Business Organization 2

4. May a non-director become a member of

MIDTERMS
the Executive Committee?
1. Declaration of stock dividend equal to
Sec. 35 p.46 S
capitalization of URE; does it have an
No, a stockholder who is not a director
effect of decreasing the total assets of the
cannot be a member of the executive
corporation?
committee because the executive committee
Sec. 43 p. 50 LN
can only exercise such power within the
It is said that the declaration of stock competence of the board of directors and
dividends is equivalent to capitalization of appointment of a stockholder who is not a
the URE because such surplus profit is used director would result to undue delegation of
to purchase the unissued shares of stock of the powers of the BOD.

the corporation and are also the ones
5. Corporation by Estoppel vis--vis the
subsequently distributed as dividends.
Doctrine of Limited Liability

Sec. 21 p. 16 S
In effect, no assets left the coffers of the
The Doctrine of Limited Liability shall not
corporation and it is akin to a forced
apply to persons who assume to act as a
purchase of the shares of stock by the
corporation knowing it to be without
stockholders. The unrestricted retained
authority to do so. The law provides that
earnings were converted to capital by the
such persons shall be liable as general
forced purchase; thus capitalization
partners for all debts, liabilities and
occurred
damages incurred or arising as a result

thereof. Thus, being general partners, the
2. How are directors elected? liability goes beyond what he has
Sec. 24 p. 24 LN contributed to such association.

There shall be a quorum requirement but 6. A corporation must at all times have
NO voting requirement because the unrestricted retained earnings
candidate receiving the highest number of Exceptions:
votes shall be declared as elected. a.) in case of redemption of redeemable

3. Exceptions in the power to deny pre- shares;

emptive rights b.) in the exercise of the stockholders right
Sec. 39 p.53 S to compel a close corporation to
purchase his shares for any reason
All stockholders in a stock corporation shall under Sec. 105 when the corporation
enjoy pre-emptive right to subscribe to all has sufficient assets in its book to cover
issues or disposition of shares of any class, its debts and liabilities exclusive of
in proportion to their shareholding, unless capital stock;
such right is denied by the articles of c.) in case of deadlocks
incorporation or an amendment thereto:
Provided, that such pre-emptive right shall 7. Reasons for Decrease
not extend: Sec. 38 p. 52 S

a.) to shares to be issued is in compliance a.) to reduce or wipe out existing deficit
with laws requiring stock offerings or where no creditors would thereby be
minimum stock ownership by the affected;
public; or b.) when the capital is more than necessary
b.) to shares to be issued in good faith with to procreate the business or reduction
the approval of the stockholders of capital surplus
representing 2/3 of the outstanding c.) to write down the value of its fixed
capital stock: assets to reflect those present and
1. in exchange for property needed actual value in cases where there is a
for corporate purposes; or decline in the value of the fixed assets of
2. in payment of a previously the corporation
contracted debt

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Business Organization 2
8. What is the instrumentality rule? 11. Exceptions to the prohibition from
Where one corporation is so organized and retaining surplus profits in excess of
controlled and it is, in fact, a mere 100%
instrumentality or adjunct of the other, the Sec. 43 p.56 S

fiction of the corporate entity of the
GR: Stock corporations are prohibited from
instrumentality may be disregarded.
retaining surplus profits in excess of 100%

of its paid-up capital stock
Concept Builders v. NLRC

a.) Control, not mere majority or even Exceptions:

complete ownership of shares of stocks a.) when justified by definite corporate
but complete domination not only of the expansion projects or programs
finances but also of the business, approved by the BOD; or
policies and finances so that the b.) when the corporation is prohibited
corporation has no separate mind, will under any loan agreement with any
or existence of its own; financial institution or creditor without
b.) Such control must have been used by its consent and such consent has not yet
the defendant to commit fraud or been secured;
wrongdoing in contravention of the c.) when such retention is necessary as
plaintiffs legal right; and when theres a need for special reserve
c.) The aforesaid control and breach of for probable contingencies
duty must have been the proximate
cause of the injury or the wrong 12. Declaration of Stock Dividends, how to
complained of. determine amounts
d.) such control and breach of duty is the Sec. 43 p. 50+ LN
proximate cause of the damage or
unjust injury suffered by the ACS: 10M
complainant SC: 6M
PU: 3.5M
9. May the corporation be compelled to URE: 10M
declare dividends?
Sec. 43 p. 56 S Even with the approval of the stockholders,

the BOD cannot declare the entire URE of
PU: 5M 10M. Such declaration will result to over-
URE: 10M issuance of shares, it can only declare stock

Yes, the corporation may be compelled dividends up to the maximum amount of

because it cannot retain URE in excess of 4M; in such case the corporation shall be
100% of its paid-up capital and must fully subscribed and there will be no over-
declare the excess as dividends. In the case issuance.
at bar, P5M must be declared as dividends.
13. BP 22 as an exception to the Corporate
10. Removal of Directors/Trustees, with or Entity Theory
without cause? Llamado v. Uichico p. 38 S
The coporate entity theory cannot be used
Removal may be with or without cause as a defense to escape liability in violation of
provided, that removal without cause may BP 22. Where the check is drawn by a
not be used to deprive minority corporation, the persons who signed the
stockholders or members of the right of check shall be liable.
representation to which they may be
entitled.

