contract or act cannot #e enforced nor can da'ages #e recovered for its #reach; 2.3 / wholl) e"ecuted ultra vires contract or act shall not #e interfered with as #etween the parties or persons whose rights are derived therefro'; #ut the 0tate can alwa)s Fuestion said contract or act; .3 hen an ultra vires act is e"ecuted on one side #ut e"ecutor contract on the other side who received #enets therefro', recover) can #e had #) the for'er; and %.3 The title of the corporation to propert) cannot #e Fuestioned on the ground that it acFuired the propert) through an ultra vires contract of transfer. •
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1. To sue and #e sued; 2. 0uccession #) its corporate na'e for the ter' of its e"istence; . /dopt and use a corporate seal; %. /'end its /=4; (. /dopt #)8laws not contrar) to law, 'orals or pu#lic polic) and to a'end or repeal the sa'e; *. 4ssue or sell stoc&s stoc& corporations3 or to ad'it 'e'#ers non8stoc& corporations3; +. Purchase, receive, ta&e or grant, hold, conve), sell, lease, pledge, 'ortgage and otherwise deal with all t)pes of properties; @. nter into 'erger or consolidation; B. 5a&e reasona#le donations; 1E. sta#lish pension, retire'ent and other plans for the #enet of its directors, trustees, o$cers and e'plo)ees; and 11. 0uch other powers as 'a) #e essential or necessar) to carr) out its purpose>s as stated in the /=4. OT%ER POWERS8 1. "tension or shortening of corporate ter' 0ec +3; 2. Power to increase or decrease capital stoc&>Power to incur, create or increase #onded inde#tedness 0ec @3; . Power to den) pre8e'ptive right 0ec B3; %. 0ell, dispose, lease, encu'#er all or su#stantiall) all or corporate assets 0ec %E3; (. Power to acFuire own shares 0ec %13;
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POWER TO EKTEN& OR S%ORTEN CORPORATE TER' Se( T;
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#.3 ritten notice of the proposed action and the ti'e and place of 'eeting shall #e served to each stoc&holder or 'e'#er either #) 'ail or personal service; c.3 atication in a 'eeting #) 2> of the =C0 or 2> of the 'e'#ers, as the case 'a) #e. This actuall) reFuires the a'end'ent of the /=4; 'eeting 'ust #e dul) called for the purpose; dissenting stoc&holders 'a) e"ercise appraisal right. The e"tension of corporate life cannot #e 'ade within the 8 )ear liFuidation period, #ecause that would constitute new #usiness. •
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POWER TO INCREASE OR &ECREASE CAPITAL STOCD INC,R4 CREATE OR INCREASE BON&E& IN&EBTE&NESS Se( T; #.3 2> vote of the =C0 or the 'e'#ers, as the case 'a) #e, in a 'eeting dul) called for the purpose with notice previousl) given; c.3 Certicate of said corporate act shall #e signed #) 'a9orit) of the 'e'#ers of the 6oard and the Chair'an and 0ecretar) of the stoc&holderLs 'eeting; Corporate act shall ta&e e
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POWER TO &EN- PRE"E'PTIVE RI#%T Se( <0 Pre"e*pti5e Right the shareholderLs right to su#scri#e to all issues or disposition of shares of an) class in proportion to his present stoc&holdings, the purpose #eing to ena#le the shareholder to retain his proportionate control in the corporation and to retain his eFuit) in the surplus. Pre8e'ptive right not availa#le in the following: 1.3 0hares to #e issued to co'pl) with laws reFuiring stoc& o
&ISPOSITION O$ ALL OR S,BSTANTIALL- ALL CORPORATE ASSETS Re+ire*ents8 a.3 5a9orit) vote of the 'e'#ers of the 6oard; #.3 2> votes of the =C0 or 'e'#ers, as the case 'a) #e, in a 'eeting called for the purpose. Dissenting stoc&holder 'a) e"ercise their right of appraisal. Despite approval #) the stoc&holders or 'e'#ers, it is not 'andator) for the 6oard to continue with the disposition. Note Well8 a.3 Gsu#stantiall) all the corporate propert) and assetsH if there#) the corporation would #e rendered incapa#le of continuing the #usiness or acco'plishing the purpose for which it was incorporated. #.3 Disposition of properties in the regular course of the #usiness does not need approval #) or authorit) of stoc&holders or 'e'#ers. • •
POWER TO AC,IRE OWN S%ARES Se(. =:0 8 !or legiti'ate #usiness purposes and su#9ect to the condition that there #e unrestricted retained earnings to cover the shares purchased or acFuired. 4nstances when corporation 'a) #u) its own stoc&s: 1.3 To co'plete fractional shares; 2.3 To collect inde#tedness or in case of delinFuenc) sales; and •
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.3 The e"ercise of right of appraisal. TR,ST $,N& &OCTRINE: The capital stoc&, propert) and other assets of the corporation are regarded as eFuit) in trust for the pa)'ent of the corporate creditors. 6asis of Trust !und Doctrine a.3 0ec. % the corporation can declare dividends onl) out of unrestricted retained earnings. #.3 0ec. 122 no corporation shall distri#ute an) of its assets or propert) e"cept upon lawful dissolution and after pa)'ent of all its de#ts and lia#ilities.
