Professional Documents
Culture Documents
ATTRIBUTES OF A CORPORATION:
1.
2.
3.
4.
It is an artificial being;
It is created by operation of law;
It has the right of succession; and
It has only the powers, attributes and properties expressly
authorized by law or incident to its existence.
3 Classes of Piercing:
1. Fraud cases when a corporation is used as a cloak to
cover fraud or to do wrong
2. Alter ego cases when the corporation is merely a farce
since the corporation is an alter ego, business conduit or
instrumentality of a person or another corporation
3. Equity cases to achieve justice or equity
2.
3.
4.
5.
2.
3.
4.
5.
6.
7.
CAPITAL STRUCTURE
1. Capital stock amount fixed in the corporate charter to be
subscribed and paid in cash, in kind or in property at the
organization of the corporation or afterwards and upon
which the corporation is to conduct its operation
2. Capital value of the actual property of the corporation
whether in money or property
3. Authorized capital stock capital stock divided into
shares of par values as specified in the AOI
4. Subscribed capital stock amount of the capital stock
subscribed whether fully paid or not
5. Outstanding capital stock portion of the capital stock
issued to subscribers except treasury shares
6. Paid-up capital stock portion of the subscribed or
outstanding capital stock that is paid
7. Unissued capital stock portion of the capital stock that
is not issued or subscribed; does not vote and draws no
dividends
8. Legal capital amount equal to the aggregate par value
and/or issued value of the outstanding capital stock.
CLASSES OF SHARES
3. of legal age;
4. majority must be resident of the Philippines (not necessarily
citizens of the Philippines except when the law requires
minimum Filipino participation);
Nota Bene: Filipino Citizenship requirement
a.) 100% Filipino owned
1.) Mass media;
2.) Retail trade (less than US$ 2,500,000);
3.) Small-scale mining;
4.) Private security agencies;
b.) 80% Filipino owned private radio communications
network
c.) 70% Filipino owned
1.) Pawnshop;
2.) Advertising
d.) 60% Filipino owned
1.) Utilization, exploration, development of natural
resources
2.) Public utilities
3.) Banking
e.) 40% Filipino owned
1.) Financing companies regulated by the SEC;
2.) Investment houses regulated by the SEC
5. each must own or subscribe to at least one share
There must be at least five (5) stockholders in a stock
corporation.
STEPS IN THE CREATION OF A CORPORATION
1. Promotion a promoter is a person who, acting alone or
with others, takes initiative in founding and organizing the
business or enterprise of the issuer and receives
consideration therefore.
a.) Discovery
b.) Investigation
c.) Assembly
2. Incorporation
a.) Drafting and execution of AOI by the incorporators and
other documents required for registration of the corp;
b.) Filing with the SEC of the AOI;
c.) Payment of filing and publication fees; and
d.) Issuance by the SEC of the certificate of incorporation.
PRINCIPAL OFFICE
- Must be the exact complete address (SEC requirement);
must be the city or town, not merely the province
- Metro Manila can no longer be stated as principal office
- Change of address
a.) Change of city or municipality amendment of the AOI
to be filed with the SEC
b.) If located within the same city or municipality notice
only regarding the change of address
COMMENCEMENT OF CORPORATE EXISTENCE
- A corporation commences to have juridical personality and
legal existence only from the moment the SEC issues to the
incorporators a certificate of incorporation under its official
seal. Once issued, the certificate becomes the charter or
corporate franchise from which the authority of the
corporation to operate as such flows.
Religious corporations from and after the filing with the
SEC of the AOI, the chief archbishop, etc. shall become a
corporation sole
Cooperatives upon registration with the Cooperatives
Development Authority (RA 6938, Sec. 16)
AMENDMENT OF AOI (Sec 16)
Corporate Charter an instrument or authority from the
sovereign power bestowing the right or privilege to be and
act as a corporation.
vs. BY-LAWS:
By-Laws
Rule for the internal government
of the corporation but has the
force of a contract between the
corporation and the
stockholders/members and
between the stockholder and
members themselves
Usually executed after the
incorporation although Sec. 46
allows simultaneous filing of the
two
A condition subsequent
acquisition of corporate
existence
Amended by a majority of the
directors/trustees and
stockholders representing 2/3 of
the outstanding capital stock or
2/3 of the members in case of
non-stock corporations
Power to amend/repeal articles
cannot be delegated by the
stockholders/members to the
BOD/BOT
2.
