Corporation
Voluntary Dissolution Where no creditors are affected
1. Notice of the meeting should be given to the stockholders or members 2. The notice of meeting should also be published once prior to the meeting 3. The resolution to dissolve must be approved by the majority of the BOD/T and approved by at least majority of the Outstanding Capital Stock or majority of the members 4. A verified request for dissolution shall be filed with the SEC
Certificate of stock
A certificate of stock is an instrument formally issued by the corporation with the intention that the same constitute the best evidence of the rights and status of a shareholder.
Corporations Going Public
A corporation is deemed to be "going public" when it decides to list its shares in the stock exchange.
Liability for Tort
A corporation is liable for tort. It is liable when the act was committed by the officer or agent under the express direction or authority from the stockholders or members acting as a body or generally from the directors as the governing body.
Corporations Going Private
A corporation is said to be "going private" when it would restrict the shareholders to a certain group.
Corporation de Jure
A corporation organized in accordance with the requirements of the law.
Corporate Term
A corporation shall have perpetual existence unless its AOI provides otherwise.
Revival of Corporate Term
A corporation whose term has expired may apply for revival of its existence, together with all the rights and privileges under the COI and subject to all duties, debts and liabilities existing prior to its revival.
One Person Corporation
A corporation with a single stock holder. Only natural person, trust or an estate may form a One person cororation.
One Person Corporation
A corporation with a single stockholder: Provided, That only a natural person, trust or an estate may form a One Person Corporation.
Call by the BOD
A declaration by the BOD that the unpaid subscriptions are due and payable to the corporation. A call is necessary if no time to make payment is stated in the subscription agreement. It is necessary to bind the stockholders.
Contract Test
A foreign corporation is doing business in the Philippines if the contracts entered into by the foreign corporation or by an agent acting under the control and direction of the foreign corporation are consummated in the Philippines.
Amendment of License to do business
A foreign corporation shall obtain an amended license in the event it changes its corporate name, or desires to pursue other or additional purposes in the Philippines.
Conversion
A non-stock corporation cannot be converted into a stock corporation because this would violate Sec 86 which prohibits distribution of income as dividends to members. However, it may be converted only if the members dissolve it first and then organize a stock corporation. A stock corporation may be converted into a non-stock corporation by mere amendment provided all the requirements are complied with.
Quorum of Meeting of Shs and Members
A quorum shall consist of Shs representing a majority of the OCS or a majority of the members, unless otherwise provided in the RCCP or in the By-laws.
Religious Society
A religious society or religious order that is incorporated for the administration of its temporalities or for the management of its affairs, properties, and estate. It is a non-stock corporation formed by a Religious society, group, diocese, synod, or district of any religious denomination, sect, or church after getting the approval of 2/3 of its members
Test of Sale of all or Substantially all Properties
A sale or other disposition shall be deemed to cover substantially all corporate property and assets if thereby the corporation would be rendered incapable of continuing the business or accomplishing the purpose for which it was incorporated.
Limited Liability Rule
A stockholder is personally liable for the financial obligations of the corporation to the extent of his unpaid subscription
Doctrine of Individuality of subscription
A subscription contract is one entire and indivisible whole contract. It cannot be divided into portions.
Individual Suit
A suit brought by the shareholder in his own name against the corporation when a wrong is directly inflicted against him.
AOI of OPC
An OPC is not required to file By-laws but is required to file AOI in accordance with the requirements under Sec 14
Voting Trust Agreement
An arrangement created by one or more stockholders for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding 5 years at any time.
Joint Account
An arrangement whereby merchants may interest themselves in the transaction of other merchants, contributing thereto the amount of capital they may agree upon, and participating in the favorable and unfavorable results thereof in the proportion they may determine. Only the ostensible partner is conducting the business.
Joint Venture
An association of persons or companies jointly undertaking some commercial enterprise; generally all contribute assets and share risks.
Cooperative
An autonomous and duly registered association of persons, with a common bond of interest, who have voluntarily joined together to achieve their social, economic, and cultural needs and aspirations by making equitable contributions to the capital required, patronizing their products and services and accepting a fair share of the risks and benefits of the undertaking in accordance with universally accepted cooperative principles.
Proxy and Remote Communication: Stockholders' meeting
Stockholders and members may vote in person or by proxy in all meetings of Shs or members. It is valid only for the meeting for which it is intended. No proxy shall be valid and effective for a longer period than 5 years at any one time.
Limitations on the Powers of the Executive Committee (FASAD)
The EC cannot be empowered to perform the following acts reserved to the full Board: a. Filing up of board vacancies; b. Amendment, repeal of by-laws or adoption of new by-laws c. approval of any action for which Shareholders' approval is also required; d. Amendment or repeal of any resolution of the Board which by its express terms is not amendable or repealable; and e. Distribution of cash dividends to shareholders
Special fact doctrine
Conceding the absence of a fiduciary relationship in the ordinary case, courts nevertheless hold that where special circumstances or facts are present which make it inequitable for the director to withhold information from the stockholder, the duty to disclose arises and concealment is fraud, such as concealment of the defendant-purchaser's identity and a failure to disclose significant facts that materially affected the price of the stock.
Articles of Incorporation
Constitutes the charter of the corporation and sets forth the rules and conditions upon which the association or corporation is founded. The Articles must be filed with the SEC for the issuance of the Certificate of Incorporation.
Reverse-piercing
Corporation may be held liable for the debt and damages which a shareholder of such corporation is personally liable for.
Private corporations
Corporations for private interest or purpose to which the law grants a juridical personality separate and distinct from that of each shareholder.
Government Owned and Controlled Corporations
Corporations organized as stock or non-stock corporations, vested with functions relating to public needs whether governmental or proprietary nature and owned by the government directly or through its instrumentalities.
Wasting Assets Corporation
Corporations solely or principally engaged in the exploitation of wasting assets to distribute the net proceeds derived from exploitation of their holdings such as mines, oil wells, patents and leaseholds, without allowance or deduction for depletion.
Retroactive effect of the new corporate term
Corporations with certificates of incorporation issued prior to the effectivity of RCCP, and which continue to exist, shall have perpetual existence, unless the corporation, upon a vote of its stockholders representing a majority of its outstanding capital stock, notifies the SEC that it elects to retain its specific corporate term pursuant to its AOI
Business judgment rule
Directors cannot be held liable for mistakes or errors in the exercise of their business judgment as long as they acted in good faith, with due care and prudence. Contracts entered into by the BOD are binding upon the corporation and courts will not interfere.
Duty of Obedience
Directors shall direct the affairs of the corporation only in accordance with the purposes for which it was organized.
Duty of Loyalty
Directors shall not acquire any personal or pecuniary interest in conflict with their duty as directors or trustee; they shall be liable jointly and severally for all damages.
Straight Voting
Every stockholder may vote such number of shares for as many persons as there are directors to be elected
Certificate of Stock
Evidence of the holder's ownership of the stock and of his right as a shareholder and up to the extent specified therein. It may be issued only if the subscription is fully paid.
Substance Test
Foreign corporation is doing business in the country if it is continuing the body or substance of the enterprise of business for which it was organized.
Doctrine of Apparent Authority
If a corporation knowingly permits one of its officers, or any other agent, to act within the scope of an apparent authority, it holds him out to the public as possessing the power to do those acts; the corporation will, as against anyone who has in good faith dealt with it through such agent, be estopped from denying the agent's authority.
Doctrine of Corporate Opportunity
If a director, by virtue of such office, seize a business opportunity which could belong to the corporation thereby obtaining profits to the prejudice of the corporation, he must account and refund to the corporation all the profits. Except when the contract or act is ratified by a vote of the Shs owning or representing at least 1/3 of the OCS.