POWER TO INVEST $,N&S IN ANOT%ER CORPORATION OR B,SINESS $OR NON"PRI'AR- P,RPOSE Se(. =/0 Re+ire*ents8 a.3 5a9orit) vote of the 6=D>T; #.3 atication #) 2> of =C0 or 2> of the 'e'#ers, as the case 'a) #e. ight of appraisal 'a) #e e"ercised #) dissenting stoc&holders. Note8 here the invest'ent is reasona#l) necessar) to acco'plish the pri'ar) purpose, a #oard resolution is su$cient. •
POWER TO &ECLARE &IVI&EN&S Se(. =<0 #R8 0toc& corporations are prohi#ited fro' retaining surplus prots in e"cess of 1EEO of their paid8in capital stoc&. E6(eptions8 1.3 hen 9ustied #) denite corporate e"pansion pro9ects or progra's approved #) the #oard; 2.3 hen the corporation is prohi#ited under an) loan agree'ent with an) nancial institution or creditor, whether local or foreign, fro' declaring dividends without its consent and such consent has not )et #een secured; or .3 hen it can #e clearl) shown that such retention is necessar) under special circu'stances o#taining in the corporation, such as when there is a need for special reserve for pro#a#le contingencies. $or* of &i5idends8 a.3 Cash Dividend can #e declared #) the #oard onl) #.3 Propert) Dividend 'a) #e pa)a#le in #onds or in stoc& of another corporation
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c.3 0toc& Dividend declared #) the #oard #ut reFuires the approval of 2> of the =C0 at a regular or special 'eeting dul) called for such purpose; cannot #e issued to non8 stoc&holders even for services rendered POWER TO ENTER INTO 'ANA#E'ENT CONTRACT Se( ==0 Re+ire*ents8 a.3 esolution of the #oard; and #.3 5a9orit) vote of the =C0 or 'e'#ers, as the case 'a) #e, in a 'eeting called for the purpose. &ERIVATIVE S,IT 8 /n action #rought a#out #) 'inorit) shareholders in the na'e of the corporation to redress wrongs co''itted against the corporation, for which the directors refuse to sue 8 / re'ed) designed #) eFuit) and has #een the principal defense of the 'inorit) shareholders against the a#uses of the 'a9orit). Re+isites for 1ling8 a.3 Part) #ringing suit should #e a shareholder as of the ti'e of the act or transaction co'plained of; #.3 ?e has e"tinguished intra8corporate re'edies, i.e., has 'ade a de'and on the #oard of directors for the appropriate relief #ut the latter has failed or refused to heed his plea; and c.3 Cause of action actuall) devolves on the corporation, the wrongdoing or har' having #een caused to the corporation and not to the particular stoc&holder #ringing the suit.
TITLE V B-"LAWS B-"LAWS rules of action adopted #) a corporation for its internal govern'ent and for the regulation of conduct, and prescri#e the rights and duties of its stoc&holders or 'e'#ers towards itself and a'ong the'selves in reference to the 'anage'ent of its a
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. Continuing rule for the govern'ent of the corporation and the individuals co'posing it; %. Dene the rights and duties of corporate o$cers and directors>trustees and of stoc&holders>'e'#ers towards the corporation and a'ong the'selves; (. 0ource of authorit) for corporate o$cers and agents of the corporation. RE,ISITES $OR T%E VALI&IT- O$ T%E B-"LAWS8 1. 5ust not #e contrar) to law nor with the Corporation Code; 2. 5ust not #e contrar) to 'orals and pu#lic polic); . 5ust not i'pair the o#ligations of contracts /'end'ents to the #)8laws cannot i'pair the o#ligation of e"isting contracts or an) vested right, e.g., the right of an e'plo)ee to securit) of tenure cannot #e adversel) a
A&OPTION O$ B-"LAWS – RE,IRE& VOTES8 /. 4f adopted prior to incorporation 'ust #e signed and approved #) all the incorporators and led with the 0C together with the /=4. 6. 4f adopted and led after incorporation a$r'ative vote of the 0?s representing at least a 'a9orit) of the =C0 or 'a9orit) of the 'e'#ers non8stoc&3 shall #e necessar); it shall #e signed #) the 0?s>'e'#ers voting for the'. / cop) thereof dul) certied #) a 'a9orit) of the D>T and countersigned #) the secretar) of the corporation shall #e led with the 0C which shall #e attached to the original /=4
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CONTENTS O$ B-"LAWS Se(. =M0 1. Ti'e, place and 'anner of calling and conducting regular or special 'eetings of the directors>trustees; 2. Ti'e and 'anner of calling and conducting regular or special 'eetings of the stoc&holders>'e'#ers; . eFuired Fuoru' in 'eetings of stoc&holders or 'e'#ers and the 'anner of voting therein; %. !or' of pro"ies of stoc&holders and 'e'#ers and the 'anner of voting the'; (. Vualications, duties and co'pensation of directors, trustees, o$cers and e'plo)ees; *. Ti'e for holding the annual election of directors or trustees and the 'ode or 'anner of giving notice; +. 5anner of election of appoint'ent and the ter' of o$ce of all o$cers other than directors or trustees; @. Penalties for violation of the #)8laws; B. 4n case of stoc& corporations, the 'anner of issuing certicates; and 1E. 0uch other 'atters as 'a) #e necessar) for the proper or convenient transaction of its corporate #usiness. A'EN&'ENT>REPEAL>A&OPTION O$ NEW B-"LAWS Se(. =!0 a.3 ith 0?s>5e'#ers approval: 1.3 5a9orit) vote of the 'e'#ers of the 6oard; 2.3 5a9orit) of the =C0>'e'#ers in a 'eeting dul) called for the purpose #.3 6) the 6oard of Directors>Trustees: 2> of the =C0>'e'#ers 'a) delegate to the #oard the power to a'end>repeal>adopt new #)8laws 0uch power of the #oard 'a) #e revo&ed #) 'a9orit) vote of the =C0>'e'#ers. The power to adopt the rst original #)8laws cannot #e delegated to the 6=D>T; onl) the power to adopt new #)8 laws that will supplant the old #)8laws can #e validl) delegated. •
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AOI 5s. B-"LAWS8