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14. Exceptions to the requirement for the
valid exercise of the power to sell or
dispose corporate assets
Sec. 40 p. 53 S


a.) in case the sale is NOT covering all
or substantially all of the assets of
the corporation as to render it
incapable of continuing the
business or accomplishing the
purpose for which it was
incorporated; or
b.) if the sale is in the usual and regular
course of business of the company

General Rule:
Where a corporation sells or otherwise
transfers all of its assets to another
corporation, the latter is not liable for
the debts and liabilities of the transferor

Exceptions:
a.) where the purchaser expressly or
impliedly agrees to assume such
debts;
b.) where the transaction amounts to a
consolidation or merger of the
corporations;
c.) where the purchasing corporation
is merely a continuation of he
selling corporation; and
d.) where the transaction is entered
into fraudulently in order to escape
liability for such debts

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Audio Notes GR: Only natural persons may be
incorporators
A corporation may claim for moral damages E: Cooperatives may be incorporators
(Filipinas Broadcasting v. Ago Medical *No citizenship requirement; as long as
Center). Under Article 2219, which majority are residents of the Phils
authorizes the recovery of moral damages in
cases of libel, slander and other forms of Section 23
defamation. It does not qualify whether or shall stand in his name in the books of the
not the injured party is a natural or juridical corporation
person. Lee vs. CA
The SC interpreted this to mean that
Gonzales v. PNB beneficial or equitable ownership of shares
The Corporation Code shall not apply. PNB is no longer required in order that one may
may validly refuse the stockholder to qualify as a director. Thus, even if he is not
inspect the books of the corporation. the true or legal owner of the shares, as long
as he is listed in the books as holding at
Stock least one share of stock, he is qualified to be
Meetings within the vicinity of the principal a director.
office of the corporation
Only LEGAL ownership is required such that
Non-Stock even if you are holding the shares in trust
Meetings are allowed to be held anywhere for another person, you are qualified to be
within the Philippines and act as a director.

When are corporations vested with juridical PNB-IFL based in HK is wholly owned by PNB,
personality? how can they have a board?
GR: Upon issuance of the certificate of Assign 1 share each to your nominees in
incorporation by the SEC or agency trust for PNB. They qualify to be and act as
concerned. directors even if they are holding it in trust
E: Corporation Sole for PNB. For so long as your name is listed
The mere filing of the verified AOI will vest as holding at least one share of stock, you
upon the entity such juridical personality qualify to be and act as a director.

Corporate Name Gokongwei v. SEC
No need for actual confusion. It would The by-laws was amended to disqualify a
suffice that confusion is probably or most stockholder of San Miguel from becoming a
likely to occur. member of the governing board if he
happens to have substantial interest in
If the corporation would invest its funds to another corporation directly in competition
carry out any of the secondary purposes, with San Miguel and the SC ruled for the
would mere board action be sufficient? validity of such provision thus prohibiting
No, it requires the 2/3 vote of the John Gokongwei from becoming a member
stockholders/members entitled to vote of the governing board.

What if it was to carry out its primary Articles 23 & 27 are merely the minimum
purpose? qualifications/disqualifications. There may
Yes, a mere board resolution would suffice. be other laws providing for additional
qualifications/disqualifications.

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Capital Structure Corporate Entity Theory
Logically, there is a minimum ACS = P5,000 As a legal entity the corporation is
possessed with a personality separate and
Would all subscribers to the shares of stocks distinct from the stockholders or members
be required to pay at least 25% of their composing it. It is not affected by the
subscriptions? personal rights, liabilities, obligations or
ACS 1M transactions of its stockholders or members
SC 250,000
PU 62,500 The applicability is confined to legal uses
*Any one or two subscribers may pay the and is subject to equitable limitations to
P62,500. The other may not pay a single prevent its being used for fraud or illegality.
centavo and yet the corporation has complied
with the minimum capital structure Piercing the Veil of Corporate Fiction
requirement. When may the veil of corporate fiction be
pierced?
Do you include non-voting shares in When the notion of the legal entity is used
determining the voting requirement in to defeat public convenience, justify wrong,
validating a corporate act? protect fraud or defend crime, the law will
It depends. Sec 6 last paragraph regard the corporation as a mere
association of persons; or in case of two
How about in the election of directors? corporations, they will be merged into one
1M shares with one being a mere instrumentality of
200,000 non-voting shares the other.
What would be the vote required?
Majority 800,000 Mere ownership of all or majority of the
stocks will not be sufficient basis to
Only preferred and redeemable shares may disregard the corporate entity theory.
be denied the right to vote unless otherwise
provided under the Code. PNB v. Ritratto Group
The application of the doctrine must be
However, when founders shares are issued intertwined with the instrumentality rule.
and are granted the exclusive right to vote
and be voted upon in the election of Mere ownership of shares of stocks,
directors or officers, any other type of substantially or even all of the shares of
shares will thereby be effectively denied the stocks does not by itself, warrant the
right to vote. piercing the veil of corporate fiction.

