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CORPORATIONLAW
A:SeeAppendixD
A.CORPORATIONDEFINED
Q:Whatisacorporation?
A:Anartificialbeingcreatedbyoperationoflaw
having the right of succession, and the powers,
attributesandpropertiesexpresslyauthorizedby
lawandincidenttoitsexistence.(Sec.2)
A:
GR:Corporationshavenopowertoenterinto
partnership.
Q:Mayacorporationenterintoajointventure?
A:
JOINTACCOUNT
Hasnofirmnameandis
conductedInthenameof
theostensiblepartner.
Hasnojuridical
personalityandcansueor
besuedonlyinthename
oftheostensiblepartner.
Hasnocommonfund.
Theostensiblepartner
managesitsbusiness
operations.
Liquidationthereofcan
onlybedonebythe
ostensiblepartner.
PARTNERSHIP
Hasafirmname.
Hasjuridical
personalityandmay
sueorbesuedunder
itsfirmname
Hasacommonfund.
Allgeneralpartners
havetherightof
management.
Liquidationmay,by
agreement,be
entrustedtoapartner
orpartners.
Q:Whataretheattributesofacorporation?
A:
1. Itisanartificialbeing
2. Itiscreatedbyoperationoflaw
3. Itenjoystherightofsuccession
4. It has the powers, attributes and
properties expressly authorized by law
orincidenttoitsexistence
A:
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
109
2.
2.
3.
3.
Q:Whatarethetwokindsoffranchise?
A:
1. Corporate or primary/general franchise
grantgiventoexistasacorporation;
2. Specialorsecondaryfranchisecertain
rights and privileges conferred upon
existing as a corporation (e.g. right to
use the streets of a municipality to lay
pipes of tracks, erect poles, or string
wires).
B.CLASSIFICATIONOFCORPORATIONS
Q:Whataretheclassificationsofcorporation?
A:
1. AstoCorporationCode:
a. STOCK CORPORATION one which
have capital stock divided into
shares and are authorized to
distribute to the holders of such
shares dividends or allotments or
the surplus profits on the basis of
thesharesheld.(Sec3)
b. NONSTOCKCORPORATIONisone
which do not issue shares and are
creatednotforprofitbutforpublic
110
4.
5.
6.
b. Corporation
Sole
religious
corporation which consists of one
memberorcorporatoronlyandhis
successor.
b. Laycorporationoneorganizedfor
apurposeotherthanforreligion.
b. Foreignoneformed,organized,or
existingunderanylawsotherthan
thoseofthePhilippinesandwhose
laws allow Filipino citizens and
corporations to do business in its
owncountryorstate.(Sec123)
7.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
b.
8.
b. Subsidiaryonewhichissorelated
to another corporation that the
majority of its directors can be
elected either, directly or
indirectly,
by
such
other
corporation
A:
1. Organizedunderavalidlaw.
3.
Useofcorporatepowers.
9.
Incomparisonwithacorporationbyestoppelwhere
the stockholders are liable as general partners,
stockholdersinadefactocorporationareliableasa
dejurecorporation.Hence,uptotheextentoftheir
shareholdings.
A:
DEFACTO
CORPORATION
Thereisexistenceinlaw
Thedealingsamongthe
partiesonacorporate
basisisnotrequired
Whenrequisitesare
lacking,itcanbe
corporationbyestoppel
CORPORATIONBY
ESTOPPEL
Thereisnoexistencein
law
Thedealingsamongthe
partiesonacorporate
basisisrequired
Itwillbeconsidereda
corporationinanyshape
orform
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C.NATIONALITYOFCORPORATIONS
A:
1. Incorporation test Determined by the
state of incorporation, regardless of the
nationalityofthestockholders.
Q:Whataretherequisitesofthecontroltest?
A:
1. Control,notmeremajorityorcomplete
stockcontrol,butcompletedomination,
not only of finances but of policy and
business practice in respect to the
transaction attacked such that the
corporate entity as to this transaction
hadatthattimenoseparatemind,will
orexistenceofitsown
A:
1. Corporations
organized
under
Philippine laws of which 60% of the
capitalstockoutstandingandentitledto
112
2.
Note:However,itprovidesthatwhereacorporation
and its nonFilipino stockholders own stocks in a
SECregisteredenterprise,atleast60%ofthecapital
stock outstanding and entitled to vote of both
corporationsandatleast60%ofthemembersofthe
board of directors of both corporations must be
Filipinocitizens(DOUBLE60%RULE).
D.CORPORATEJURIDICALPERSONALITY
A:
1. Liability for acts or contracts the acts
of the stockholders do not bind the
corporation unless they are properly
authorized. The obligations incurred by
a corporation, acting through its
authorizedagentsareitssoleliabilities.
The obligations of the corporation are
not the obligations of its shareholders
andmembersandviceversa.(Ceasev.
CA,G.R.No.L33172,Oct.18,1979)
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
the same manner as natural persons.
(Art.46,CivilCode)
XPN:Ifthepenaltyofthecrimeisonlyfineor
forfeiture of license or franchise. (Ching v
SecretaryofJustice,G.R.No.164317,Feb.6,
2006)
3.