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B-"LAWS 7ature Condition precedent in the Condition su#seFuent acFuisition of corporate a#sence 'erel) furnishes a e"istence ground for the revocation of the franchise3 Purpose ssentiall) a contract !or the internal govern'ent #etween the corporation and of the corporation #ut has the 0?s>'e'#ers; #etween the force of a contract the 0?s>'e'#ers inter se; #etween the corporation and and #etween the corporation the 0?s>'e'#ers, and and the 0tate #etween the 0?s>'e'#ers Ti'e of e"ecution "ecuted #efore 5a) #e e"ecuted after incorporation incorporation 'a) #e led si'ultaneousl) with the /=43 /'end'ent /'end'ent #) a 'a9orit) of 5a) #e a'ended #) a the D>T and 2> of the 'a9orit) vote of the 6=D and =C0>'e'#ers 'a9orit) of the =C0>'e'#ers
TITLE VI – 'EETIN#S DIN&S O$ CORPORATE 'EETIN#S 1. 5eetings of stoc&holders or 'e'#ers: a.3 egular held annuall) on a date "ed in the #)8laws, or if not "ed, on an) date in /pril as deter'ined #) the #oard #.3 0pecial held at an) ti'e dee'ed necessar) or as provided in the #)8laws 2. 5eetings of directors or trustees: a.3 egular held #) the #oard 'onthl), unless the #)8laws provide otherwise #.3 0pecial held #) the #oard at an) ti'e upon the call of the president or as provided in the #)8laws hereJ an)where in or out of the Philippines, unless the #)8laws provide otherwise. Note8 henever there is no person authorized to call a 'eeting, the 0C, upon petition of a stoc&holder or 'e'#er, and on the showing of good cause, 'a) issue an order to the petitioning •
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stoc&holder or 'e'#er directing hi' to call a 'eeting of the corporation #) giving proper notice. PLACE AN& TI'E O$ 'EETIN#S O$ S%S>'E'BERS Se(. :0 8 4n the cit) or 'unicipalit) where the principal o$ce of the corporation is located, and if practica#le, in the principal o$ce of the corporation. ven if the 'eeting #e i'properl) held or called, an) #usiness transacted at such 'eeting shall #e valid if within the powers or authorit) of the corporation, and provided that all the stoc&holders or 'e'#ers of the corporation are present or dul) represented at the 'eeting. •
,OR,' O$ 'EETIN#S Se(. /0 8 Knless otherwise provided for in the Code or in the 6)8aws, a Fuoru' shall consist of the stoc&holders representing a 'a9orit) of the =C0 or a 'a9orit) of the 'e'#ers in case of non8stoc& corporations. / corporation 'a) prescri#e a greater voting reFuire'ent in its /=4 or #)8laws in order to protect the rights of the 'inorit) stoc&holders or 'e'#ers. 0uch higher nu'#er is also the nu'#er necessar) to constitute a Fuoru'. =nce a Fuoru' is called and the 'eeting was called to order, even if so'e people wal&ed out and the people left are less than the 'a9orit), the proceedings will #e valid so long as there is a Fuoru' when the 'eeting was called to order. !or stoc& corporations, the Fuoru' referred to in 0ec. (2 of the Corporation Code is #ased on the nu'#er of outstanding voting stoc&s. !or non8stoc& corporations, onl) those who are actual, living 'e'#ers with voting rights shall #e counted in deter'ining the e"istence of a Fuoru' during 'e'#ersL 'eetings. Dead 'e'#ers shall not #e counted. •
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RE,IRE'ENTS O$ A VALI& 'EETIN#8 1. 5ust #e held at the proper place; 2. 5ust #e held at the stated date and at the appointed ti'e or at a reasona#le ti'e thereafter; . 5ust #e called #) the proper person:
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a.3 The person>s designated in the #)8laws have authorit) to call stoc&holders or 'e'#ers 'eeting. #.3 4n the a#sence of such provision in the #)8laws, it 'a) #e called #) a director or trustee or #) an o$cer entrusted with the 'anage'ent of the corporation. c.3 / stoc&holder or 'e'#er 'a) 'a&e the call or order of the 0C whenever for an) cause, there is no person authorized to call a 'eeting. d.3 The special 'eeting for the re'oval of directors or trustees 'a) #e called #) the secretar) or #) a 0?>'e'#er. %. There 'ust #e previous notice. egular 'eeting written notice 'ust #e sent to registered 0?s or 'e'#ers at least 2 wee&s #efore the 'eeting 0pecial 'eeting written notice 'ust #e sent at least one wee& (. There 'ust #e a Fuoru'. Note8 The President shall preside at all 'eetings of the directors or trustees as well as of the stoc&holders or 'e'#ers, unless the #)8 laws provide otherwise. R,LES ON 'EETIN#>VOTIN# APPLICABLE TO CERTAIN DIN&S O$ S%ARES 1. DelinFuent shares shall not #e entitled to vote. 2. Treasur) shares have no voting rights while the) re'ain in the treasur). . !ractional shares shall not #e entitled to vote. %. scrow shares shall not #e entitled to vote. (. Knpaid shares, if not delinFuent, are entitled to all the rights of a 0? including the right to vote. 'ANNER O$ VOTIN# / 0?>'e'#er 'a) vote: 1. Directl) in person3; or 2. 4ndirectl), through representative a.3 6) 'eans of a pro"); #.3 6) a trustee under a voting trust agree'ent; or c.3 6) e"ecutors, ad'inistrators, receivers, or other legal representatives dul) appointed #) the court. PROKIES Se(. !0
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5a) refer to: 1. The written a+thorit) given #) one person to another so that the second person can act for the rst; 2. The person authorized #) an a#sent 0? or 'e'#er to vote for hi' at a 0?sL or 'e'#ersL 'eeting; . The instr+*ent which evidences the authorit) of the agent. RE,IRE'ENTS $OR VALI&IT-8 WS$"V0 1. 4n writing; 2. 0igned #) the 0?>'e'#er concerned; . !iled #efore the scheduled 'eeting with the corporate secretar); %. alid onl) for the 'eeting for which it was intended, unless otherwise provided in the pro"); (. 7o pro") shall #e valid and e
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8 8
The sa'e person 'a) act as pro") for one or several stoc&holders or 'e'#ers. Directors or trustees cannot attend or vote #) pro") at #oard 'eetings #ut the) 'a) act as pro"ies in stoc&holdersL 'eetings.