Treasury shares are NOT outstanding stocks Ayala holding/parent company
thus they are not entitled to vote. (CIR v. Ayala Land
Manning) Globe Telecom
Outstanding stocks mean the total shares of BPI
stocks issued under a binding subscription
agreement to subscribers or stockholders If Ayala Land incurs liability, can it be
whether or not fully paid except treasury enforced against Ayala?
shares. Even if it has control over the other
corporations, they did not use such control
When treasury shares are re-issued, they to commit fraud or any wrong to the
will regain their status as outstanding damage or prejudice to the party involved.
stocks, thus will be entitled to vote.

Cagayan v. Sandiko
Property was acquired before corporation
was vested with juridical personality thus,
the transfer is null and void

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T or F the statutory corporate officers fixed in the
1. The declaration of stock dividends will by-laws or their respective secretaries.
result to the decrease in the assets of
the corporation Self-dealing directors
F A self-dealing director is one who deals or
2. Each of the stockholders must pay 25% transacts business with his own
of his subscription corporation. The contract of the self-dealing
F director is generally voidable at the option
3. The doctrine of limited liability is of the corporation UNLESS the following
applicable in a corporation by estoppel conditions are present:
F a.) that the presence of such
4. T director/trustee in the board
5. T meeting in which the contract was
6. In a stock corporation, there is no approved was not necessary to
minimum capital stock required by law constitute a quorum for such
F meeting;
7. The common shares can never be b.) that the vote of such
denied the right to vote director/trustee was not necessary
F for the approval of the contract;
8. T c.) that the contract is fair and
9. T reasonable under the
10. T circumstances; and
d.) that in case of an officer, the
Advantages and Disadvantages of contract has been previously
transferability of shares authorized by the Board.


Power to invest corporate funds (Section Will the stockholders receive dividends
42) despite the fact that they have not paid
If its for the primary purpose, a board their subscriptions in full? (Section 72)
resolution will suffice. For any other Yes. Holders of subscribed shares not fully
purpose, the stockholders consent or paid which are not delinquent shall have all
approval is necessary. Thus, if its for the the rights of a stockholder.
secondary purpose, it is necessary.
Who has a better right? The owner of the
Dela Rama v. Ma-ao Sugar stocks on the declaration date or payment
There is substantial and not remote date?
connection between the sugar bags and the 9/7: The declaration of dividends carries
sugar manufacture, thus the stockholders with it a statement that it shall be
approval is not necessary for its validity. distributed on a certain date: to be paid of
record on September 15, 2014
Service of Summons, to whom served?
Service of Summons shall be made on the: 9/9: X sold his 500 shares to Y
a.) President 9/12: Y requested the transfer to his name
b.) Managing Partner and cancel the shares of stock of X
c.) General Manager 9/15: Corp. paid Y 1M cash dividend
d.) Corporate Secretary
e.) Treasurer or Between X and Y, who has a better right?
f.) In-house counsel X, dividend vests upon official
communication made by the corporation.
This requirement is applicable only if the Whoever owns at the time of the declaration
corporation is being sued by a 3rd party and shall be entitled UNLESS there is a contract
not by the stockholder. In case of intra- stating otherwise.
corporate controversies, service shall be
deemed adequate when made upon any of

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Audio Notes Title XIII Religious Corporations
Special Corporations (P4:56:40) a. Corporation Sole
It may also serve as an exception to
Educational Institutions the rule that there must at least be
-governed by special laws 5 incorporators to form a
Education Act of the Philippines corporation because it only
-once it is recognized as an educational requires a single person.
institution, it must incorporate within a
period of 90 days from the date of its May any person put up a
recognition by the State as an educational corporation sole? NO
institution It must be a priest, rabbi, minister,
-those that issues certificates of completion bishop, archbishop or head of a
in the academic field religious sect or church.
-if it fails to register as a corporation, the
school shall not be immune from suit When does it acquire juridical
-Chiang Kai Shiek case personality?
-Sec. 107 requires a favorable GR: Sec. 19 upon the issuance of
recommendation from DECS the certificate of registration by the
-the number of the BOD is 5-15 SEC