Who presides the BOD meeting
If there is a Chairman, he shall preside at all meetings of the BOD. The President shall be the presiding officer if there is no Chairman or if the latter is absent.
Business Trusts
It is a legal relation whereby one person, called the trustor, conveys a property to another for the benefit of a person called the beneficiary. The person in whom confidence is reposed as regards the property is called the trustee.
Quorum of BOD
Majority of the number of D/T as fixed in the AOI. If the AOI provides for a greater majority as a quorum, the quorum cannot be less than a majority of the Board.
Grandfather Rule
Method used when a domestic corporation has both domestic and foreign stockholders to determine whether or not said corporation is qualified to engage in a partially nationalized business. The Grandfather Rule applies only when the 60-40 Filipino foreign equity ownership is in doubt.
Religious Societies
Non-stock corporation formed by a religious society, group, diocese, synod, or district of any religious denomination, sect, or church after getting the approval of 2/3 of its members.
Minutes and Records of OPC
OPC shall maintain a Minutes Book, which shal contain all actions, decisions, and resolutions taken by the OPC. When action is needed on any matter, it shall be sufficient to prepare a written resolution, signed and dated by the single stockholder and recorded in the Minutes Book of the OPC.
Outsider Reverse Piercing
Occurs when a party with a claim against an individual or corporation attempts to be repaid with assets of a corporation owned or substantially controlled by the defendant.
Surviving Corporation
One of the constituent corporations which remain in existence after the merger.
Ecclesiastical Corporation
One organized for religious purposes
Corporation Sole
One that is formed for the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect or church, may be formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or church.
Consolidation
One where a new corporation, the consolidated corporation is created, and the existence of all constituent corporations shall cease.
Highest Bidder
One who is willing to pay the balance of the subscription for the least number of shares.
Close Corporation
One whose articles of incorporation provide that: 1. All issued stock, exclusive of treasury shares, shall be held by persons not exceeding 20; 2. All issued stock shall be subject to one or more specified restrictions on transfer; and 3. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
Promoter
Persons who, acting alone or with others, take initiative in founding and organizing the business or enterprise of the issuer and receives consideration therefor.
Liquidation
Process by which all the assets of the corporation are converted into liquid assets in order to facilitate the payment of obligations to creditors and the remaining balance if any is to be distributed to the stockholders
Right of First Refusal
Provides that a stockholder who may wish to sell or assign his shares must first offer the shares to the corporation or to the other existing stockholders under the terms and condition which are reasonable.
Doctrine of Necessary Implication
Reference must be made to a corporation's AOI and unless the power to carry a particular business is either expressly or impliedly conferred thereby, it does not exist.
Stockholders' Meeting
Regular Meeting: Held annually on a date fixed in the By-laws or if there is no date in the By-laws-on any date after April 15 of each year as determined by the Board Notice: Within the period provided in the By-laws. In the absence of such, at least 21 days prior to the meeting. Special Meeting: Any time deemed necessary or as provided in the By-laws Notice: Within the period provided in the By-laws. If there is no provision, at least one 1 week prior to the meeting. Place of Meeting: Principal office but if not practicable, in the city or municipality where the principal office is located.
Meetings of the BOD
Regular Meetings-Monthly, unless otherwise specified in the By-laws Special Meetings-Any time, upon the call of the President or as provided in the By-laws Place: May be held anywhere or outside the Philippines unless the By-laws provide otherwise. Notice must be given at least 2 days prior to the scheduled regular or special meeting Proxy is not allowed
Appraisal right
Right to withdraw from the corporation and demand payment of the fair value of the shares after dissenting from certain corporate acts involving fundamental changes in corporate structure.
A single stockholder who is likewise a treasurer
Shall give a bond to the SEC with undertaking in writing to faithfully administer the OPC's funds to be received as treasurer
Treasury Shares
Shares of stock which have been issued and fully paid for, but subsequently reacquired by the issuing corporation through purchase, redemption, donation, or some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.
Preferred Shares
Shares which entitle the holders to certain preferences over the holder of common stock. Issued by a corporation may be given preference in: a. the distribution of dividends b. distribution of corporate assets in case of liquidation or c. such other preferences
Probative Value of the Stock and Transfer Book
The best evidence of the transactions that must be entered or stated therein. However, the entries are considered prima facie evidence only and may be subject to proof to the contrary.
Sole Proprietorship
The business is an organization composed of the proprietor himself and his employees, but it has no personality separate and distinct from the proprietor.
Liability for Corporation for Promoter's Contracts
The corporation is not bound by the contract entered into by the promoter before the incorporation unless the contract is ratified.
Consolidated Corporation
The new single corporation created through consolidation.
Doctrine of Secondary Meaning
The word has been used for so long and so exclusively.
Primary Franchise
Vested in the individuals who compose the corporation and not in the corporation itself.
Requisites of De Facto Corporation
a. A valid law to organize a corporation b. A bona fide attempt to organize a corporation under such law c. Actual user or exercise in good faith of corporation powers conferred upon it by law d. SEC issuance of certificate of incorporation.
Types of Ultra Vires Act (BAI)
a. Acts done Beyond the powers of the corporation as provided in the law or its AOI. b. Acts or contracts entered into in behalf of a corporation by persons who have no Authority. c. Acts or contracts, which are per se Illegal as being contrary to law.
Order of Distribution of Assets
a. All creditors shall be paid. b. Assets held subject to return on dissolution shall be delivered back to their givers. c. Assets held for charitable, religious, benevolent educational or similar purposes shall be conveyed to one or more organizations engaged in similar activities d. all other assets shall be distributed to members as provided for in the AOI
Distribution of Capital Assets is only allowed in 3 instances
a. Amendment of AOI to reduce the authorized capital stock b. Purchase of redeemable shares by the corporation, regardless of he existence of unrestricted/retained earnings c. Dissolution and eventual liquidation of the corporation
Instances where non-voting stocks are entitled to vote(AASIIM)
a. Amendment of the AOI b. Adoption and amendment of by-laws c. SLEMPOD of all or substantially all of the corporate property. d. Incurring, creating or increasing bonded indebtedness e. Increase or decrease of capital stock f. Investment of corporate funds in another corporation g. Merger or consolidation of the corporation with another corporation
Requisites for removal of directors
a. Any director or trustee of a corporation may be removed from office with or without cause. b. by a vote of the stockholders holding or representing 2/3 of the OCS, or if the corporation be non-stock corporation, by a vote of 2/3 of the members entitled to vote. c. at a regular or special meeting after proper notice is given.
Number and Qualifications of incorporators
a. Any person, partnership, association or corporation, b. singly or jointly with others but not more than 15 in number, c. may organize a corporation for any lawful purpose or purposes.
Requisites for SLEMPO of all or substantially all of a corporation's assets
a. Approval by a majority vote of the Board b. Approval of stockholders representing 2/3 of outstanding capital of 2/3 of members c. The Shs/members approval should be in a meeting duly called for the purpose d. There must be written notice of the proposed action e. It must comply with the formalities of the Bulk Sales Law f. It must comply with the requirements of Philippine Competition Act and other related laws g. It must not have been disapproved or abandoned by he Board after approval by the stockholders.
Deadlock; The SEC may intervene
a. Canceling or altering any provision contained in the AOI b. canceling, altering or enjoining any resolution or act of the corporation c. Directing or prohibiting any act of the corporation d. Requiring the purchase at their fair value of shares of any stockholder e. Appointing a provisional director f. Granting such other relief as the circumstances may warrant.
