CORPORATION

 LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    

 
those   of   outstanding   shares   of   any   class,   or  of   extending   or   shortening   • Atty.  Hofileña  à  The  Corporate  Term  is  embodied  in  the  articles  
the  term  of  corporate  existence;   of   incorporation.   As   such,   to   change   the   corporate   term  
  amounts   to   an   amendment   of   the   articles   of   incorporation.  
2.  In  case  of  sale,  lease,  exchange,  transfer,  mortgage,  pledge  or  other   When   such   amendment   takes   place,   the   rules   on   amending  
disposition   of   all   or   substantially   all   of   the   corporate   property   and   must  be  complied  with.  
assets  as  provided  in  the  Code;  and   2. Appraisal  Rights  Issues  
  • In   case   of   extension   of   corporate   term,   any   dissenting  
3.  In  case  of  merger  or  consolidation.  (n)   stockholder   may   exercise   his   appraisal   right   to   have   his   shares  
  bought   back   at   fair   value   by   the   corporation.     Nevertheless,  
1. Nature  of  Power1   under   Section   81   of   the   Code,   the   appraisal   right   is   also  
• The  power  to  extend  corporate  life  is  not  a  inherent  power  of  a   available   to   a   dissenting   stockholder   even   when   it   covers   the  
corporation,  since  the  corporate  term  is  not  only  a  matter  that   shortening  of  the  term  of  corporate  existence.  
constitutes   an   integral   clause   of   the   articles   of   incorporation,    
but   also   the   State   in   granting   juridical   personality   to   a   C.  Increase  or  Decrease  Capital  Stock  (Section  38)  
corporation  is  presumed  to  have  granted  only  for  the  period  of    
time  provided  in  the  corporation's  charter.     Section   38.   Power   to   increase   or   decrease   capital   stock;   incur,   create  
• The   power   to   shorten   corporate   life,   although   an   item   that   or  increase  bonded  indebtedness.  
would   cover   an   amendment   of   the   articles   of   incorporation,   is   No   corporation   shall   increase   or   decrease   its   capital   stock   or   incur,  
for   practical   purposes,   an   inherent   right   on   the   part   of   the   create   or   increase   any   bonded   indebtedness   unless   approved   by   a  
corporation,  since  the  decision  to  shorten  the  business  life  of  a   majority  vote  of  the  board  of  directors  and,  at  a  stockholder's  meeting  
business   endeavor   should   really   be   addressed   to   the   business   duly   called   for   the   purpose,   two-­‐thirds   (2/3)   of   the   outstanding   capital  
decision   of   the   business   venturers.   Although   the   State   would   stock   shall   favor   the   increase   or   diminution   of   the   capital   stock,   or   the  
have   to   approve   formally   the   shortening   of   the   original   incurring,  creating  or  increasing  of  any  bonded  indebtedness.  Written  
corporate   term   of   a   corporation,   for   all   practical   purposes,   the   notice  of  the  proposed  increase  or  diminution  of  the  capital  stock  or  of  
State   really   compels   the   underlying   enterprise   to   go   on   when   the  incurring,  creating,  or  increasing  of  any  bonded  indebtedness  and  
the  co-­‐venturers  have  decided  to  cease  operations   of   the   time   and   place   of   the   stockholder's   meeting   at   which   the  
proposed  increase  or  diminution  of  the  capital  stock  or  the  incurring  or  
                                                                                                                increasing   of   any   bonded   indebtedness   is   to   be   considered,   must   be  
1
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.   addressed   to   each   stockholder   at   his   place   of   residence   as   shown   on  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
the   books   of   the   corporation   and   deposited   to   the   addressee   in   the    
post  office  with  postage  prepaid,  or  served  personally.   Any  increase  or  decrease  in  the  capital  stock  or  the  incurring,  creating  
  or  increasing  of  any  bonded  indebtedness  shall  require  prior  approval  
A  certificate  in  duplicate  must  be  signed  by  a  majority  of  the  directors   of  the  Securities  and  Exchange  Commission.  
of   the   corporation   and   countersigned   by   the   chairman   and   the    
secretary  of  the  stockholders'  meeting,  setting  forth:   One   of   the   duplicate   certificates   shall   be   kept   on   file   in   the   office   of  
  the   corporation   and   the   other   shall   be   filed   with   the   Securities   and  
1.  That  the  requirements  of  this  section  have  been  complied  with;   Exchange   Commission   and   attached   to   the   original   articles   of  
  incorporation.  From  and  after  approval  by  the  Securities  and  Exchange  
2.  The  amount  of  the  increase  or  diminution  of  the  capital  stock;   Commission   and   the   issuance   by   the   Commission   of   its   certificate   of  
  filing,   the   capital   stock   shall   stand   increased   or   decreased   and   the  
3.   If   an   increase   of   the   capital   stock,   the   amount   of   capital   stock   or   incurring,   creating   or   increasing   of   any   bonded   indebtedness  
number   of   shares   of   no-­‐par   stock   thereof   actually   subscribed,   the   authorized,  as  the  certificate  of  filing  may  declare:  Provided,  That  the  
names,   nationalities   and   residences   of   the   persons   subscribing,   the   Securities   and   Exchange   Commission   shall   not   accept   for   filing   any  
amount  of  capital  stock  or  number  of  no-­‐par  stock  subscribed  by  each,   certificate   of   increase   of   capital   stock   unless   accompanied   by   the  
and  the  amount  paid  by  each  on  his  subscription  in  cash  or  property,   sworn   statement   of   the   treasurer   of   the   corporation   lawfully   holding  
or   the   amount   of   capital   stock   or   number   of   shares   of   no-­‐par   stock   office  at  the  time  of  the  filing  of  the  certificate,  showing  that  at  least  
allotted   to   each   stock-­‐holder   if   such   increase   is   for   the   purpose   of   twenty-­‐five   (25%)   percent   of   such   increased   capital   stock   has   been  
making  effective  stock  dividend  therefor  authorized;   subscribed  and  that  at  least  twenty-­‐five  (25%)  percent  of  the  amount  
  subscribed   has   been   paid   either   in   actual   cash   to   the   corporation   or  
4.  Any  bonded  indebtedness  to  be  incurred,  created  or  increased;   that   there   has   been   transferred   to   the   corporation   property   the  
  valuation   of   which   is   equal   to   twenty-­‐five   (25%)   percent   of   the  
5.   The   actual   indebtedness   of   the   corporation   on   the   day   of   the   subscription:   Provided,   further,   That   no   decrease   of   the   capital   stock  
meeting;   shall   be   approved   by   the   Commission   if   its   effect   shall   prejudice   the  
  rights  of  corporate  creditors.  
6.  The  amount  of  stock  represented  at  the  meeting;  and    
  Non-­‐stock   corporations   may   incur   or   create   bonded   indebtedness,   or  
7.   The   vote   authorizing   the   increase   or   diminution   of   the   capital   stock,   increase  the  same,  with  the  approval  by  a  majority  vote  of  the  board  
or  the  incurring,  creating  or  increasing  of  any  bonded  indebtedness.   of   trustees   and   of   at   least   two-­‐thirds   (2/3)   of   the   members   in   a  