VOTIN# TR,STS Se(. 0 oting Trust /gree'ent an agree'ent where#) one or 'ore stoc&holders transfer their shares of stoc&s to a trustee, who there#) acFuires for a period of ti'e the voting rights and>or an) other rights3 over such shares; and in return, trust certicates are given to the stoc&holder>s, which are transfera#le li&e stoc& certicates, su#9ect, however, to the trust agree'ent. LI'ITATIONS8 a.3 Cannot #e entered into for a period e"ceeding ( )ears at an) one ti'e e"cept when it is a condition in a loan agree'ent, however, said contract shall auto'aticall) e"pire upon full pa)'ent of the loan. #.3 The agree'ent 'ust not #e used for purposes of fraud. c.3 4t 'ust #e in writing and notarized and specif) the ter's and conditions thereof. d.3 / certied cop) of the agree'ent 'ust #e led with the corporation and with the 0C. e.3 The agree'ent shall #e su#9ect to e"a'ination #) an) stoc&holder of the corporation. f.3 Knless, e"pressl) renewed, all rights granted in the agree'ent shall auto'aticall) e"pire at the end of the agreed period. VOTIN# TR,STS VS. PROK- Voting Tr+sts Pro6) 7ature Trustee votes as owner rather Pro") holder votes as agent than as 'ere agent 7otarization /gree'ent 'ust #e notarized Pro") need not #e notarized egal title Trustee acFuires legal title to Pro") has no legal title to the the shares of the transferring shares of the principal 0? •
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5anner of voting Trustee 'a) vote in person or Pro") 'ust vote in person #) pro") unless the agree'ent provides otherwise /ctions allowed Trustee is not li'ited to act at Pro") can onl) act at a an) particular 'eeting specied stoc&holdersL 'eeting if not continuing3 estrictions on voting / trustee can vote and / pro") can onl) vote in the e"ercise all the rights of the 0? a#sence of the owners of the even when the latter is stoc&. present. Period 5ust not e"ceed ( )ears at an) Ksuall) of shorter duration one ti'e e"cept when the although under 0ec. (@ it sa'e is 'ade a condition of a cannot e"ceed ( )ears at an) loan one ti'e 0epara#ilit) of ownership and voting right oting right is divorced fro' ight to vote is inherent in or the ownership of stoc&s insepara#le fro' the right to ownership of stoc& evoca#ilit) /gree'ent is irrevoca#le evoca#le an)ti'e e"cept one which is coupled with interest
TITLE VII STOCDS AN& STOCD%OL&ERS Wa)s 1. 2. .
to 2e(o*e a Sto(@holder of a (orporation8 0u#scription contract with the corporation; Purchase or acFuisition of shares fro' e"isting 0?s; and Purchase of treasur) shares fro' the corporation.