In case of NSEI, it must have a governing Exception: Sec 112 once the
board in multiples of 5 only. verified AOI is filed with the SEC,
the corporation sole will be
In case of SEI, BOD may be anywhere immediately possessed with
between 5-15. juridical personality

May educational institutions organized as Is it required to indicate its term of
stock corporation? NO existence? NO because its
supposed to exist in perpetuity
BP 232
Those educational institutions that have May it be dissolved? YES by a
been organized as a SC are encouraged to verified declaration of dissolution
convert themselves as NSC (Sec. 115)

Term of Office of the governing board may May it be dissolved by a judicial act
exceed 1 year. It may exceed 3 years, it can or involuntary dissolution?
be 5 years. GR: No
Separation of the church and state
Sec. 108 they shall so organize themselves
such that 1/5 of the members of the board
shall expire every year

May a foreigner be a member of the board?
Generally, NO (Constitution)
Exception: those that are created by mission
boards, charitable organizations, religious
societies may have foreigners in their
governing board.

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Dissolution & Liquidation (P4:1:05:47) Gonzales v. Sugar
Dissolution The termination of the corporate life of a
-extinguishment of the corporate franchise juridical entity does not by itself imply the
and the termination of the corporate diminution or extinction of rights
existence demandable against the entity dissolved.

1. Voluntary surrender of its franchise Section 145
(voluntary dissolution) No rights or remedy for or again the
2. Revocation of the corporate franchise corporation nor any liability already
(involuntary dissolution) incurred by the corporation, the
stockholders, directors or officers, shall be
PNB v. CFI impaired by the subsequent dissolution of
If the term expires without extension having the corporation.
been made, the corporation is dissolved
automatically and could no longer pursue Gelano v. CA
for which it is organized The dissolved corporation will nonetheless
continue to be possessed with a juridical
Voluntary Dissolution personality for another period of 3 years for
a. where no creditors are affected the purpose of liquidation and winding up of
(Sec. 118) its corporate affairs. Upon the expiration of
b. where creditors are affected the 3-year period, the corporate personality
(Sec. 119) cease for all intents and purposes and as a
c. shortening of the corporate term general rule, it can no longer sue or be sued.
(Sec. 120)
During the 3-year period, it must settle and
Effects of Dissolution (P4:1:17:45) close it business affairs.
The dissolution not only terminates its
primary franchise to be and act as a Liquidation and Winding Up (P4:1:22:43)
corporation but generally it also prevents it The collection of all assets, properties or
from exercising its secondary franchise rights;

It terminates its power to pursue its The payment of all its debts and liabilities or
business for which it was organized. settlement thereof and the ultimate
distribution of corporate assets to the
Buenaflor v. Camarines Sur stockholders, if any remains after paying all
It cannot apply for a new certificate nor can its debts and liabilities
it apply for a franchise because it has
already lost it juridical personality; thus, Is the 3-year period absolute?
incapable of any grant. No, because there are 3 modes:
1. by the corporation itself through its
Cebu Port v. State Marine BOD;
It cannot enforce a contract executed prior 2. appointment of a trustee by the
to the dissolution for the purpose of corporation;
continuing the business for which it is 3. appointment of liquidator or receiver
organized by the court.

Debts due to or by the corporation will not Claims for or against the corporation not
be extinguished even in the absence of law. filed within the 3-year period becomes
A court of equity will enforce collection of unenforceable
debts for or against a corporation if brought
within the 3-year period for the benefit of Actions pending for or against the
the creditors and shareholders. corporation are abated once the 3-year
period expires because after such period the

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Business Organization 2
corporation ceases to exist for all intents May a dissolved corporation transfer all its
and purposes. assets and properties to a new corporation
which will continue the business of the
The corporation may opt to convey to a former? Yes
trustee of assignee who will take charge of
the liquidation and winding up of the Chong Ka Bio
corporate affairs. In such case, the 3-year Winding up is the sole activity of a dissolved
period will NOT apply. corporation that does not to re-organize a
new one. If it does, however, it is not
Why? unlawful for the corporation, WITH the
Sumera v. Valencia consent of ALL the stockholders to transfer
This is because the designation of the its assets and properties to a new
trustee would have the effect of transferring corporation.
title of these properties, rights and assets to
the trustee by legal implication who will Theres no such thing as liquidation and
hold them for and behalf the creditors and winding up in cases of mergers and
stockholders. consolidation. (Theres nothing to collect,
pay or distribute because all the assets,
Appointment of a receiver/liquidator either properties and rights are transferred to the
on petition or motu proprio, 3-year surviving or consolidated corporation) All
limitation DOES NOT apply. The liabilities will be in the hands of the
appointment will make the receiver the surviving or consolidated corporation.
legal owner of the properties and rights
conveyed in trust and for the benefit of the
stockholders and creditors alike.