3.
4.
5.
6.
TERM OF OFFICE
- Hold office for one (1) year until their successors are elected
and qualified
Holdover Principle If no election is conducted or no
qualified candidate is elected, the directors or trustees shall
continue to act as such in a hold-over capacity until an
election is held and a qualified candidate is so elected.
GENERAL RULE Unless otherwise provided in the Code, all
corporate powers and prerogatives are vested directly in the Board
of Directors or Trustees.
Exceptions:
1. In case of an Executive Committee authorized in the bylaws;
2. Contracted manager which may be an individual, a
partnership or another corporation (Note Sec. 44 if
contracted manager is another corporation);
3. Close corporations stockholders may directly manage the
business of the corporation instead, if the AOI so provide.
2.
3.
4.
5.
Requisites:
1. With or without cause, by a vote of 2/3 of OCS or by 2/3 of
the members in a non-stock corporation
Exception: when a director has been elected by virtue of the
minoritys exercise of cumulative voting rights, such director
may be removed only for cause. (Sec. 28)
2. Takes place either at a regular/special meeting called for the
purpose
3. With previous notice of the time and place of such meeting,
as well as of the intention to propose such removal
May be called at the instance of any SH or member:
a.) If officers refuse to call a meeting to consider the
removal of the director
b.) With due notice
VACANCIES IN THE OFFICE OF DIRECTOR OR TRUSTEE
A vacancy in the office of director or trustee may be filled as
follows:
1. By the Stockholders or Members:
a.) If the vacancy results from the removal by the
SHs/members;
b.) Expiration of term;
c.) If the vacancy occurs other than by removal or by
expiration of term such as death, abandonment,
resignation or disqualification, if the remaining
directors/trustees do not constitute a quorum for the
purpose of filling the vacancy;
d.) If the vacancy may be filled by the remaining
directors/trustees but the board refers the matter to
the SHs/members;
e.) If the vacancy is created by reason of an increase in
the number of directors or trustees.
2. By the members of the Board (if still with quorum)
at least a majority of them are empowered to fill any
vacancy occurring in the board OTHER than by:
a.) Removal by the SHs/members; or
b.) Expiration of term.
COMPENSATION OF BOARD MEMBERS (Sec 30)
G.R.: Directors are not entitled to receive any compensation
except for reasonable per diems.
Exceptions:
Consequences:
a.) Resolution, contracts and transactions of the Board
cannot be overturned or set aside by the SH or members
and not even by the courts under the principle that the
business of the corporation has been left to the hands of
the Board; and
b.) Directors and duly authorized officers cannot be held
personally liable for acts or contracts done with the
exercise of their business judgment.
Exceptions:
1.) When the Corporation Code expressly provides
otherwise;
2.) When the Directors or officers acted with fraud, gross
negligence or in bad faith;
3.) When Director or officers act against the corporation
in conflict-of-interest situation.
G.R. Directors and officers are not solidarily liable with the
corporation.
Exceptions:
In the following cases, personal liability may be incurred by
directors and trustees or the officers in some cases, when they:
1. Willfully and knowingly vote for and assent to patently
unlawful acts of the corporation (Sec 31);
2. Are guilty of gross negligence or bad faith in directing the
affairs of the corporation (Sec 31);
3. Acquire any personal or pecuniary interest in conflict of their
duty (Sec 31);
4. Consent to the issuance of watered stocks, or, having
knowledge thereof, fails to file objections with the secretary
(Sec 65);
5. Agree or stipulate in a contract to hold himself personally
liable with the corporation; or
6. By virtue of a specific provision of law.
Note: A director is not liable for misconduct of co-directors or other
officers unless:
1.) He connives or participates in it; or
2.) He is negligent in not discovering or acting to prevent it
REMEDIES IN CASE OF MISMANAGEMENT The remedies of the
stockholders in the event of mismanagement or abuse of powers
are the following:
a.) Receivership;
b.) Injunction if the act has not yet been done;
c.) Dissolution if abuse amounts to a ground for quo
warranto but Solicitor General refuses to act;
d.) Derivative suit or complaint filed with SEC
CONTRACTS OF SELF-DEALING DIRECTORS, TRUSTEES OR
OFFICERS (Sec 32)
Self-dealing D/T/O those who personally contract with
the corporation in which they are directors, trustees or
officers
- Such contracts are VOIDABLE at the option of the
corporation
UNLESS:
b.) Written notice of the proposed action and the time and
place of meeting shall be served to each stockholder or
member either by mail or personal service;
c.) Ratification in a meeting by 2/3 of the OCS or 2/3 of the
members, as the case may be.