Non-amendable items
a. Change of name of the Corporation; b. Adding to or changing the purpose/s c. Change of principal office d. Change in the number of directors and trustees e. Increase or decrease in authorized capital stock
Express Powers under the RCCP
a. Exercise supervision and jurisdiction over all corporations and persons acting on their behalf b. Formulate policies and recommendations on issues concerning securities market, advise Congress and other government agencies. c. Approve, reject, suspend, revoke or require amendments to registration statements, and registration and licensing applications. d. Regulate, investigate or supervise the activities persons to ensure compliance e. Impose sanctions for the violation of laws, rules, regulations and orders issued pursuant thereto f. Prepare, approve, amend or repeal rules, regulations and orders and issue opinions and provide guidance on and supervise compliance. g. Enlist the aid and support of and deputize any and all enforcement agencies of the Government. h. Issue cease and desist orders to prevent fraud or injury to the investing public i. Compel the officers of any registered corporation to call meetings of stockholders under its supervision j. Suspend, or revoke, after proper notice and hearing the franchise or certificate of registration.
Kinds of Corporate Powers
a. Express Powers expressly authorized by the Corporation Code b. Implied Powers those that can be inferred from or necessary for the exercise of the express powers. c. Incidental Powers those that are incidental to the existence of the corporation.
Requisites of Derivative Suit
a. He was a stockholder or member at the time the acts or transactions subject of the action occurred and at the time the action was filed b. He exerted all reasonable efforts and exhausted all remedies available under the AOI, by-laws or rules governing the corporation. c. No appraisal rights are available for the act or acts complained of d. The suit is not a nuisance or harassment suit e. The corporation is impleaded as a plaintiff.
Authority of Commissioner
a. Investigation and prosecution of offenses b. Administration of oath and issuance of subpoena c. Cease and desist power d. Contempt
General Powers granted under the RCC (PIMPS-DO-SCAB)
a. Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and otherwise deal with such real and personal property, pursuant to its lawful business; b. For stock corporations - Issue or sell stocks to subscribers and sell treasury stocks; for non-stock corporation - admit members to the corporation; c. Enter into Merger or consolidation with other corporations as provided in the Code; d. Establish Pension, retirement, and other plans for the benefit of its directors, trustees, officers and employees; e. Sue and be sued; f. Make reasonable Donations, including those for the public welfare or for hospital, charitable, cultural, scientific, civic, or similar purposes; g. Exercise such Other powers as may be essential or necessary to carry out its purposes; h. Succession; i. Adopt and use a Corporate seal; j. Amend its Articles of Incorporation; k. Adopt and amend By-laws;
Revocation; Dissolution
a. Refusal or obstruction, without justifiable cause, of the SEC's exercise of its visitorial powers b. Failure to comply with the SEC's order to immediately cease and desist from using corporate name c. Non-filing of By-laws
Powers of the SEC if a name cannot be used by a corporation
a. Reject the AOI b. Summarily Order the corporation to cease or desist from using such name c. Summarily Order the corporation to register a new name and amend its AOI bearing the new name d. Cause the removal of all visible signages, marks prints and other effects.
Effects of Merger or Consolidation
a. The constituent corporations shall become a single corporation b. The separate existence of the constituent corporations shall cease c. The surviving or the consolidated corporation shall possess all the rights, privileges, immunities, and powers and shall be subject to all the duties and liabilities of a corporation d. The surviving or consolidated corporation shall be responsible for all the liabilities and obligations of each constituent corporation as though such surviving or consolidated corporation had itself incurred such liabilities or obligation
The Right of Appraisal is Extinguished or Lost When
a. The shareholder withdraws the demand with the corporation's consent b. The proposed action is abandoned or rescinded by the corporation c. The SEC disapproves the action d. The dissenting stockholder fails to make a demand with the 30th day period e. There is Transfer of the shares by the dissenting shareholder f. The dissenting stockholder fails to submit his stock certificate within 10 days from demand of payment.
Voting through remote communication or in absentia is allowed only
a. When authorized by the By-laws b. When authorized by a majority of the directors c. Even without a provision in the By-laws, in corporations vested with public interest
Ways for Increasing the Capital Stock
a. by increasing the numbers of shares and retaining the par value; b. by increasing the par value of existing shares without changing the number of shares; c. by increasing the number of shares and increasing the par value.
Uncertified Shares
a. by means of a deed assignment b. such is duly recorded in the books of the corporation
Consequences of ultra vires acts
a. executed contract-courts will not set aside or interfere with such contracts b. executory contracts- no enforcement even at the suit of either party. c. part executed and part executory- principle against unjust enrichment will apply. d. executory contracts apparently authorized by ultra vires- the principle of estoppel shall apply
Liability for Crimes
Generally, corporations cannot be criminally liable because there is no law making them criminally liable. Corporations are incapable of intent hence, they cannot commit felonies that are punishable under the RCP. However, the RCCP now provides that if the offender is a corporation, the penalty may at the discretion of the court, be imposed upon such corporation responsible for the violation of the provisions of the RCCP or indispensable to its commission.
Isolated Transaction
It is a single or isolated transaction incidental and casual transaction, it cannot qualify as doing business since it lacks the element of continuity. In an isolated transaction, there is no intent on the part of the foreign corporation to engage in a progressive pursuit of the purpose of a business transaction
Subscription Contract
It is any contract for the acquisition of unissued stock in an existing corporation or the shares of a corporation still to be formed.
Procedure of Merger or Consolidation
a. The BOD of each corporation shall draw up a Plan of Merger or consolidation b. Approval by majority vote of each of the board of directors or trustees of the constituent corporations of the plan of merger or consolidation. c. Approval by the stockholders or members of each of such corporations at separate corporate meetings duly called for that purpose. d. Notice of such meetings shall be given to all stockholders or members in the same manner as giving notice of regular or special meetings
Remedies for Refusal to Inspect Records
a. The SEC shall conduct a summary investigation and issue an order directing the inspection or reproduction of the requested records b. Mandamus is a proper remedy if the stockholder is being improperly deprived of his right to inspect c. Criminal action
Existence of Apparent Authority may be ascertained through
a. The general manner in which the corporation holds out an officer or agent as having the power to act or in other words, he apparent authority to act in general with which it clothes him b. The acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof within or beyond the scope of his ordinary powers.
Requirements for the exercise of the right of inspection and reproduction
a. The right must be exercised at reasonable hours on business days; b. The director, trustee, stockholder or member has not improperly used any information he secured through any previous examination; c. Demand is made in good faith or for a legitimate purpose d. The inspecting or reproducing party must respect and is bound by confidentiality rule under prevailing laws such as the "Intellectual Property Code of the Philippines", "Data Privacy Act of 2012", "The Securities Regulation Code," and the Rules of Court. e. If the requesting party is not a stockholder or a competitor, director, officer, controlling stockholder or otherwise represents the interest of a competitor shall have no right to inspect or demand reproduction of corporate records.
Prohibited Acts
a. Unauthorized use of corporate name b. Violation of disqualification provision c. Violation of duty to maintain records, to allow their inspection or reproduction d. Willful certification of incomplete, inaccurate, false or misleading statements or reports e. Independent auditor collusion f. Obtaining corporate registration through fraud g. Fraudulent conduct of business h. Acting as intermediaries for graft and corrupt practices i. Engaging intermediaries for graft and corrupt practices j. Tolerating graft and corrupt practices k. Retaliation against whistleblowers
Personal and Solidary Liabilities of the Directors
a. When D/T or in appropriate cases, the officers of the corporations 1. vote or assent to patently unlawful acts of the corporation 2. act in bad faith or with gross negligence in directing the affairs of the corporation 3. Guilty of conflict of interest to the prejudice of the corporation b. When a director has consented to the issuance of watered stocks, or who having knowledge thereof, did not forthwith file with the corporate secretary his written objection thereto c. When D/T/O contractually agreed or stipulated to hold himself personally or solidarily liable with the corporation d. When a D/T/O is made by specific provisions of law, personally liable for his corporate actions.