The appointment of a receiver does not
necessarily mean that the corporation is
dissolved.

PD 902-A: A receiver may be appointed by
the court even if the corporation is not yet
dissolved.

Gelano v. CA
The counsel who prosecuted and defended
for or against the corporation is considered
also a trustee by legal implication. Such that
even if the court did not appoint a trustee to
undertake the liquidation, the counsel to
whom the case is entrusted shall be
considered as a trustee insofar as the
subject matter of the case is concerned; thus
even after the 3-year period, the counsel
may still continue prosecuting or defending
the suit for or against the corporation.

Section 122 provides as a general rule that
once a corporation is dissolved, it has
nothing else to do but liquidate and wind up
its affairs.

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Foreign Corporations (P4:1:34:00) What is doing business so as to bar the
foreign corporation from access to our courts
Section 123 if it does or transacts business WITHOUT a
One that is organized under the laws other license?
than that of the Philippines and whose laws
allow Filipino citizens or corporation to do Doing business implies a continuity of
business in its own country. commercial dealings and arrangements, and
contemplates, to that extent, the
Any corporation registered beyond the performance of acts or works or the
territorial boundaries of the Philippines is exercise of some functions normally
naturally a foreign corporation. incident to and in progressive prosecution
of the purpose for which it is organized.
In determining whether or not a
corporation is domestic or foreign, the Mentholatum v. Mangaliman
incorporation test shall be applied, Appointment of an agent of a FC to sell the
irrespective of the nationalities of those products of the FC;
forming the corporation. SC ruling: By the mere appointment, it was
doing business so whatever the agent did
What happens if all the stockholders are was actually that of the principal such that it
foreigners under the Trade Liberalization cannot gain access to our courts
Act?
It is still a domestic corporation since it is GR: It is not the lack of the required license
registered under the laws of the Philippines. but doing business without a license which
bars the corporation from access to our
General Rule: courts
Incorporation Test E: Isolated transactions
Exception:
Control Test Swedish East Asia
-citizenship of the controlling stockholders It was NOT doing or transacting business in
determine the nationality of the corporation the Philippines. Its only by virtue of an
in cases of war for purposes of national erroneous discharge of cargo which was
security supposed to be consigned to a HK resident.
They were discharged in the Phils thinking
A foreign corporation has no legal existence that it was already part and parcel of a
beyond the territorial boundaries of the Filipino resident. It was landed not as a
State where it is incorporated. It exists only business deal but only by the mistaken
in contemplation of the law granting it the belief. The FC may gain access to our courts.
right to exist as such.
Antam Consolidated
Requirements: 3 contracts
Sec. 125 & 126 + RA A FC entered into a contract with a local
company for the delivery of crude oil and
Any FC doing business without the requisite the latter failed to deliver. The FC entered
license may be subject to the penal into a second agreement in order to recover
sanctions as provided under Sec. 144 what it has lost during the first contract.
Thereafter, it entered into a 3rd contract for
In order that they may gain access to our compliance.
courts, they shall have the requisite license.
FC sued the local company
SC ruling: Each case must be judged
according to the particular circumstances
attendant in each case. It did not constitute
a series of commercial dealings because
there was no continuity. The only reason

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Business Organization 2
why it entered into a 3 contract was
rd CMD v. CA 1996
because it wanted to recover the losses it FC entered into a representative agreement
has incurred due to the failure of the local with ASPAC, a DC, for the purpose of selling
company to comply with their previous electronic products produced by the FC for
agreements and give chance to the latter to the PLDT.
make good its business as well.
ITEC terminated the representative
Nangkai Kogyo agreement because of the violations of the
It entered into one single contract for the contractual agreements and the use of
delivery of scrap iron from the Philippine knowledge and information of ITEC
ports but the FC sent one of its agents to products. ASPAC allegedly produced its
look into the operation the mines in the own products copying that of ITECs.
Philippines revealing its desire to continue
doing business in the country and making FC enjoined the local company from using
the it a base of its operation. ITEC in its own products that its been
manufacturing.
SC Ruling: If the single act or transaction is The local company alleged that it cannot
not merely incidental or casual but it is of gain access to our courts because it has been
such a character as to clearly indicate the doing business in the country.
desire or purpose on the part of the FC to do
other business in the State and to make the SC Ruling: FC has access. In determining
Philippines a base of its corporation, it shall WON a FC is doing business or not, aside
constitute doing business. from their activities in the country,
reference must be made to the contractual
Would the appointment made by a FC of a agreements entered into by it.
distributor or a representative in the country
constitute doing business? In the case at bar, according to the
stipulations of the representative
Mentholatum Yes agreement, the local company had no
Facilities Mgt Yes, but only if the independent status and that it was reduced
distributor has no independent status to a mere agent, an extension or an
instrumentality of the FC.
Lacoste v. Fernandez
Philippine national copied the design of the There is for instance a provision in their RA
French company and sold the product of a no-compete clause and that the local
openly to the public. company can only bind the FC in a
representative capacity and as authorized
FC sued the local individual who raised the by such FC. Whatever the distributor was
defense that it was doing business in the doing, it was being done by the FC itself.
country since it has a local distributor which
was Rustans Corporations by estoppel applies to both DC
and FC. A party is estopped to challenge the
SC Ruling: It was not doing business in the personality of a corporation by merely
Philippines because Rustans an entering into an agreement with it.
independent status in the sense that it is
doing or transacting business in its own One who has dealt with a FC will be
name and for its own account and not that estopped to deny its existence as such
of the FC. corporation. The principle shall be applied
to prevent a person entering into a contract
with a FC from later taking advantage of its
non-compliance with the law (to secure a
license) chiefly in cases when the person
has received benefits arising therefrom.
(Civil Code Article 19)