S,BSCRIPTION CONTRACT Se(. 0 8 /n) contract for the acFuisition of unissued stoc& in an e"isting corporation or a corporation still to #e for'ed The su#scri#ed shares need not #e paid in full in order that the su#scription 'a) #e valid. The su#scription contract is a consensual contract that is perfected upon the 'eeting of •
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the 'inds of the parties. The na'e of the su#scri#er is recorded in the stoc& and transfer #oo&, and fro' that ti'e, such su#scri#er #eco'es a 0? of record, entitled to all the rights of a 0?. Kntil the stoc&s are full) paid, it continues to #e a su#sisting lia#ilit) that is legall) enforcea#le. DIN&S O$ S,BSCRIPTION CONTRACT8 a.3 Pre8incorporation su#scription 0ec. *1 #.3 Post incorporation su#scription entered into after the incorporation for the acFuisition of unissued stoc& c.3 Conditional one which is su#9ect to a condition, which 'a) #e a past event un&nown to the parties or a future, uncertain event d.3 /#solute not su#9ect to an) condition and the su#scri#er #eco'es lia#le on the su#scription and acFuires the rights of a 0? fro' the ti'e it is accepted e.3 0u#scription with a special ter' one where the corporation agrees to do so'ething, the fulll'ent of which not #eing a condition precedent to the accrual of a lia#ilit) of the su#scri#er or the acFuisition of the rights of a stoc&holder. PRE"INCORPORATION S,BSCRIPTION Se(. :0 8 =ne entered into #efore incorporation which constitutes a #inding contract a'ong the su#scri#ers. 8 4rrevoca#le for a period of at least * 'onths fro' the date of su#scription unless: a.3 /ll of the other su#scri#ers consent to the revocation, or #.3 The incorporation fails to 'aterialize. 8 4t shall li&ewise #e irrevoca#le after the su#'ission of the /=4 to the 0C. STOCD OPTIONS 8 / privilege granted to a part) to su#scri#e to a certain portion of the unissued capital stoc& of a corporation within a certain period and under the ter's and conditions of the grant e"ercisa#le #) the grantee at an) ti'e within the period granted ,N&ERWRITIN# A#REE'ENT 8 /n agree'ent #etween a corporation and a third person, ter'ed the GunderwriterH, #) which the latter agrees, for a
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certain co'pensation, to purchase a stipulated a'ount of stoc&s or #onds, specied in the underwriting agree'ent, if such securities are not purchased #) those to who' the) are rst o
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8
Paper representation or tangi#le evidence of the stoc& itself and of the various interests therein
RE'E&IES W%ERE CORPORATION RE$,SES TO ISS,E CERTI$ICATE8 S'"&R0 1. 0uit for specic perfor'ance of an e"press or i'plied contract; 2. Petition for 'anda'us; . 0uit for da'ages where specic perfor'ance cannot #e granted; %. escind contract of su#scription and recover the consideration paid ISS,ANCE O$ T%E CERTI$ICATE O$ STOCD Se(. =0 Re+isites8 1. The certicate 'ust #e signed #) the President or ice8 President, countersigned #) the secretar) or assistant secretar); 2. 5ust #e sealed with the seal of the corporation; . Certicate 'ust #e delivered; %. The par value, as to par value shares or full su#scription as to no par value shares 'ust rst #e full) paid; 6/040: &o(trine of Indi5isi2ilit) of S+2s(ription su#scription is one, entire, indivisi#le and whole contract, which cannot #e divided into portions. (. =riginal certicate 'ust #e surrendered where the person reFuesting the issuance of a certicate is a transferee fro' the stoc&holder. ACTIONS B- STOCD%OL&ERS OR 'E'BERS8 1. Derivative 0uit 2. 4ndividual 0uit . epresentative 0uit LIABILIT- O$ &IRECTORS $OR WATERE& STOCDS Se(. 0 Watered Sto(@ stoc& issued not in e"change for its eFuivalent either in cash, propert), share, stoc& dividends, or services. 4ncludes: a.3 4ssued without consideration #onus share3;
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#.3 4ssued as full) pSaid when the corporation has received a lesser su' of 'one) than its par or issued value discount share3; c.3 4ssued for a consideration other than actual cash such as propert) or services the fair valuation of which is less than its par or issued value; and d.3 4ssued as stoc& dividend when there are not su$cient retained earnings or surplus to 9ustif) it. &ELIN,ENC- SALE Se(. !0 1. 4f the su#scription contract "es the date for pa)'ent, failure to pa) on such date shall render the entire #alance due and pa)a#le with interest. E da)s therefro', if still unpaid, the shares #eco'e delinFuent, as of the due date, and su#9ect to sale, unless the #oard declares otherwise. 2. 4f no date is "ed in the su#scription contract, the #oard of directors can 'a&e the call for pa)'ent, and specif) the due date. The noti(e of (all is *andator). / 'ere de'and is insu$cient. The failure to pa) on such date shall render the entire #alance due and pa)a#le with interest. E da)s therefro', if still unpaid, the shares #eco'e delinFuent, as of the date of the call, and su#9ect to sale, unless the #oard declares otherwise. 7ote: / FCALLG is the resolution or for'al declaration of the #oard that the unpaid su#scriptions are due and pa)a#le. PROCE&,RE $OR T%E SALE O$ &ELIN,ENT STOCDS 1. esolution of the #oard 2. 7otice of sale . Pu#lication of the notice %. 0ale at pu#lic auction (. Transfer of the stoc& so purchased in the #oo&s of the corporation *. Credit e'ainder in favor of the delinFuent stoc&holder PROCE&,RE $OR ISS,ANCE O$ NEW CERTI$ICATE O$ STOCD IN LIE, O$ LOST4 STOLEN OR &ESTRO-E& ONES 1. /$davit of oss #) the registered owner 2. erication #) the corporation . Pu#lication of a notice once a wee& for consecutive wee&s3 %. =ne )ear waiting period fro' the date of last pu#lication