Exceptions of self-dealing
a. When the first two conditions are absent, there must be ratification by the vote of the stockholders representing at least 2/3 if the OCS b. There is full disclosure of the adverse interest of the director or trustee involved at such meeting c. The contract is fair and reasonable
Without board resolution, the Shs or members may by
a.2/3 of OCS- delegate to the Board the power to amend the By-laws b Majority of the OCS- Revoke the power of the Board to amend the By-Laws which was previously delegated
Requirements for valid transfer of stocks
1. There must be delivery of the stock certificate; 2. The certificate must be endorsed by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and 3. To be valid against third parties, the transfer must be recorded in the books of the corporation
Limited capacity Doctrine
No corporation, under the Code, shall possess or exercise any corporate powers, except those conferred by law, its AOI, those implied from express powers and those as are necessary or incidental to the exercise of the powers so conferred. The corporation's capacity is limited to such express, implied and incidental powers.
Control Test
A corporation shall be considered a Filipino Corporation if the Filipino ownership of its capital stock is at least 60 % and where the 60-40 Filipino alien equity ownership is not in doubt.
Corporation by Prescription
A corporation that was not formally organized as such, but has been duly recognized by immemorial usage as a corporation, with rights and duties maintainable at law.
Stock Corporation
A corporation which has capital stock divided into shares and is authorized to distribute to holders of such shares, dividends or allotments of the surplus profits on the basis of the shares held.
Liability of the Directors for Watered Stocks
A director or officer of a corporation shall be liable to the corporation or its creditors, solidarily with the stockholder concerned for the difference between the value received at the time of issuance of the stock and the par or issued value of the same if he: a. Consents to the issuance of stocks for a consideration less than the par or issued value including those issued without consideration b. Consents to the issuance of stocks for a consideration other than cash, value in excess of its fair value c. Having knowledge of the insufficient consideration and does not file a written objection with the corporate secretary.
Doctrine of Corporate Entity
A fundamental principle of corporation law that a corporation is an entity separate and distinct from its stockholders and members and is not affected by the personal rights, obligations, and transactions of the latter.
Corporate Term Extension
No extension may be made earlier than 3 years prior to the original or subsequent expiry date unless there are justifiable reasons for an earlier extension as may be determined by the SEC
Limit on Term of Management Contract
No management contract shall be entered into for a period longer than five years for any one term.
Corporations which may not incorporate as One Person Corporation
Banks and quasi-banks, pre-need, trust, insurance, public and publicly-listed companies, and non-chartered government-owned and -controlled corporations may not incorporate as One Person Corporations: Provided further, That a natural person who is licensed to exercise a profession may not organize as a One Person Corporation for the purpose of exercising such profession except as otherwise provided under special laws.
Relationship Test
Conflict is between: a. the CPA and the public b. the CPA and the State insofar as its franchise, permit, or license to operate is concerned c. between the CPA and its stockholders, partners, members or officers and d. among the stockholders, partners or associates themselves.
For a corporation to be considered de facto, is certificate of incorporation required?
De facto existence requires certificate of incorporation. The filing of articles of incorporation and the issuance of the certificate of incorporation are essential for the existence of a de facto corporation. An organization not registered with the sec cannot be considered a corporation in any concept, not even as a corporation de facto
Cases when SHs' action is required: By majority vote (C3RAM)
a. Consideration for no-par shares b. Calling a meeting to remove directors. c. Granting Compensation other than per diems to directors d. Revocation of delegation to the BOD of the power to amend or repeal or adopt by-laws e. Amendments to by-laws f. Power to enter into Management contracts
Instrumentality or Three Pronged Control Test
a. Control b. Such control must have been used by the defendant to commit a fraud or wrong to perpetuate the violation of a statutory or legal right c. The said control and breach of duty must have proximately caused the injury or unjust loss complained of.
Specific powers (DID-SAC-ME)
a. Declare Dividends out of unrestricted retained earnings b. Increase or decrease capital stock/ Incur, create, or increase bonded indebtedness c. Deny pre-emptive right d. Sell, dispose, lease, encumber all or substantially all of corporate assets e. Acquire own shares f. Invest Corporate funds in another corporation or business or for any other purpose other than the primary purpose g. enter into Management contract h. Extension or shortening of corporate term
When Right of Payment(Fair Value) Ceases
a. Demand of payment is withdrawn with the consent of the corporation b. If the proposed corporate action is abandoned or rescinded by the corporation c. disapproved by the Commission where such approval is necessary d. If the Commission determines that such stockholder is not entitled to appraisal right.
Fundamental Rights of Shareholders
a. Direct or indirect participation in management b. Voting rights c. Right to remove directors d. Proprietary rights 1. Right to dividends 2. Appraisal Right 3. Right to issuance of stock certificate for fully paid shares 4. Proportionate participation in distribution of assets in liquidation 5. Right to transfer of stocks in corporate books 6. Pre-emptive Right e. Right to inspect books and records f. Right to be furnished with the most recent financial statement g. Right to review stocks unlawfully sold for delinquent payment of subscription h. Right to issuance of new certificates in lieu of lost, stolen or destroyed certificates i. Right to file individual suit, representative suit or derivative suit.
Conditions that must be present to Declare Dividends
a. Dividends can only be declared out of the unrestricted retained earnings; b. There is a resolution of the Board, or for stock dividends, Board approval with the concurrence of 2/3 of outstanding stock.
Majority of the OCS
a. Enter into a management contract b. Adopt amend repeal by-laws c. Voluntary dissolution where no creditors is affected
Articles of Merger/Consolidation Requisites:
a. Executed by each of the constituent corporations b. Signed by the president/vice-president c. Certified by the secretary/assistant secretary of each corporation
Instances where concurrence or ratification of the Stockholders/members necessary for the exercise of the powers of the corporation
a. Extend or shorten the corporate term b. Increase/decrease corporate stock c. Incur, create or increase bonded indebtedness d. Deny pre-emptive right after incorporation e. Sell, dispose, lease, encumber all or substantially all of corporate assets f. Invest in another corporation g. To declare stock dividends h. enter into management contract i. amend AOI j. Voluntary dissolution where creditors are affected
Remedies of Corporations to Enforce Payment of Stocks
a. Extrajudicial Delinquency sale at Public auction b. Judicial Action c. Collection from cash dividends and withholding of stock dividends.
Grounds for Piercing the Veil
a. Fraud piercing- justify wrong, protect fraud or defend a crime b. Alter-Ego Piercing-where the corporation is so organized and its affairs are so conducted as to make it merely an instrumentality, agency, conduit, or adjunct of another person or corporation. c. Public Convenience Piercing- When the corporation fiction is used to defeat public convenience or evade and existing obligation.
Cases within the jurisdiction of the RTC
a. Fraudulent devices and schemes employed by directors detrimental to the public interest and to other firms; b. Intra-corporate dispute and with the state in relation to their franchise and right to exist as such; c. Controversies in election, appointment of directors or trustees d. Petition to be declared in state of suspension of payments. e. Appointment of Rehabilitation Receiver of Management Committee.
Conversion OCP
a. From an Ordinary Corp to an OPC-When a single stockholder acquires all the stocks of an ordinary stock corporation, the latter may apply for conversion into an OPC. b. From OPC to Ordinary Stock-After due notice to the SEC of such fact and of the circumstances leading to the conversion and after compliance with all other requirements for stock corporations.
Liquidation after three years
a. If there is no trustee, the directors may be permitted to complete the liquidation by continuing as trustees by legal implication. b. Cases that were filed while the corporation was still in existence and remain pending when the three year liquidation period expired may be continued by the trustees or directors until rendition of the final judgment.