This actually requires the amendment of the AOI; meeting
must be duly called for the purpose; dissenting stockholders
may exercise appraisal right.
The extension of corporate life cannot be made within the 3year liquidation period, because that would constitute new
business.
POWER TO INCREASE OR DECREASE CAPITAL STOCK; INCUR,
CREATE OR INCREASE BONDED INDEBTEDNESS (Sec 38)
Requirements:
a.) Majority vote of the members of the BOD/T;
b.) 2/3 vote of the OCS or the members, as the case may be, in
a meeting duly called for the purpose with notice previously
given;
c.) Certificate of said corporate act shall be signed by majority
of the members of the Board and the Chairman and
Secretary of the stockholders meeting;
Corporate act shall take effect from and after SEC approval.
d.) Certificate must be accompanied by the Treasurers Affidavit
certifying compliance with the 25%-25% requirements as to
stock subscription.
No decrease in capital stock shall be approved by SEC if it
will prejudiced corporate creditors;
Bonds issued by the corporation shall be registered with SEC
which is given the power to determine the sufficiency of the
terms of such bonds.
Note Well:
a.) When a corporation increases capital stock, stockholders are
entitled to a PRE-EMPTIVE RIGHT to subscribe to a sufficient
number of shares in order to maintain their previous relative
strong power. The corporation must give the stockholder a
reasonable period within which to exercise such right.
b.) Dissenting stockholders cannot exercise the right of
appraisal in this case.
TITLE V BY-LAWS
BY-LAWS rules of action adopted by a corporation for its internal
government and for the regulation of conduct, and prescribe the
rights and duties of its stockholders or members towards itself and
among themselves in reference to the management of its affairs.
FUNCTIONS:
1. Supplement the AOI;
2. Provide for details not important enough to be stated in the
AOI;
AOI
BY-LAWS
Nature
Condition precedent in the
Condition subsequent
acquisition of corporate
(absence merely furnishes a
existence
ground for the revocation of
the franchise)
Purpose
Essentially a contract
For the internal government
between the corporation and of the corporation but has
the SHs/members; between
the force of a contract
the SHs/members inter se;
between the corporation and
and between the corporation the SHs/members, and
and the State
between the SHs/members
Time of execution
Executed before
May be executed after
incorporation
incorporation (may be filed
simultaneously with the AOI)
Amendment
Amendment by a majority of
May be amended by a
the D/T and 2/3 of the
majority vote of the BOD and
OCS/members
majority of the OCS/members
TITLE VI MEETINGS
KINDS OF CORPORATE MEETINGS
1. Meetings of stockholders or members:
a.) Regular held annually on a date fixed in the by-laws, or
if not fixed, on any date in April as determined by the
board
b.) Special held at any time deemed necessary or as
provided in the by-laws
2. Meetings of directors or trustees:
a.) Regular held by the board monthly, unless the by-laws
provide otherwise
b.) Special held by the board at any time upon the call of
the president or as provided in the by-laws
Where? anywhere in or out of the Philippines, unless the
by-laws provide otherwise.
Note: Whenever there is no person authorized to call a meeting,
the SEC, upon petition of a stockholder or member, and on the
showing of good cause, may issue an order to the petitioning
Manner of voting
Trustee may vote in person or
Proxy must vote in person
by proxy unless the agreement
provides otherwise
Actions allowed
Trustee is not limited to act at
Proxy can only act at a
any particular meeting
specified stockholders
meeting (if not continuing)
Restrictions on voting
A trustee can vote and
A proxy can only vote in the
exercise all the rights of the SH absence of the owners of the
even when the latter is
stock.
present.