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(. Contest *. eplace'ent if no contest within the 1 )ear period RI#%TS AN& RE'E&IES O$ STOCD%OL&ERS :. Rights as to Control and 'anage*ent a.3 /ttend and vote in person>pro") at stoc&holdersL 'eetings 0ecs. (E, (@3; #.3 lect and re'ove directors 0ecs. 2%, 2@3; c.3 /pprove certain corporate acts 0ec. (23; d.3 Co'pel the calling of 'eetings 0ec. (E3; e.3 To have the corporation voluntaril) dissolved 0ecs. 11@, 11B3; f.3 nter into a voting trust agree'ent 0ec. (B3; g.3 /dopt>a'end>repeal the #)8laws or adopt new #)8laws 0ecs. %*, %@3. /. Proprietar) Rights a.3 Transfer of stoc& in the corporate #oo& 0ec. *3; #.3 eceive dividends when declared 0ec. %3; c.3 4ssuance of certicate of stoc& 0ec. *3; d.3 Participate in the distri#ution of corporate assets upon dissolution 0ec. 11@, 11B3; and e.3 Pre8e'ption in the issue of shares 0ec. B3. Note8 ight of pre8e'ption e"tends to treasur) shares in case of their reissuance. <. Re*edial Rights a.3 4nspect corporate #oo&s 0ec. +%3; #.3 ecover stoc& unlawfull) sold for delinFuenc) 0ec. *B3; c.3 De'and pa)'ent in the e"ercise of appraisal right 0ecs. %1, @13; d.3 To #e furnished recent nancial state'ents 0ec. +(3; and e.3 To #ring suits
1. 6oo&s of /ccount; 2. ist of 0toc&holders or 5e'#ers; and . !inancial ecords. Persons gi5en the right to inspe(t Corporate Boo@s8 1. /n) D>T>0?>'e'#er; 2. oting trust certicate holder; . 0? of a seFuestered co'pan); and %. 6enecial owner of shares Rights of sto(@holders to (orporate 2oo@s and re(ords8 1. ight of inspection; 2. ight to de'and a list of 0?s; . ight to de'and a detailed auditing of #usiness e"penditures; %. To e"a'ine #oo&s of the corporationLs su#sidiar); (. ight to nancial state'ents. 0ec. +(3 •
•
Li*itations on the Right of Inspe(tion8 a.3 5ust #e e"ercised during reasona#le hours on #usiness da)s; #.3 Person de'anding the right has not i'properl) used an) infor'ation o#tained through an) previous e"a'ination of the #oo&s and records of the corporation; and c.3 De'and is 'ade in good faith or for a legiti'ate purpose. Re*edies if Inspe(tion &enied8 a.3 5anda'us; #.3 Da'ages; c.3 Cri'inal 0uit
TITLE VIII – CORPORATE BOODS AN& RECOR&S
TITLE IK – 'ER#ER AN& CONSOLI&ATION
BOODS TO BE DEPT STOCD TRANS$ER A#ENT Se(. M=0 1. 6oo& of all #usiness transactions; 2. 6oo& of 'inutes of all 'eetings of 0?s>'e'#ers; . 6oo& of 'inutes of all 'eetings of D>T; %. 0toc& and transfer #oo&, in case of stoc& corporations.
Co**on $or*s of Corporate Co*2inations8 1. 0ale of assets; 2. ease of assets; . 0ale of stoc&; %. 5erger; (. Consolidation
Corporate Re(ords re+ired 2) the SEC to 2e @ept and>or registered8
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'ER#ER 8 a union where#) one or 'ore e"isting corporations are a#sor#ed #) another corporation which survives and continues the co'#ined #usiness CONSOLI&ATION union of two or 'ore e"isting corporations to for' a new corporation called the consolidated corporation PROCE&,RE $OR 'ER#ER>CONSOLI&ATION8 1. /pproval of plan 2. 0u#'ission to stoc&holders or 'e'#ers for approval . "ecution of for'al contract %. 0u#'ission to 0C for approval (. Conduct of hearing #) 0C *. 4ssuance of certicate #) 0C Note8 The plan 'a) still #e a'ended #efore the sa'e is led with the 0C, however, an) a'end'ent thereto 'ust #e approved #) the 'a9orit) vote of the #oard 'e'#ers or trustees of the constituent corporations and a$r'ed #) the vote of 2> of the =C0 or 'e'#ers. SECS APPROVAL AN& E$$ECTIVIT- O$ 'ER#ER OR CONSOLI&ATION Se(. M0 #eneral R+le8 hen one corporation #u)s all the shares of another corporation, this will not operate to dissolve the other corporation and as the two corporations still 'aintain their separate corporate entities, one will not answer for the de#ts of the other. EKCEPTIONS as to non"ass+*ption of Lia2ilites8 1. 4f there is an e"press assu'ption of lia#ilities; 2. 4f there is a consolidation or 'erger; . 4f the purchase was in fraud of creditors; and %. 4f the purchaser is 'erel) a continuation of the seller. LE#AL E$$ECTS O$ 'ER#ER>CONSOLI&ATION8 1. There is auto'atic assu'ption of lia#ilities of the a#sor#ed corporation or constituent corporations which are dissolved. 2. The a#sor#ed or constituent corporations are ipso facto dissolved #) operation of law without necessit) of an) further act or deed #ut there is no winding up or liFuidation of their assets for the surviving corporation auto'aticall) acFuires all the lia#ilities of the constituent corporation.