 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)  
CORPORATION  LAW  REVIEWER  (2013-­‐2014)            ATTY.  JOSE  MARIA  G.  HOFILEÑA    
 
meeting  duly  called  for  the  purpose.   corporation  must  not  only  comply  with  the  provisions  of  Section  
  38,   but   also   with   the   provisions   of   Section   16   of   the   Code  
Bonds   issued   by   a   corporation   shall   be   registered   with   the   Securities   governing  the  amendment  of  the  articles  of  incorporation.    
and   Exchange   Commission,   which   shall   have   the   authority   to   o Atty.  Hofileña  à  decrease  of  capital  stock  is  not  allowed  
determine  the  sufficiency  of  the  terms  thereof.  (17a)   when   it   would   prejudice   creditors.   Creditors   deal   with  
  the   corporation   that   there   would   be   a   specific   capital   to  
• Despite   the   board   resolution   approving   the   increase   in   capital   help  back  the  debt  incurred.  
stock   and   the   receipt   of   payment   on   the   future   issues   of   the   2. Appraisal  Rights  Issues  
shares   from   the   increased   capital   stock,   such   funds   do   not   • The   policy   embodied   in   Section   38   of   the   Corporation   Code  
constitute   part   of   the   capital   stock   of   the   corporation   until   therefore,  although  it  recognizes  that  an  increase  in  authorized  
approval   of   the   increase   by   SEC.   Central   Textile   Mills,   Inc.   v.   capital  stock  redefines  the  contractual  relations  in  the  corporate  
NWPC,  260  SCRA368  (1996).   setting   as   it   requires   the   approval   of   stockholders   owning   or  
• A   reduction   of   capital   to   justify   the   mass   layoff   of   employees,   representing   two-­‐thirds   (2/3)   of   the   outstanding   capital   stock,  
especially   of   union   members,   amounts   to   nothing   but   a   does  not  include  the  appraisal  right  on  the  part  of  the  dissenting  
premature  and  plain  distribution  of  corporate  assets  to  obviate   stockholders,   in   the   sense   that   every   stockholder   should   come  
a   just   sharing   to   labor   of   the   vast   profits   obtained   by   its   joint   into   the   corporate   setting   fully   aware   that   the   expediencies   of  
efforts   with   capital   through   the   years,   and   would   constitute   corporate  life  may  require  that  eventually  the  corporation  may  
unfair  labor  practice.  Madrigal  &  Co.  v.  Zamora,  151  SCRA  355   need   to   increase   capitalization   to   fund   its   operations   or  
(1987).   expansions,  and  needs  to  look  primarily  into  its  equity  investors  
1. Nature  of  Power1   to  fund  the  same.  
• The   power   to   increase   or   decrease   capital   stock   is   not   an   3. Effectivity  of  Increase  in  Capital  Stock  
inherent  power  of  the  corporation,  not  only  because  it  touches   • Prior   to   SEC   approval   of   the   increase   in   the   authorized   capital  
upon   an   item   expressly   required   to   be   provided   for   in   the   stock   of   the   corporation,   and   despite   the   board   resolution  
articles   of   incorporation,   but   also   the   capital   stock   of   a   approving   the   increase   in   capital   stock,   and   the   receipt   of  
corporation  is  governed  by  common  law  doctrines,  such  as  the   payment  on  the  future  issues  of  the  shares  from  the  increased  
trust   fund   doctrine,   and   pre-­‐emptive   rights.   Therefore,   in   capital   stock,   such   funds   do   not   constitute   part   of   the   capital  
increasing  or  decreasing  the  capital  stock  of  the  corporation,  the   stock   of   the   corporation   until   approval   of   the   increase   by   the  
                                                                                                                SEC.  
1
 Villanueva,  C.  L.,  &  Villanueva-­‐Tiansay,  T.  S.  (2013).  Philippine  Corporate  Law.  
(2013  ed.).  Manila,  Philippines:  Rex  Book  Store.  
 
NOTES  BY  RACHELLE  ANNE  GUTIERREZ  (UPDATED  APRIL  3,  2014)