Professional Documents
Culture Documents
Most of the changes in the Revised Corporation Code are being practiced or found in
other laws theyve just been adopted to the amended corporation code.
2. Incorporators are now not limited to natural persons. Partnerships, corporations, and
other juridical entities are now allowed to be incorporators.
4. Perpetual corporate term and its automatic for existing corporations unless you elect
otherwise.
Section 7 - Founder's share: It is now expressly provided that the exclusive right to
vote and be voted on for founders share on the election of directors should not violate
the anti dummy law and the FRIA.
Anti-dummy law is persons who are not allowed to have an interest in nationalized
corporations will just nominate Filipino citizens to be the legal stockholder but in reality
theyre the ones controlling so that is the violation of the anti dummy law, that is a criminal
offense.
Foreign Investment Act, apil diha ang foreign investment negative list, katong mga
restrictions.
Founders shares should not violate, as between founders shares and anti dummy law or
the FRIA. The fria and the antidummy law will prevail. This is new but technically this is
not new because this has always been followed.
Corporate term: Now perpetual even for existing corporations automatically perpetual
unless you elect to have a limited term. For those corporations whose terms have expired,
for example you elect to have a definite term and then ni expire, under this new law, the
expiration of the corporate term does not result in the automatic dissolution of the
corporation because the corporation can still be revived you can just apply for the revival
of the corporate existence and then the personality of the corporation it is as if it never
expired, so same rights, obligations, properties, assets, liabilities.
Sec 12: No more minimum capital stocks. Before this used to be NO MINIMUM
AUTHORIZED CAPITAL STOCK. They took out authorized so it is now no minimum capital
stock so it is now whether authorized,subscribed or paid up.
They took out the old section 13 katong the requirement on the 25-25.
Contents of the articles of incorporation: More or less the same except that the
number of directors is not subject to minimum anymore.
There is a provision that if the stockholders want there can be can be an arbitration
agreement in the articles of incorporation.
They took out the treasurers affidavit. It is supposed to be an affidavit of the 25-25. So
now they just incorporated in the body that the total paid up is this much.
Now, it is not just the incorporators signing the articles, the treasurer is also required to
sign.
Corporate name: This one has been lengthened so the corporate name is not allowed
if it is not distinguishable from that already reserved, registered for another corporation
or if protected by law or when the use is contrary to existing laws rules and regulations.
A name is not distinguishable just because you add the terms corporation, company,
incorporated, punctuations, conjunctions, articles. For example, you copy the name of an
existing or a protected name and you just put corporation to distinguish it. That is still
not considered as distinguishable that is still not allowed to be registered.
Then it adds that the SEC has the power to hold a corporation and its directors in
contempt for failure to comply with an order not to use the name. That is not in the old
law, this is a new power of the SEC.
SEC 18: They just basically outlined the process of incorporation, this was not in the old
law but its already been practice.
Then it still the same corporate existence will commence from the moment they will issue
the certificate of incorporation.
Non use of a corporate charter and continuous inoperation: This one there is a
slight revision. So failure to organize and commence business it is now 5yrs. In this case,
the certificate of incorporation shall be deemed revoked as of the day following the end
of the 5yr period. At the end of the 5yr period if you still have not organized or
commenced your business then 5yrs plus 1 day, youre corporation is considered as
revoked. But if the corporation has already started operations and then it stopped for a
period of at least 5 yrs , it is not a ground for revocation anymore. Now, it is just a ground
for placing the corporation under delinquent status and such delinquent corporation has
a period of 2yrs to resume operations, then if it fails to resume within 2yrs then this
allows the sec to revoke the corporation certificate of incorporation. That's new, there is
no delinquent status before.
BY-LAWS: They took out the one month period to adopt the by-laws. This is now
consistent with the cases that by laws is not necessary for the existence of the
corporation.
That is basically it for the items that we've already discussed. Let's proceed to
BOARD OF DIRECTORS
But before they actually are voted or elected, the directors have to do what?
Nominate.
Who nominates? Any stockholder may nominate any person who is an owner of a stock
as long as he possesses the qualifications(owner of one share of the corporation) and
non of the disqualifications.
The violation that was added under the amended corp code is the violation of the SEC
Code.
A stockholder, any stockholder under the new corp code, it is now expressly provided
that the stockholders have the right to nominate stockholders or persons holding at least
one share of stock to be elected as a member of the board provided that the person
nominated has the qualification which is the stock ownership and none of the
disqualifications.
How is the voting done, the actual casting, how many votes or how many shares
can a stockholder cast? Number of shares multiplied by the number of seats to be
elected.
ATTY: So he can allocate to as many persons as he sees fit but of course it is not
logical to allocate it to more than the number of the vacancies or seats to be filled you
cannot get a director elected that way.
So what happens after the election?
The corporate secretary is required to submit a General Information Sheet (GIS) to the
SEC.
The corporate secretary will have to file a report to the SEC on the election of the
directors. It has to be filed within 30days from the time of conduct of the election.
STUDENT: You have to report to the SEC the reason behind the failure of that election.
And the SEC within 30days and are required to state that the schedule of the next
election, it should not be more than 60days from the date of election that failed.
ATTY: (this is new this is not in the old code) So youre now required to submit a report
on non holding of election.