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. Per'its the transfer of the assets to the purchaser and the distri#ution of the consideration received in a single operation. %. 4nvolve e"changes of properties, a transfer of the assets of the constituent corporations in e"change for securities in the new or surviving corporation #ut neither involves winding up of the a
TITLE KI – NON"STOCD CORPORATIONS CONCEPT Se(. !M0 8 / non8stoc& corporation is one where no part of its inco'e is distri#uta#le as dividends to its 'e'#ers. 8 ven if there is a state'ent of capital stoc&, for as long as there is no distri#ution of retained earnings to its 'e'#ers, the corporation is non8stoc&. 8 /n) prot which it 'a) o#tain as an incident to its operations shall, whenever necessar) or proper, #e used in furtherance of the purpose>s for which it was organized. P,RPOSES Se(. !!0 7on8stoc& corporations 'a) #e for'ed or organized for: 1. Charita#le 2. eligious . ducational %. Professional (. Cultural *. !raternal +. iterar) @. 0cientic B. 0ocial
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1E. Civic service =r si'ilar purposes li&e: 1. Trade 2. 4ndustr) . /gricultural %. /nd li&e cha'#ers =r an) co'#ination thereof. R,LES ON CONVERSION 1. Sto(@ to non"sto(@ (orporation 'a) #e 'ade #) 'ere a'end'ent of the /=4 8 The e
NON"STOCD 7ature ?as capital stoc&, divided into Does not have shares and 'a) shares and with authorit) to not distri#ute prots to its distri#ute dividends to its 'e'#ers stoc&holders 5eeting>oting of 'e'#ers>0?s 0?s and directors 'ust act in a 5e'#ers 'a) #e allowed #) 'eeting, e"cept where a 'ere the #)8laws to vote #) 'ail or assent is su$cient or a for'al other si'ilar 'eans 'eeting unnecessar) 5anner of voting Cu'ulative voting is availa#le Cu'ulative voting not
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in the election of directors
availa#le unless otherwise provided in the /=4>#)8laws Pro") 0?s 'a) vote #) pro") 5e'#ers 'a) #e deprived of the right to vote #) pro") in the /=4>#)8laws 7on8transfera#ilit) of 'e'#ership 0?s 'a) transfer their shares 5e'#ers cannot transfer their 'e'#ership unless allowed #) the /=4>#)8laws Directors>trustees Directors cannot e"ceed 1( in Trustees 'a) e"ceed 1( in nu'#er nu'#er Ter' of Director>trustee Ter' of a director is 1 )ear Ter' of a trustee is )ears; 1> of the 6oard shall #e elected annuall) lection of o$cers =$cers are elected #) the =$cers 'a) #e directl) 6=D elected #) the 'e'#ers unless otherwise provided in the /=4>#)8laws Place of 'eeting 0?sL 'eetings shall #e held in 6)8laws 'a) provide that the cit) or 'unicipalit) where 'e'#ers of a non8stoc& principal o$ce of corporation corporation 'a) hold their is located, and if practica#le in 'eetings at an) place within the principal o$ce the Phils.
TITLE KII – CLOSE CORPORATIONS 8 0pecial &ind of stoc& corporation 1. hose articles of incorporation should provide that: a.3 The nu'#er of 0?s shall not e"ceed 2E; #.3 4ssued stoc&s are su#9ect to transfer restrictions, with a right of pree'ption in favor of the 0?s or the corporation; and
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c.3 The corporation shall not #e listed in the stoc& e"change or its stoc&s should not #e pu#licl) o of the voting stoc&s or voting rights of which are not owned or controlled #) another corporation which is not a close corporation. •
7on8co'pliance with an) of the reFuire'ents shall not 'a&e the corporation a close corporation within the 'eaning of the Corporation Code.
C%ARACTERISTICS8 1. 0?s 'a) act as directors without need of election and therefore are lia#le as directors; 2. 0?s who are involved in the 'anage'ent of the corporation are lia#le in the sa'e 'anner as directors are; . Vuoru' 'a) #e greater than 'ere 'a9orit); %. Transfer of stoc&s to others, which would increase the nu'#er of 0?s to 'ore than the 'a"i'u' are invalid; (. Corporate actuations 'a) #e #inding even without for'al #oard 'eeting, if the 0? had &nowledge or ratied the infor'al action of the others; *. Pre8e'ptive right e"tends to all stoc& issues; +. Deadloc&s in #oard are settled #) the 0C. on the written petition #) an) 0?; and @. 0? 'a) withdraw and avail of his right of appraisal. N.B.8 0pecial rules are provided for close corporations #ecause it is essentiall) an incorporated partnership. OR&INAR- STOCD CORPORATION 5s. CLOSE CORPORATION OR&INAR- STOCD CLOSE CORPORATION CORPORATION /rticles of 4ncorporation 7eed onl) contain the general 5ust contain the special 'atters enu'erated in 0ec. 1% 'atters prescri#ed #) 0ec. B+, of the code aside fro' the general 'atters in 0ec. 1% failure to do so precludes a de 9ure close corporation3 =wnership of stoc&s 4ts status as an ordinar) stoc& 2> of its voting stoc& or voting
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corporation is not a
rights 'ust not #e owned or controlled #) another corporation which is not a close corporation Classication of directors 4ts articles cannot classif) its 4ts articles 'a) classif) its directors directors lection>appoint'ent of o$cers Corporate o$cers and 4ts articles 'a) provide that e'plo)ees are elected #) a an) or all of the corporate 'a9orit) vote of all the o$cers or e'plo)ees 'a) #e 'e'#ers of the #oard of elected or appointed #) 0?s directors 5anage'ent 6usiness of the corporation is 5a) #e 'anaged #) the 0?s if 'anaged #) the #oard of the /=4 so provide, #ut the) directors are lia#le as directors Pre8e'ptive right 0u#9ect to the e"ceptions 0u#9ect to no e"ceptions unless found in 0ec. B denied in the articles /ppraisal right 5a) #e e"ercised #) a 0? onl) 5a) #e e"ercised and in the cases provided in 0ecs. co'pelled against the @1 and %2 of the Code corporation #) a 0? for an) reason Purchase of its own shares 5ust alwa)s #e 'ade fro' the 4n case of an ar#itration of an unrestricted retained earnings intra8corporate deadloc& #) the e"cept as regards redee'a#le 0C, the corporation 'a) #e shares3 ordered to purchase its own shares fro' the 0?s regardless of the availa#ilit) of K e'ed) of ar#itration 7ot a re'ed) /vaila#le re'ed) in case the directors or 0?s are so divided respecting the 'anage'ent of the corporation Note8 The follo3ing (annot 2e a (lose (orporation8 BI'POSE0
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a.3 #.3 c.3 d.3 e.3 f.3 g.3 h.3
6an&s; 4nsurance co'panies; 5ining co'panies; Pu#lic utilities; =il co'panies; 0toc& e"changes; ducational institutions; =ther corporations declared to #e #ested with pu#lic interest
VALI&IT- O$ RESTRICTIONS ON TRANS$ER O$ S%ARES Se(. !0 4t is 'andator) for the /=4 of a close corporation to provide that all of the issued stoc&s of all classes #e su#9ect to one or 'ore restriction. The restriction on transfer is in the nature of a right of rst refusal in favor of the 0?s which can #e waived #) the 0?, if the latter fails to e"ercise the option to purchase within the period stated in the articles and #)8laws. /n) transfer 'ade should not result in e"ceeding the nu'#er of 0?s as allowed #) the Code.