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Capacity to sue for FC (2:05:08)
A FC must aver its capacity to sue and must
be affirmatively proven.

Atlantic Mutual v. Cebu
Atlantic Mutual & Continental Insurance
Corporation, a FC, sued Cebu Stevedoring
for the recovery of a sum of money. All that
is averred is that it was a FC existing in the
US.

SC dismissed the case because it did not
aver its legal capacity to sue.

However, it is not applicable when the FC is
not the one maintaining a suit but merely
defending one filed against it (Time v.
Reyes) because such failure to aver legal
capacity it is not fatal nor necessary because
a FC, may by writ of prohibition, seek relief
against wrongful assumption of jurisdiction.
A FC not doing business in the country is not
subject to suit under our courts for lack of
jurisdiction.

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Audio Notes (P2:02:12) May a SH be authorized by the SCC to call
Meetings the meeting if there is a person authorized
to do the same but fails to do so? NO (Ponce
Stockholders Meetings case no longer applicable) except Section
28 in cases of removal of corporate
Regular directors.
Date
It must be held on the date fixed in the by- Section 50 now states that if there is no
laws or in accordance with law, Section 50, person authorized to call the meeting, the
which provides that it shall be on any date SH may be granted authority by the Court.
in April as may be determined by the BOD
If there is a person authorized, the SH
Notice cannot be authorized to call the meeting
Notice must be given at least two weeks himself.
prior to the scheduled meeting but the by-
laws may provide for a longer or shorter Appropriate remedy: Mandamus as affirmed
period. by the CA. (Leon v. Afable)

BOD v. Tan Quorum
The by-laws provide that notice Majority of the stockholders representing
requirement must be sent out at least 5 days the OCS will constitute a quorum unless the
prior to the scheduled meeting however it Code, AOI or by-laws provide otherwise
was only sent 2 days prior; thus, the election
held during the particular meeting is null Voting
and void. It depends on the nature of the action being
taken thereat.
Place
It must be held in the city or municipality Amendment of AOI 2/3 of OCS
where the principal office of the corporation Amendment of by-laws Majority of the SH
is located and as far as practicable, at the
principal office of the corporation. (Metro In cases of ordinary amendments, if the SEC
Manila shall be considered as one city or fails to act on the application within
municipality) 6months from the date of filing, it shall be
deemed approved.
Section 93 allows non-stock corporations
to provide that the stockholders meetings In the case of decrease of ACS or
may be held ANYWHERE in the Philippines. amendment of BY-LAWS, it will NEVER
become valid until and unless the SEC gives
It must be called by the proper officer its stamp of approval.
The President calls and presides meetings
unless the by-laws provide otherwise. Effect of SH or members meeting if
improperly held
Jurisdiction of Proper Forum:
Special commercial courts It shall be VALID if and only if all the
Intra-corporate controversies stockholders or members are PRESENT or
duly represented in the said meeting
SEC retained its jurisdiction with the ff: (RA
8799)
1. suspension or revocation of
corporate franchise
2. calling of meetings

That in all things and persons, God may be glorified!


Business Organization 2

Corporate Books & Records Merger & Consolidation

Right of Inspection A & B constituent corporations
-reasonable hours during business days Merger
A & B = A or B (surviving corporation)
Pardo v. Hercules Lumber
A by-law provision fixing the dates when the Consolidation
right of inspection may only be exercised is A & B = C (consolidated corporation)
contrary to the Corporation Code; thus, such
provision cannot have any valid or legal 1. Majority vote of the BOD/T of each of
effect. the constituent corporations approving
the PLAN of merger/consolidation

GR: 2. Notice given at least 2 weeks prior to
A SH of a parent or holding company does the scheduled meeting with a copy of
not have the right to inspect if he is not a the summary of the plan of M/C
stockholder of the subsidiary.