So how was the negligence manifested? The SC said his answers appeared to be I
dont know or i dont remember, so it shows an attitude of nonchalance or indifference so
he simply did not care about the operations of the corporation, that is considered as
grossly negligent he was held solidarily liable.
What committee?
So the new board also created an executive committee. What was the issue that
was brought up by Cruz with respect to the executive committee?
That supposedly it was not allowed because it was not provided in the by-laws.
What was the ruling? Was the creation of the executive committee valid? As stated,
under the corporation code, in order to have a valid executive committee, the
authority to establish the committee must be stated in the by-laws. We said that the
by-laws of Filport did not create such executive committee so was the executive
committee valid or not?
*guys di jud madungog layo ang student*
Which one is required under the by-laws and which one is within the power of the
board to create?
Since the board of directors--
How do you reconcile the requirement in the law that says that the executive
committee has to be established through the by-laws and the ruling of the SC in
the Filport case which says that here's a company, the by-laws will not provide for
the executive committee, the executive committee is still valid. How do you
reconcile? How did the SC reconcile it?
-
If you're going to tell me that it's because of management prerogative does that
mean that the requirement under Sec 34 is useless?
It was not considered as powerful--
Atty's discussion: In other words, under Sec 34 the executive committee contemplated
is one which exercises the powers of the board of directors. So it's not the name, it's the
function. However in the case of Filport, while they named their committee executive
committee there was no showing that that executive committee exercised the power of
the board or that the board delegated certain authorities to that executive committee. So
according to the SC, as a general rule which is now under the 2nd paragraph of Sec 34,
the board has the power to create special committees temporary or permanent in nature.
So as long as that committee does not exercise the power of the board, the board has
the right to establish those committees even if not provided in the by-laws. Are we clear?
In the case of Filport there was no showing that the committee that was created
exercised the power of the board. In which case, the requirement under the 1st paragraph
of Sec 34 does not apply because what is required under 1st par Sec 34 is if the executive
committee will exercise all the competencies of the board, that's the time it needs to be
established through the by-laws. That's the explanation why the executive committee in
Filport was upheld because the function is not that contemplated under the 1st par of Sec
34 and now Sec 34 2nd par expressly provides that the board has the power to create
special committees as long as that committee does not exercise the power of the board
under the 1st par. Although wala na siya before but that was the implication of the case,
now it's expressly provided under Sec 34.
Atty: The contract is voidable meaning it is valid until voided and it can be ratified. That is
the nature of a voidable contract. Exception is that the contract is valid if it complies with
the requirements under Sec 31.
What happens if the requirements are not met? For example out of 5 only 3 were
present including the self-dealing director then out of the 3 only 2 voted to approve
including the self-dealing director. What happens to the contract?
It is voidable but then it can be ratified.
Atty: Okay, it's not void. As long as you have the quorum, as long as you have the correct
number of approval, the contract is not void, it is voidable because you did not need the
requirements under Sec 31. But if you met the requirements under Sec 31 then that would
make your contract valid.
Atty: So these 3 requirements, if they are met will now make the contract valid.
What happens if the contract is voidable because one of the requirements was not
met? Is there any other remedy?
It can be ratified by a vote of 2/3 of the stockholders representing 2/3 of the outstanding
capital stock or the 2/3 of the members of non-stock corporation. And there must be a
meeting wherein the director/trustee shall fully disclose the adverse interests that he has
and again the contract must be fair and reasonable under the circumstances.
Atty: Okay so those corporation whose securities are registered with the commission.
What else?
(2) Corporations listed with an exchange such as--
Atty: An exchange is basically a market place for securities. We only have one in the
Philippines and that's the PSE Philippine Stock Exchange. If you list your shares with the
PSE you fall under 17.2 of the Securities Regulation Code.
So three types of corporation under 17.2. The last two listed in an exchange and the 50
million they are known as the public corporations. Basically you have corporations with
registered securities and public corporations--those are required to have independent
directors. That is not new. The requirement is also in the Securities Regulation Code that
this types of corporations should have independent directors.
What other corporations are required to have independent directors aside from
those under the SRC?
- Banks, quasi-banks, other entities which are engaged in money service businesses,
pawnshops, pre-need, trust, and insurance companies
- Corporations vested with public interest
Atty's discussion: So regulated entities. Again, this is not a new requirement for these
entities because these entities are required under their own laws to have independent
directors. And next, corporations vested with public interest. As I said earlier, this is not
new, they just incorporated the provisions in the corporation code but the laws creating
these corporations actually require independent directors already. So this is not a new
requirement for them. They just reconciled it.
Atty's discussion: Interlocking director is not a ground to invalidate the contract but if
there are other grounds then the contract can be invalidated on those grounds such as
fraud. Fraud has always been a ground to invalidate a contract di ba. Interlocking directors
is not a ground to invalidate a contract. Meaning if there are no other faults in the contract,
that is valid contract. Are we clear?
If substantial?
If it exceeds 20%.
What is substantial?
If it exceeds 20%.
Atty: Substantial is if your shareholding exceeds 20% of the total outstanding capital stock
Atty: The meeting where the stockholders can vote to remove directors can be a regular
meeting or a special meeting called for the purpose.
No is the president the only person who can order the secretary to call the meeting?
It can be upon written demand by the stockholders representing at least majority of the
outstanding capital stock.
Again, how are directors removed by vote of stockholders? What's the process?
They are removed from office by a vote of at least 2/3 of the outstanding---