Requisites of Valid By-laws
a. It must be consistent with the Corporation Code b. It must be consistent with the AOI c. It must be reasonable and not arbitrary or oppressive d. It must not disturb vested rights, impair contract or property rights of stockholders or members or create obligations unknown by law.
Requisites for a Valid and Enforceable Proxy
a. It must be in writing b. Signed by the stockholder or member of; and c. Filed with the corporation before the scheduled meeting with the Corporate Secretary. d. No proxy shall be valid and effective for a period longer than five years at any one time.
Plan of merger or consolidation
a. Majority of each of the BOD/BOT of the constituent corporations of the plan of merger or consolidation; and b. At least 2/3 of the outstanding capital stock/membership of each corporation at separate corporate meetings duly called. Amendments to the plan of the merger or consolidation also requires approval by majority vote of each of the BOD and 2/3 vote
Resident Agent
a. May be an individual, who must be of good moral character and of sound financial standing, residing in the Philippines, or b. a domestic corporation lawfully transacting business in the Philippines, designated in a written power of attorney by a foreign corporation authorized to do business in the Philippines, on whom any summons and other legal processes may be served in all actions or other legal proceedings against the foreign corporation
Limitations on the Issuance of Redeemable Shares
a. May be issued only when expressly provided in the AOI b. The terms and conditions affecting said shares must be stated both in the AOI and in the certificate of stock c. May be deprived of voting rights in the AOI d. The corporation is required to maintain a sinking fund to answer for redemption price if the corporation is required to redeem e. Deemed retired upon redemption f. Unrestricted retained earning is not necessary before shares can be redeemed but there must be sufficient assets to pay the creditors and to answer for operations.
Amendment of By-laws
a. May be made by the Shs together with the BOD or Trustees b. By the Board only 1. Shs/members together with board: Majority of the board, plus majority of the OCS or members may amend or repeal the by-laws 2. By the board as delegated by 2/3 of OCS
Post incorporation;By-laws
a. Must be approved by stockholders constituting at least a majority of outstanding capital or at least a majority of the members in case of non stock corporation. b. Copy must be filed with and approved by the SEC and attached to the original AOI
Qualifications of a Director
a. Must own at least one share of the capital stock, which stock shall stand in his own name. b. Must not be disqualified under Sec. 26 if the RCCP and other laws and regulations c. Must be of legal age
Effect of Delinquency
a. No delinquent stock shall be voted for or be entitled to vote or to representation at any stockholders' meeting. b. The holder thereof shall not be entitled to any of the rights of a stockholder except the right to dividends. c. Delinquent stocks shall be subject to delinquency sale. Delinquent holders are still entitled to dividends, however, a. Cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses and b. Stock dividends shall be withheld from the delinquent stockholders until their unpaid subscription is fully paid.
Involuntary Dissolution under the RCC
a. Non-use of corporate charter b. Continuous inoperation of a corporation c. Upon receipt of lawful court order dissolving the corporation d. Upon finding by final judgment that the corporation procured its incorporation through fraud e. Upon finding by final judgment that the corporation: 1. was created for the purpose of committing, concealing or aiding the commission of securities violations, smuggling, tax evasion, money laundering or graft and corrupt practices; 2. Committed and aided in the commission of securities violations, smuggling, tax evasion, money laundering or graft and corrupt practices, and its stockholders knew of the same; and 3. Repeatedly and knowingly tolerated commission of graft and corrupt practices or other fraudulent or illegal acts by its directors, trustees, officers or employees.
Corporate Officers
a. President who shall be a director b. Treasurer who may or may not be a director but must be a resident c. Corporate Secretary who must be citizen and resident of the Philippines d. Compliance Officer for corporations vested with public interest e. such other officers as may be provided in the By-laws
Amendment of AOI
a. Requires the majority vote or written assent of the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of members of non-stock corporation
Documents that should be filed by the SEC
a. Reservation of the corporate name b. AOI and By-laws c. Certificate of authority or favorable recommendation from proper government agency for the incorporation of banks, banking and quasi--banking, pre-need and NSSLAs d. Cover sheet
Manner of Voting
a. Stockholder must have voted against the corporate act. b. Stockholder must make a written demand after the vote was taken for payment of the fair value of his shares. c. Stockholder must submit his certificates of stock to the corporation for notation within 10 days after demand for payment.
Requisites for the Acquisition of Corporate Shares
a. That there shall be Unrestricted retained earnings; b. That it be for a Legitimate and proper corporate purpose; and c. That the corporation acts in Good faith and without prejudice to the rights of creditors and stockholders.
Grounds When AOI or Amendment may be Disapproved
a. The AOI is or any amendment thereto is not substantially in accordance with the form prescribed therein b. The purpose or purposes of the corporation are patently unconstitutional, illegal, immoral or contrary to government rules and regulations c. The certification concerning the amount of capital stock subscribed and paid is false d. The required percentage of Filipino ownership of the capital stock under existing laws or the Constitution has not complied with
Close corporations
one whose articles of incorporation provide that: a. All the corporation's issued stock of all classes, exclusive of treasury shares, shall be held of record by not more than a specified number of persons, not exceeding 20; b. All the issued stock of all classes shall be subject to one or more specified restrictions on transfer permitted by this Title; and c. The corporation shall not list in any stock exchange or make any public offering of any of its stock of any class.
Doctrine of Equality of Shares
Except as otherwise provided in the articles of incorporation and stated in the certificate of stock, each share shall be equal in all respects to every other share.
Power to Acquire own Shares
For a legitimate corporate purpose/s including but not limited to the following: a. To eliminate fractional shares arising out of stock dividends b. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquency sale, and to purchase delinquent shares sold during said sale; and c. To pay dissenting or withdrawing stockholders
Beneficial Ownership Test
Full legal and beneficial ownership of 60% of the outstanding capital stock must rest in the hands of Filipinos.
Requisites for issuance of license to do business
1. A copy of its articles of incorporation and bylaws, certified in accordance with law, and 2. Their translation to an official language of the Philippines, if necessary. 3. A certificate under oath duly executed by the authorized official or officials of the jurisdiction of its incorporation, attesting to the fact that: a. The laws of the country or State of the applicant allow Filipino citizens and corporations to do business therein; b. The applicant is an existing corporation in good standing 4. Oath of Reciprocity- A statement under oath of the president or any other person authorized by the corporation: a. Showing to the satisfaction of the Commission b. Setting forth the assets and liabilities of the corporation
Requirements for the exercise of the right of inspection
1. It must be exercised at reasonable hours on business days and in the place where the corporation keeps all its records. 2. The stockholder has not improperly used any information he secured through any previous examination. 3. Demand is made in good faith or for a legitimate purpose.
Power to extend or shorten corporate term
1. Must be approved by majority vote of the BOD/ BOT 2. Ratified at a meeting by shareholders representing 2/3 of the outstanding capital stock/ 2/3 of members of non-stock corporations 3. Written notice of meeting (includes proposed action, time and place of meeting) shall be addressed to each shareholders/member at his place of residence and deposited to the addressee in the post office, or served personally 4. Appraisal right may be exercised by the dissenting stockholder for BOTH extension and shortening of corporate term
Common Shares
A basic class of stock ordinarily and usually issued without extraordinary rights and privileges.
Executive Commitee
A body created by the by-laws and composed of not less than 3 appointed members of the board which, subject to the statutory limitations, has all the authority of the board to the extent provided in the board resolution or by-laws.
Theory of General Capacity
A corporation is empowered to exercise any act which is in direct and immediate furtherance of its business, fairly incident to the express powers, and reasonably necessary to their exercise, even if said power is not expressly granted in the Corporation Code.