3. Approval by the SH representing 2/3 of

E: (Gokongwei v. SEC) the OCS/members at separate
If the parent or holding company wholly corporate meetings called for the
owns the subsidiary, then there shall be the purpose

right to inspect *Amendment
Approved by BOD/T and ratified by
SHs remedy in case of refusal: affirmative vote of SH representing 2/3
1. Mandamus of the OCS/members
2. Criminal Case Sec 144

4. Execution of the ARTICLES of M/C

Defenses of the Corp: signed by the Pres, VP, certified by the
1. Improper use of information Corp Secretary

secured from previous inspection 5. Submission to SEC in quadruplicate
2. SH not acting in good faith or for a together with favorable
legitimate purpose recommendation of appropriate
government agency (if necessary)
Gonzales v. PNB

The right of inspection by the SH does not 6. SEC

apply to PNB because the latter is not an Approved issuance of the
ordinary corporation. It has a charter of its CERTIFICATE of M/C
own which limits the inspection to the Denied schedule a hearing (notice 2
President, Secretary of Finance and the weeks prior)

Board of Directors. *No liquidation necessary

Vegaruth v. Isabela Effects:
There is no absolute right to secure certified Surviving corporation shall:
copies of the minutes of the corporation 1. Possess all rights, privileges,
UNTIL such have been written and immunities, powers, franchises,
approved by the directors. property, receivables
2. Subject to all duties and liabilities
& every other interest of, or
belonging to or due the constituent
corporations shall be deemed
transferred to and vested in such
SC WITHOUT further act or deed.

That in all things and persons, God may be glorified!


Business Organization 2
FINALS 3. To be valid against 3rd parties, the
transfer must be recorded in the
Methods of Liquidation books of the corporation
1. By the corporation itself through the Types of Suspension of Payments
BOD of the governing boards 1. Simple suspension of payments
2. By a trustee or by an assignee -mere deferment of payment of
appointed by the corporation debts and refers to a petition which
3. By appointment of a receiver is filed by a corporation which
possesses sufficient assets to cover
Modes of dissolution its liabilities but foresees the
1. By the expiration of the corporate possibility of meeting them when
term they respectively fall due owing to
2. By voluntary surrender of its temporary liquidity problems
primary franchise (VD)
3. By the revocation of its corporate 2. Suspension of payments with the
franchise (ID) appointment of a receiver with
or without a rehabilitation plan
Ways in which a person may become a the rehabilitation plan is a plan
stockholder under which the corporation will
1. By a contract of subscription with reschedule the payment of its debts
the corporation and liabilities
2. By the purchase of treasury shares -either the petitioner corporation
from the corporation will propose the plan or ask for the
3. By purchase of acquisition of shares appointment of a receiver who will
from existing stockholders study and make the plan
(includes purchase from the stock
exchange) 3. Suspension of payments where
the corporation has no sufficient
Marking the close, painting the tape, assets to cover its debts and
squeezing the float, hype and dump and liabilities with or without the
boiler room operations are ILLEGAL appointment of a management
when they are effected to: committee with or with or without
a rehabilitation plan
1. raise the price or induce the
purchase of a security or
controlling, controlled or commonly
controlled company by others;
2. depress the price to induce the sale
of a security, whether of the same
or of a different class, of the same
issuer or of a controlling, controlled
or commonly controlled company
by others; and
3. creates active trading to induce
such purchase or sale through said
devices or schemes

For the 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

That in all things and persons, God may be glorified!


Business Organization 2
1. May the by-laws of a stock corporation No, it must be held in the city or municipality
provide that the stockholders meetings where the principal office is located and as far as
be held anywhere in the Philippines? practicable, in the principal office of the
corporation. (Exc: NSC)

The members of the governing board of an

2. How many members shall comprise of educational institution shall not be less than 5
the governing board of an educational not more than 15. Provided however that in case
corporation? it is a NS, the number must be in multiples of 5.


Yes (Chung Ka Bio v. IAC) It shall not be
3. May a dissolved stock corporation
unlawful for the BOD to negotiate and transfer
transfer all of its assets and properties the assets of the dissolved corporation to a new
to a new corporation within the 3-year one intended to be created to continue the
liquidation period? business of the old.

4. What bars a foreign corporation from It is not the lack of the required license but doing
business without a license that bars the
access to our courts?
corporation from access to our courts.