Period
Must not exceed 5 years at any Usually of shorter duration
one time except when the
although under Sec. 58 it
same is made a condition of a
cannot exceed 5 years at any
loan
one time
Separability of ownership and voting right
Voting right is divorced from
Right to vote is inherent in or
the ownership of stocks
inseparable from the right to
ownership of stock
Revocability
Agreement is irrevocable
Revocable anytime except one
which is coupled with interest
5. Contest
6. Replacement if no contest within the 1 year period
RIGHTS AND REMEDIES OF STOCKHOLDERS
1. Rights as to Control and Management
a.) Attend and vote in person/proxy at stockholders
meetings (Secs. 50, 58);
b.) Elect and remove directors (Secs. 24, 28);
c.) Approve certain corporate acts (Sec. 52);
d.) Compel the calling of meetings (Sec. 50);
e.) To have the corporation voluntarily dissolved (Secs. 118,
119);
f.) Enter into a voting trust agreement (Sec. 59);
g.) Adopt/amend/repeal the by-laws or adopt new by-laws
(Secs. 46, 48).
2. Proprietary Rights
a.) Transfer of stock in the corporate book (Sec. 63);
b.) Receive dividends when declared (Sec. 43);
c.) Issuance of certificate of stock (Sec. 63);
d.) Participate in the distribution of corporate assets upon
dissolution (Sec. 118, 119); and
e.) Pre-emption in the issue of shares (Sec. 39).
Note: Right of pre-emption extends to treasury shares in case of
their reissuance.
3. Remedial Rights
a.) Inspect corporate books (Sec. 74);
b.) Recover stock unlawfully sold for delinquency (Sec. 69);
c.) Demand payment in the exercise of appraisal right
(Secs. 41, 81);
d.) To be furnished recent financial statements (Sec. 75);
and
e.) To bring suits
1. Books of Account;
2. List of Stockholders or Members; and
3. Financial Records.
Persons given the right to inspect Corporate Books:
1. Any D/T/SH/member;
2. Voting trust certificate holder;
3. SH of a sequestered company; and
4. Beneficial owner of shares
Rights of stockholders to corporate books and records:
1. Right of inspection;
2. Right to demand a list of SHs;
3. Right to demand a detailed auditing of business
expenditures;
4. To examine books of the corporations subsidiary;
5. Right to financial statements. (Sec. 75)
NON-STOCK
Nature
Has capital stock, divided into
Does not have shares and may
shares and with authority to
not distribute profits to its
distribute dividends to its
members
stockholders
Meeting/Voting of members/SHs
SHs and directors must act in a Members may be allowed by
meeting, except where a mere
the by-laws to vote by mail or
assent is sufficient or a formal
other similar means
meeting unnecessary
Manner of voting
Cumulative voting is available
Cumulative voting not
CHARACTERISTICS:
1. SHs may act as directors without need of election and
therefore are liable as directors;
2. SHs who are involved in the management of the corporation
are liable in the same manner as directors are;
3. Quorum may be greater than mere majority;
4. Transfer of stocks to others, which would increase the
number of SHs to more than the maximum are invalid;
5. Corporate actuations may be binding even without formal
board meeting, if the SH had knowledge or ratified the
informal action of the others;
6. Pre-emptive right extends to all stock issues;
7. Deadlocks in board are settled by the SEC. on the written
petition by any SH; and
8. SH may withdraw and avail of his right of appraisal.
N.B.: Special rules are provided for close corporations because it is
essentially an incorporated partnership.
ORDINARY STOCK CORPORATION vs. CLOSE CORPORATION
ORDINARY STOCK
CLOSE CORPORATION
CORPORATION
Articles of Incorporation
Need only contain the general
Must contain the special
matters enumerated in Sec. 14 matters prescribed by Sec. 97,
of the code
aside from the general matters
in Sec. 14 (failure to do so
precludes a de jure close
corporation)
Ownership of stocks
Its status as an ordinary stock
2/3 of its voting stock or voting
a.)
b.)
c.)
d.)
e.)
f.)
g.)
h.)
Banks;
Insurance companies;
Mining companies;
Public utilities;
Oil companies;
Stock exchanges;
Educational institutions;
Other corporations declared to be bested with public
interest
REHABILITATION
Nature
Connotes a reopening or
reorganization
Connotes a winding up or
settling with creditors and
debtors
Continuity of corporate life
Winding up process so that
Contemplates a continuance of
assets may be distributed to
corporate life in an effort to
those entitled
restore the corporation to its
former successful operation