Treatment of Profits of a Non-stock Corporation
A non-stock corporation may not generally engage in profit making business. It may, however, invest its corporate funds in order to earn additional income for paying its operating expenses and meeting benefit claims.
Independent Director
A person who, apart from the shareholdings and fees received from the corporation, is independent from management and free from any business or other relationship which could or could reasonably be perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director.
Promoter
A self constituted organizer who finds an enterprise or venture and helps to attract investors, forms a corporation and launches it in business, all with a view to promoting profits.
Pre-incorporation subscription
A subscription for shares of stock of a corporation still to be formed. It is irrevocable for a period of at least 6 months from the date of subscription unless a. all of the other subscribers consent to the revocation or b. the incorporation fails to materialize. It is also irrevocable after the AOI is submitted to the Commission.
Representative Suit
A suit brought by the stockholder in behalf of himself and all other stockholders similarly situated when a wrong is committed against a group of stockholders.
Underwriting Agreement
An agreement between a corporation and a third person, termed as underwriter, by which the latter agrees, for a certain compensation, to take a stipulated amount of stocks or bonds, specified in the underwriting agreement, if such securities are not taken by those to whom they are first offered.
Corporation
An artificial being created by operation of law, having the right of succession and the powers, attributes and properties expressly authorized by law or incident to its existence.
When board meeting is unnecessary or improperly held
Any action by the directors of a close corporation without a meeting shall nevertheless be deemed valid if: 1. Before or after such action is taken, written consent thereto is signed by all the directors; or 2. All the stockholders have actual or implied knowledge of the action and make no prompt objection thereto in writing; or 3. The directors are accustomed to take informal action with the express or implied acquiescence of all the stockholders; or 4. All the directors have express or implied knowledge of the action in question and none of them makes prompt objection thereto in writing
VTA v Proxy
As to Nature, the trustee votes as owner while the proxy holder votes as special agent. As to Legal Title, a trustee acquires legal title to the shares of the transferring stockholder while a proxy has no legal title to the shares of the principle. As to Restrictions on voting, A trustee can vote and exercise all the rights of the stockholder while a proxy can only vote in the absence of the owners of the stock. As to Revocability, VTA is irrevocable while proxy is revocable anytime except if coupled with an interest.
Duty of Diligence
Directors shall not willfully and knowingly vote for or assent to patently unlawful acts of the corporation or act in bad faith or with gross negligence directing the affairs of the corporation.
Corporation by Estoppel; Third person
Doctrine of corporation by estoppel applies when a non-existent corporation enters into contracts or dealings with third persons. In which case, the person who has contracted or otherwise dealt with the non-existent corporation is estopped to deny the latter's legal existence in any action involving such contract or dealing.
Continuity Test
Doing business implies a continuity of commercial dealings and arrangements, or performance of acts normally incidental to the purpose and object of the organization.
Dissolution by Shortening Corporate Term
Done by amending the Articles of Incorporation. The dissolution takes effect on the day following the expiration of the term without need of issuance by the SEC of a certificate of dissolution
Subscription requirements
Each incorporator of a stock corporation must own or be a subscriber at least one share of the capital stock
Cumulative Voting for 1 candidate
He may cumulate said shares and give one candidate as many votes as the number of directors to be elected multiplied by the number of his shares shall equal.
Cumulative Voting by Distribution
He may distribute them on the same principle among as many candidates as he shall see
Effects of non-use of Corporate Charter
If a corporation 1. does not formally organize and 2. commence its business within five (5) years from the date of its incorporation, its certificate of incorporation shall be deemed revoked as of the day following the end of the five-year period.
Delinquent Corporation
If a corporation has commenced its business but subsequently becomes inoperative for a period of at least five (5) consecutive years, the Commission may, after due notice and hearing, place the corporation under delinquent status. A delinquent corporation shall have a period of two (2) years to resume operations and comply with all requirements that the Commission shall prescribe. Failure to comply with the requirements and resume operations within the period given by the Commission shall cause the revocation of the corporation's certificate of incorporation. A corporation may also be placed under delinquent status if it fails to comply with the reportorial requirements three times, consecutively or intermittently within a period of 5 years.
Disqualification of Directors, Trustees or Officers
If within 5 years prior to election or appointment, the person was a. convicted by final judgment 1. of an offense punishable by imprisonment for a period exceeding six years 2. for violating this code; and for violating The SRC. b. found administratively liable for any offense involving fraud acts; and c. by a foreign court or equivalent foreign regulatory authority for acts, violations or misconduct
Required Subscription in case of Increase of Capital Stock
In case of increase of capital stock a. 25% of the increase in capital stock must be subscribed b. at least 25% of the subscription must be paid either in actual cash or property.
Capital requirement for percentage of Filipino ownership
In the case of Roy III v Herbosa, for purposes of determining compliance with the constitutional or statutory ownership, the required percentage of Filipino ownership shall be applied to both the a. total number of outstanding shares of stock entitled to vote in the election of directors; and b. the total number of outstanding shares of stock, whether or not entitled to vote.
Interest of the director in both corporations is substantial
Interests of the interlocking director in the corporations are both substantial(stockholdings exceed 20% of OCS) is valid. It is voidable at the option of the Corporation if the contract is fraudulent or not fair an reasonable.
Non-Stock Corporation
It is one where no part of its income is distributable as dividends to its members, trustees or officers.
Pre-incorporation; By laws
It may accompany the AOI which must be approved and signed by all incorporators.
Unpaid Claim
It refers to any unpaid subscription, and not to any indebtedness which a subscriber or stockholder may owe the corporation arising from any other transaction
Founder's shares
May be given certain rights and privileges not enjoyed by the owners of other stocks. Where the exclusive right to vote and be voted for in the election of directors is granted, it must be for a limited period not to exceed five (5) years from the date of incorporation: Provided, That such exclusive right shall not be allowed if its exercise will violate Commonwealth Act No. 108, otherwise known as the "Anti-Dummy Law"; Republic Act No. 7042, otherwise known as the "Foreign Investments Act of 1991"; and other pertinent laws.
Trust Fund Doctrine
Means that the capital stock, properties, and other assets of the corporation are regarded as equity in trust for the payment of corporate creditors. The doctrine considers the subscribed capital as a trust fund for the payment of the debts of the corporation, which the creditors have the right to look for the satisfaction of their credits.
Recovery of Moral Damages
Moral damages cannot be awarded in favor of corporations because they do not have feelings and mental state. A statement that a corporation may recover moral damages if it "has a good reputation that is debased, resulting in social humiliation' is an obiter dictum. However, the SC ruled that a corporation can recover moral damages if it was the victim of defamation.
Issuance of Certificate of Stock
No certificate shall be issued if there is unpaid subscription. The certificate of stock will be issued only when the full amount of the subscription, together with interest and expenses if due, has been paid.
Limitations on use of Corporate Name
No corporate name shall be allowed by the SEC if: a. it is not distinguishable from that already reserved or registered for the use of another corporation; b. it is already protected by law; or c. its use is contrary to existing law, rules and regulation. Otherwise, the SEC may summarily order the corporation to immediately cease and desist from using such name and require the corporation to register a new one.
Insider Reverse Piercing
Occurs when the controlling members will attempt to ignore the corporate fiction in order to take advantage of a benefit available to the corporation, such as an interest in a lawsuit or protection of personal assets.
Stock and Transfer Agent
One engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines upon securing a license from the Commission and the payment of a fee to be fixed by the Commission, which shall be renewable annually.
Eleemosynary Corporation
One established for or devoted to charitable purposes or those supported by charity.
Corporation sole
One formed for the purpose of administering and managing, as trustee, the affairs, property and temporalities of any religious denomination, sect or church by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of such religious denomination, sect or church.