5. In the absence of an agreement, may a Yes (Sec. 80) The surviving corporation shall not
surviving corporation in a merger be only possess all rights, privileges immunities and
held liable for the debts and liabilities of powers but shall also be subject to all the duties
the dissolved corporation? and liabilities of a corporation.

Yes. (Sec. 72) The law provides that holders of
6. May a stockholder who has not paid his
subscribed shares not fully paid which are not
subscription in full exercise his delinquent shall have all the rights of a
appraisal right? stockholder.

7. When does a religious society It shall commence to exist upon the issuance of
commence to exist? the certificate of registration by the SEC.


Yes. (Sec. 113) Any corporation sole may
8. May a corporation sole, just like any purchase and hold real estate and personal
other corporation, have the power to property for its church, benevolent or
own, hold, acquire, alienate and dispose educational purposes and may receive bequests
of properties? or gifts of such purposes. (For the
alienation/disposition restrictions)
9. Will a stockholder who is also a director
be automatically divested of his powers

and functions as such director when his

shares are declared delinquent?

10. May a close corporation validly exist as Yes (Sec. 96) A corporation may be deemed a
close corporation when at least 2/3 of its voting
such if 2/3 of its voting stocks are
stocks or voting rights is owned or controlled by
owned or held by another corporation? another close corporation.


11. May a transferee of a stock certificate of No (Sec. 90) Membership in a NSC and all rights
a non-stock corporation compel the arising therefrom are personal and non-
corporation to record the transfer in his transferable UNLESS the AOI or BL otherwise
favor and be a member thereof like any provide.
transferee of shares of stock in a stock
corporation?

12. May stockholder who has not yet paid No (Sec. 64) No certificate of stock shall be
his subscription in full be entitled to the issued to a subscriber until the full amount of his
issuance of a stock certificate subscription together with interest and expenses,
corresponding to the stocks he has if any is due, has been paid.
already paid for?

That in all things and persons, God may be glorified!


Business Organization 2
Objectives:

1. Transfer as contemplated in Section 63
which would require its registration in
the stock and transfer book to be valid
and binding against 3rd persons




2. Test in determining whether a foreign
corporation is doing/transacting
business so as to be barred access to
our courts if it does so without a license




3. Material non-public information so as to
bar the possessor thereof from trading
in a particular security




4. Watered stocks and how may they be
issued as such?




5. Why is there no distinction between a
purchase and subscription of unissued
stocks of a corporation?




6. Why will the Business Judgment Rule
not apply in cases of deadlocks in a
close corporation?




7. Why is the 3-year period of liquidation
inapplicable if the same is undertaken
by a trustee/assignee/receiver?

That in all things and persons, God may be glorified!


Business Organization 2

Enumerate: 1. Improper use of information secured

from previous inspection
Defenses available to a corporate officer for 2. SH not acting in good faith or for a
his failure or refusal to allow the inspection legitimate purpose
of the corporate books and records

1. All claims which have accrued in the
Philippines have been paid,
3 conditions in order that a FC may compromised or settled;
withdraw its license to do business in the 2. All taxes, imposts, assessments and
Philippines penalties, if any, lawfully due to the
Philippine Government or any od its
agencies or political subdivisions have
been paid; and
3. The petition for withdrawal of license
has been published once a week for 3
consecutive weeks in a newspaper of
general circulation in the Philippines




Speed Distributing Corp. v. CA
1. The status of the relationship of the
2 requisites in order for an intra-corporate parties, the controversy must arise out
controversy to exist and be heard by SCC of intra-corporate relations between
any or all of the parties
2. The nature of the question that is
subject of the controversy must be
intrinsically connected with the
regulation of the corporation


1. It must be held on the date fixed in the
BL or in accordance with law
5 requisites for a valid SHs meeting 2. Prior notice must be given
3. It must be held in the proper place
4. It must be called by the proper party
5. Voting and quorum requirements must
be met

Sy Chim v. Sy Siy Ho & Sons, Inc.

1. It must be shown that the corporate
2 requirements in order that the Special property is in danger of being wasted
Commercial Court may be justified in or destroyed; that the business of the
appointing a management committee corporation is being diverted from the
without any suspension of payment purpose from which it is organized;
and
2. That there is serious paralyzation of its
operations, to the detriment of the
stockholders, party-litigants or the
general public

That in all things and persons, God may be glorified!


Business Organization 2
Define:

Wash sale
Any transaction in a security, which
involves no change in the beneficial
ownership thereof


Matched Order
It refers to an order for the purchases or
sale of security with the knowledge that a
simultaneous order of substantially the
same time, size and price for the sale or
purchase of such security has, or will be
entered by or for the same or different
parties.

Short Sale
It is the selling of security which the vendor
does not own. It shall be illegal per se
UNLESS done in accordance with the rules
and regulations of the SEC.

That in all things and persons, God may be glorified!