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Note8 Knder 0ec. BB, good faith is not a defense #ecause there is a conclusive presu'ption of &nowledge of the restriction. E$$ECTS W%ERE STOCD%OL&ERS ARE 'ANA#ERS Se(. :0 1. 7o longer necessar) to elect directors; 2. 0?s concerned shall #e dee'ed the directors; . 0?s shall have the sa'e lia#ilities as directors; %. To the e"tent that the 0?s are activel) engaged in the 'anage'ent or operation of the #usiness and a
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cannot #e o#tained and as a result, #usiness and a
TITLE KIV – &ISSOL,TION 8
The e"tinguish'ent of the corporate franchise and the ter'ination of corporate e"istence; the co'plete destruction of the corporation and within conte'plation of the law, is eFuivalent to its death.
'ET%O&S O$ &ISSOL,TION Se(. ::M0 A. Vol+ntar) 1.3 /pplication for dissolution with 0C: a.3 here no creditors are a
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*.3 0C dissolution, upon co'plaint and after notice and hearing, on the following grounds: a.3 Corporation was illegall) organized; #.3 Continuous inactivit) su#seFuent to incorporation, organization and co''ence'ent of #usiness3 for at least ( )ears; c.3 0erious dissention in the corporation; d.3 Co''ission #) the corporation of illegal or ultra vires act or violations of the Code. E$$ECTS8 1. Transfer of legal tile to corporate propert) to the 0?s who #eco'e co8owners thereof; 2. Continuation of corporate #usiness 'erel) as an association without 9uridical personalit); . Conve)ance #) the 0?s of their respective shareholdings toward the creation of a new corporation to continue the #usiness of the old; %. eincorporation of the dissolved corporation #) re8ling new articles of incorporation and #)8laws; (. The corporation continues as a #od) corporate for )ears for purposes of winding up; and *. Cessation of corporate e"istence for all purposes upon the e"piration of the winding up period of )ears. VOL,NTAR- &ISSOL,TION W%ERE NO CRE&ITORS ARE A$$ECTE& Se(. ::!0 Re+ire*ents8 1. 5a9orit) vote of the #oard of directors or trustees; 2. esolution adopted #) the a$r'ative vote of the 0?s owning at least 2> of the =C0 or at least 2> of the 'e'#ers at a 'eeting called for such purpose. VOL,NTAR- &ISSOL,TION W%ERE CRE&ITORS ARE A$$ECTE& Se(. ::0 Re+ire*ents8 1. Petition shall #e led with the 0C; 2. 0igned #) a 'a9orit) of its #oard of directors or trustees or other o$cers having 'anage'ent of its a
aw Private Corporations
%. 0hall set forth all clai's and de'ands against it; (. esolved upon #) the a$r'ative vote of the 0?s representing at least 2> of the =C0 or #) at least 2> of the 'e'#ers at a 'eeting called for that purpose. CORPORATE LI,I&ATION Se(. ://0 Li+idation the process #) which all the assets of the corporation are converted into liFuid assets cash3 in order to facilitate the pa)'ent of o#ligations to creditors, and the re'aining #alance, if an), is to #e distri#uted to the 0?s or 'e'#ers. N.B.8 / dissolved corporation continues to #e a #od) corporate for )ears fro' the ti'e it is dissolved for the purpose of liFuidation or winding up its corporate atrustees; 2. 6) a trustee to who' the corporate assets have #een conve)ed; and . 6) a 'anage'ent co''ittee or reha#ilitation receiver appointed #) the 0C. Note8 a.3 The 8)ear period of liFuidation does not appl) to 'ethods 2 and as long as the trustee or the receiver is appointed within the said period. #.3 6ut the word GtrusteeH as used in the corporation statute 'ust #e understood in its general concept which could include the counsel to who' was entrusted the prosecution of the suit led #) the corporation. c.3 The #oard of directors 'a) also #e per'itted to co'plete the corporate liFuidation #) continuing as GtrusteesH #) legal i'plication. d.3 The Fuestion as to the right of priorit) of a clai'ant against the assets of a corporation that is #eing dissolved and liFuidated #eco'es of i'portance onl) when the assets of the corporation are not su$cient to pa) all clai's.
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