Public Corporation
One formed or organized for the government of a portion of the state. Its purpose is for the general good and welfare.
Pre-emptive Right
The preferential right of shareholders to subscribe to all issues or disposition of shares of any class in proportion to their stockholdings. Its purpose is to enable the shareholder to retain his proportionate control in the corporation and to retain his equity in the surplus.
Constituent Corporations
Parties to a merger or consolidation.
Unrestricted Retained Earnings include
Shall only include accumulated profits and gains realized ou of the normal and continuous operation of the company which is a. not appropriated by its BOD for corporate expansion project or programs; b. not covered by a restriction for dividend declaration under a loan agreement; c. not required to be retained under special circumstances such as when there is a need for special reserve for probable contingencies.
Watered stocks
Shares issued as fully paid when in truth no consideration is paid or the consideration received is known to be less than the par value or issued value of shares.
Redeemable Shares
Shares issued by the corporation, which may be purchased by the corporation from the holders of such shares upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions stated in the articles of incorporation and the certificate of stock representing the shares, subject to rules and regulations issued by the Commission.
No Par Value Shares; Limitations
Shares of stocks issued without par value shall be deemed fully paid and non-assessable and the holder of such shares shall not be liable to the corporation or to its creditors in respect thereto. a. It must be issued for a consideration at least 5 pesos per share b. It shall be treated as capital and shall not be available for distribution as dividends c. Cannot be issued as preferred stocks d. The AOI must state the fact that it issued no-par value shares as well as the number of shares.
Escrow Shares
Shares subjected to an agreement by virtue of which the shares are deposited by the grantor or his agent with a third person to be held by the latter until the performance of a certain condition.
Exceptions of retaining surplus profits
Stock corporations are prohibited from retaining surplus profits in excess of 100 of their paid in capital stock. However, even if the retained surplus profits are in excess of 100 of the paid in capital stock, the Board may still refuse to declare dividends if: 1. Justified by definite corporate expansion projects/programs approved by the board 2. The corporation is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign from declaring dividends without his consent and such consent has not been secured 3. It can be clearly shown that such retention is necessary under special circumstances obtaining in the corporation
Nature of Controversy Test
That the dispute among the parties be intrinsically connected with the regulation of the corporation.
Doctrine of Centralized Management
The Board is the seat of corporate powers. All businesses of the corporation shall be conducted and all its properties shall be controlled and held by the BOD or Trustees. A corporation can act only through its directors and officers.
Retained earnings
The accumulated profits realized out of normal and continuous operations of the business after deducting therefrom distributions to stockholders and transfers to capital stock or other accounts.
Investment in Another Business or Corporation
The approval/ratification by stockholders or members representing 2/3 of the outstanding capital stock is necessary only if the investment of corporate funds in another corporation is for any purpose other than the primary purpose for which the corporation was organized. f
When are Independent Directors Required
The board of the following corporations vested with public interest shall have independent directors constituting at least 20% of such board: a. Corporation covered by Section 17.2 of RA No. 8799 otherwise known as "The SRC, namely those whose securities are registered with the Commission, corporations listed with an exchange or with assets of at least 50M and having 200 or more holder of shares, with at least 100 shares of a class of its equity shares. b. Banks and quasi-banks, NSSLAs, pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial intermediaries; and c. Other corporations engaged in business vested with public interest as may be determined by the Commission.
Liability of the Promoter
The promoter is primarily liable for contracts or agreements with third persons contracted in behalf of the corporation if the corporation does not ratify the same or unless the agreement was expressly made subject to such approval or ratification.
Self-Dealing Directors
The contract is voidable at the option of the corporation. The contract with self-dealing director, trustee, officer or their covered relatives is valid if the following conditions are present: 1. The presence of D/T was not necessary to constitute a quorum for such meeting 2. His vote was not necessary for the approval of the contract 3. The contract is fair and reasonable under the circumstance 4. In case of an officer, the contract has been previously authorized by the BOD
Interest of the Interlocking Director is Substantial in one, Nominal in another; Exceptions
The contract shall be voidable at the option of the corporation where the interlocking director has nominal interest. Exceptions: It will be valid if: 1. His presence in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting 2. His vote was not necessary for the approval of the contract and 3. The contract is fair and reasonable.
De Facto Corporation
The due incorporation of any corporation claiming in good faith to be a corporation and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry may be made by the Solicitor General in a quo warranto proceeding.
Dissolution
The extinguishment of its franchise and the termination of its corporate existence or business purpose.
Priority of Adoption Rule
The first to adopt the name has better right.
Nell Doctrine
The general rule is that the transferee/buyer of all or substantially all of the assets or even shares will not be liable for the debts and liabilities of the transferor. Except: a. if there is an express assumption of liabilities; b. there is a consolidation or merger; c. if the purchase was in fraud of creditors; and d. if the purchaser becomes a continuation of the seller. e. business enterprise transfer
Creation of Emergency Board
The remaining Directors or Trustees, even if there is no quorum may elect a temporary Replacement D/T subject to the ff requirements: 1. The remaining directors or trustees do not constitute a quorum 2. There is a need for emergency action 3. Action is necessary to prevent grave, substantial and irreparable loss or damage to the corporation 4. Temporary replacement must come from the officers of the corporation 5. Must be elected by a unanimous vote of the remaining D/T 6. Notice must be given to the SEC within 3 days from the creation of an emergency board.
Filing of Vacancies
The replacement Director or Trustee must be elected 1. By the stockholders or members if the vacancy occurs because of a. Removal b. Expiration of term c. The ground is other than removal or expiration of term where the remaining directors do not constitute a quorum d. Increase in the number of director or trustees 2. By the board if the remaining directors/trustees constitute a quorum-cases not reserved to stockholders like vacancies arising from resignation or death of director or trustee
Corporate By-Laws
The rules and regulations or private laws enacted by the corporation to regulate, govern and control its own actions, affairs and concerns, and of its stockholders or members and directors and officers in relation thereto and among themselves in their relation to the corporation.
Officers of OPC
The single stockholder shall be the sole director and president of the OPC Within 15 days from the issuance of COI, the OPC shall appoint a treasurer, corporate secretary and other officers as it may deem necessary and notify the SEC within 5 days from appointment.
Nominee
The single stockholder shall designate a nominee and an alternate nominee who shall, in the event of the single stockholder's death or incapacity, take the place of the single stockholder as director and shall manage the corporation's affairs.
Characteristics of Close Corporation
The stockholders themselves can directly manage the corporation and perform the functions of directors without the need of election as may be provided in the AOI. a. When they manage the business of the corporation, stockholders are liable as directors b. There is no need to call a meeting to elect directors c. The stockholders are liable for tort
Holdover Principle
The term of directors is one year. Directors must be replaced by the stockholders or members in an election when their term of office expires. The loss of right of directors is automatic upon expiration of term. However, if election is not held, the director whose term expired can continue to function in a hold-over capacity.
Business-Enterprise Transfer
The transferor transfers both its assets and business and the transferor is left with its juridical existence devoid of its industry or earning capacity. Transferee is liable for the debts and liabilities of his transferor arising from the business enterprise conveyed and does not require the existence of fraud against the creditors before it takes full force and effect. Alternative: Where the transferee corporation or successor-in-interest of the transferor corporation.
Voting Trust Agreement Rights
The trustee can be voted as director because the trustee will acquire legal title that must also be recorded in the stock. If the voting trust is a requirement for a loan agreement, period may exceed 5 years but shall automatically expire upon full payment of the loan.
Accomplished Fact Rule
There are entries in the AOI that cannot be amended because they are accomplished facts.
Interlocking Directorship
There is interlocking directorship when the two corporations share one or more directors/ When one of the directors in one corporation is a director in another corporation.
Intra-corporate Controversy
There is intra-corporate controversy if it arises out of intra-corporate or partnership relations between any or all of the parties and the corporation, partnership, or association of which they are stockholders, members or associates.
Delinquent Shares
These are shares which the corresponding subscription or balance remains unpaid after a grace period of 30 days from the date specified in the contract of subscription or from the date stated in the call made by the BOD. As a result, all stocks covered by the subscription are declared delinquent and subject to sale.
Ultra Vires Acts
Those acts which a corporation is not empowered to do or perform because they are not conferred by its AOI or by the RCC, or not necessary or incidental to the exercise of the powers so conferred.
Derivative Suit
Those brought by one or more stockholders/member in the name and on behalf of the corporation to redress wrongs committed against it or protect/vindicate corporate rights whenever the officials of the corporation refuse to sue, or are the ones to be sued, or cause of action to set aside wrongful acts committed by its directors and/or officers.
Foreign Corporation
Those formed, organized, or existing under any laws other than those of the Philippines and whose laws allow Filipino citizens and corporations to do business in its own country or state
Incorporators
Those stockholders who are named in the AOI, originally forming and composing the corporation, having signed the AOI and acknowledged the same before a notary public.
Corporators
Those who compose a corporation whether as a stockholder or shareholders in a stock corporation or as members in a non-stock corporation.
Doctrine of Piercing the Corporate Veil
Though the corporation has separate and distinct personality from its stockholders, such personality may be disregarded, or veil corporation fiction may be pierced, attaching personal liability to the responsible person, if the personality is used as a shield to perpetrate fraud, to defeat public convenience, justify wrong or defend crime or use the entity as a mere alter ego, adjunct or business conduit.
Partnership
Two or more persons bind themselves to contribute money, property, or industry to a common fund with the intention of dividing the profits among themselves.
Philippine National under FIA
Under FIA a "Philippine National" is defined as a. A corporation organized under Philippine laws of which 60% of the capital stock outstanding and entitled to vote is owned and held by Filipino citizens; b. A corporation organized abroad and registered as doing business in the Philippines under the general law on corporations of which 100% of the capital stocks entitled to vote, belong to Filipinos.
Doctrine of Doing Business
Under the Continuity Test, doing business implies continuity of commercial dealings and arrangements, and contemplates to some extent the performance of acts or works or the exercise of some functions normally incident to and in progressive prosecution of, the purpose and object of its organization.
Secondary Franchise
Vested in the corporation and may ordinarily be conveyed or mortgaged under a general power granted to a corporation to dispose of its property, except such special or secondary franchises as are charged with the public use.
One becomes a Shareholder in a Corporation
When he a. Enters into a subscription contract with an existing corporation b. Purchases treasury shares from the corporation c. Acquires shares from existing shareholders by sale or any other contract, or through other modes of acquiring ownership like succession.
Merger
When one corporation absorbs another one or more corporation/s into a single corporation. One of the constituent corporations survives and remains in existent, while the other corporations are dissolved.
Corporate Opportunity
When the business opportunity is one which pertains to the primary business of the corporation and the corporation is in a financial position to exploit and profit from such opportunity.
When Jointly and Severally Liable
When the single stockholder cannot prove that the property of the OPC is independent of the stockholders personal property, the stockholder shall be jointly and severally liable for the debts and other liabilities of he OPC
Corporation by Estoppel
Where a group of persons misrepresent themselves as a corporation, they are subsequently estopped from claiming lack of corporate life in order to avoid liability. All persons who assume to act as a corporation knowing it to be without authority to do so.
Purposes of Non-stock Corporation
a. Charitable b. Religious c. Educational d. Professional e. Cultural f. Fraternal g. Literary h. Scientific i. Social j. Civil Service k. Similar purposes.
The Contents of the Stock and Transfer Book
a. All stocks in the name of the Shs which are alphabetically arranged; b. Amount paid and unpaid on all stocks and the date of payment of any installment c. Alienation, sale or transfer of stocks; and d. Other entries as the by-laws may prescribe.
Cases when SHs' action is required: By 2/3s vote
a. Amendment of AOI b. Increasing/decreasing of capital stock c. Incurring, creating, increasing bonded indebtedness d. Issuance of shares not subject to pre-emptive right e. Delegating the power to amend or repeal by-laws or adopt new by-laws f. Extending/shortening corporate term g. Sale/disposition of all or substantially all of corporate assets h. Investment of funds in another business i. Dividend declaration j. Power to enter into management contracts k. Removal of directors or trustees l. Ratifying contracts with respect to dealings with directors/trustees m. Ratifying acts of disloyalty of a director n. Stockholders' approval of the plan of merger or consolidation o. Plan distribution of assets in non-stock corporation p. Incorporation of a religious society q. Voluntary dissolution of a corporation
Where Non-Voting Shares are Entitled to Vote (AA-SI-I-MID)
a. Amendment of AOI; b. Adoption and amendment of by-laws; c. Sale, lease, exchange, mortgage, pledge or disposition of all or substantially all of corporate property; d. Incurring, creating or increasing bonded indebtedness; d. Incurring, creating or increasing bonded indebtedness; e. Increase or decrease of capital stock; f. Merger or consolidation; g. Investments of corporate funds in another corporation or business in accordance with this Code; and h. Dissolution of the corporation
Instances when Appraisal Right may be Exercised (Acac-SIM-C)
a. Amendment to the articles that have the effect of: 1. Changing or Restricting the Rights of Shareholders 2. Of Authorizing Preferences over those of Outstanding Shares. b. Changing the Term of Corporate Existence. c. SLEMPOD of all or substantially all of the corporate property or assets d. Investment of corporate funds in another corporation for any purpose other than the primary purpose e. Merger or consolidation f. In a close corporation, a stockholder may, for any reason, compel the corporation to purchase his shares when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock.
Binding Effects of By-laws
a. As to Corporation and its components-binding not only upon the corporation but also on its Shs,members and those having direction, management and control of its affairs. b. As to third persons- not binding unless there is actual knowledge.
Distinguish Corporation from Partnership
a. As to manner of creation- Issuance of the certificate of incorporation by the Sec; Created by mere agreement b. As to number of organizers-may be only one incorporator; at least two c. As to powers-more restricted in its powers because of its limited personality;Subject only to what may be agreed upon by the partners. d. Authority of those who compose-Shs are not agents of the corporation in the absence of express authority; There is mutual agency and each general partner can represent and bind the partnership. e. Transfer of interest- Corporate shares are freely transferable without he consent of other Shs; Cannot be transferred without the consent of the other partners. f. Succession- There is right of succession; none g. As to capacity to be a partner/Shs- A corporation can also now be a partner in a partnership and Joint venture; A partnership can be a stockholder/incorporator
One Person Corporation: Excepted corporations
a. Banks, Quasi banks, preneed, trust, insurance, public and publicly listed companies and non chartered GOCCs. b. A natural person who is licensed to exercise a profession may not organize as a One person corporation
Who may declare dividends
a. Board of Directors alone-cash and property dividends b. Board of Directors, with the approval of Shs representing not less than 2/3 of Outstanding capital in a meeting called for the purpose-stock dividends
Consideration of Stocks (CaPAL-POSO)
a. CAsh actually received; b. Property, tangible or intangible, actually received and necessary or convenient for its use and lawful purposes; c. Amount transferred from unrestricted retained earnings to stated capital; d. Labor or services actually rendered to the corporation; e. Previously incurred corporate indebtedness; f. Outstanding shares in exchange for stocks in the event of reclassification. g. Shares of stock in another corporation; or h. Other generally accepted form of consideration.