Righttoacquireandpossessproperty
property conveyed to or acquired by
thecorporationisinlawthepropertyof
the corporation itself as a distinct legal
entity and not that of the stockholders
ormembers.(Art.44[3],CivilCode)
Q:Isacorporationentitledtomoraldamages?
A:
GR: A corporation is not entitled to moral
damages because it has no feelings, no
emotions, no senses. (ABSCBN Broadcasting
Corporation v. CA, G.R. No. 128690 Jan 21,
1999 and Phillip Brothers Oceanic, Inc, G.R.
No.126204,Nov.20,2001)
XPN:
1. The corporation may recover moral
damagesunderitem7ofArticle2219of
the New Civil Code because said
provision expressly authorizes the
recovery of moral damages in cases of
libel, slander, or any other form of
defamation. Article 2219(7) does not
qualify whether the injured party is a
naturalorjuridicalperson.Therefore,a
corporation, as a juridical person, can
validly complain for libel or any other
formofdefamationandclaimformoral
damages
(Filipinas
Broadcasting
Network, Inc. v. AMECBCCM, G.R. No.
141994,Jan17,2005.
2. Whenthecorporationhasareputation
that is debased, resulting in its
humiliation in the business realm
(Manila Electric Company v. T.E.A.M.
ElectronicsCorporation,et.al.,G.R.No.
131723,Dec.13,2007.
4.
5.
Q:Isacorporationliablefortorts?
Q:Isacorporationliableforcrimes?
A:
GR: No. Since a corporation is a mere legal
fiction, it cannot be held liable for a crime
committed by its officers, since it does not
havetheessentialelementofmalice; insuch
case the responsible officers would be
criminally liable. (People v. Tan Boon Kong,
G.R.No.L32066.Mar.15,1930)
Q:Whataretheeffectsofpiercingtheveil?
Note:Whentheveilofcorporatefictionispiercedin
proper cases, the corporate character is not
necessarily abrogated. It continues for legitimate
objectives. The decision applies only for that
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113
particularcase.(ReynosoIVv.CA,G.R.Nos.116124
25,Nov22,2000)
A:
1. Controlling
ownership
of
the
corporationsshare
2. 2corporationshavecommondirectors
3. Substantialidentityoftheincorporators
or 2 corporations and identity of its
business
A:
1. Fraudtest(Whencorporatefictionused
to justify a wrong, protect fraud of
defendcrime)
2. Controltest
3. Alterego or instrumentality test (or
conduitcases)
4. Publicconvenienceorobjectivetest
5. Equitycases/test
114
E.CAPITALSTRUCTURE
Q.Whatarethecomponentsofacorporation?
A:
1. Corporators Those who compose a
corporation,whetherasstockholdersor
members
6. Members Corporators of a
corporation which has no capital stock.
Theyarenotownersofsharesofstocks,
and their membership depends on
terms provided in the articles of
incorporationorbylaws(Sec.91).
7. PromoterApersonwho,actingalone
or with others, takes initiative in
foundingandorganizingthebusinessor
enterprise of the issuer and receives
consideration therefor. (Sec. 3.10, R.A.
No.8799,SRC)
9. Underwriterapersonwhoguarantees
onafirmcommitmentand/ordeclared
best effort basis the distribution and
saleofsecuritiesofanykindbyanother.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
(1)NUMBERANDQUALIFICATIONSOF
INCORPORATORS
Q:Whatarethedistinctionsbetweencorporator
andincorporator?
A:
INCORPORATOR
SignatoryoftheArticles
ofIncorporation
Doesnotceasetobean
incorporatoruponsaleof
hisshares
GR:5to15natural
persons
XPN: In case of
cooperative,incorporator
of
rural
bank;
corporationsole
Originallyformspartof
thecorporation
GR:Filipinocitizenshipis
notarequirement.
XPN:Whenengagedina
business which is partly
or wholly nationalized
where majority must be
residents
CORPORATOR
Mayornotbesignatory
oftheArticlesof
Incorporation
Ceasetobea
corporatorbysaleofhis
sharesincaseofstock
corporation.Incaseof
nonstockcorporation,
whenthecorporator
ceasestoeamember.
Anincorporatorremainstobeanincorporatoreven
if he will later on cease to be a shareholder.
However, an incorporator who ceases to hold a
sharecannotbeconsideredacorporator.
(2)MINIMUMCAPITALSTOCKAND
SUBSCRIPTIONREQUIREMENTS
Q:Whatarethecapitalstockrequirements?
A:
XPN:Asprovidedbyspeciallaw(e.g.Banks).
Q:Isitrequiredthateachsubscriberpay25%of
eachsubscribedshare?
A:No.Itisonlyrequiredthatatleast25%ofthe
subscribedcapitalmustbepaid.
(3)CORPORATETERM
Q:Whatisthetermofcorporateexistence?
A:
Nolimit
Notnecessarily
Dependingonthe
natureofbusinessof
thecorporation.Ifitis
nationalized,the
citizenshipbecomes
material.
A:
1. Naturalperson
2. GR: Not less than 5 but not more than
15
XPN:Corporationsole
3. Oflegalage
4. Majority must be residents of the
Philippines
5. Each must own or subscribe to at least
oneshare.(Sec.10)
Q:Whocanbeincorporators?
A:
GR: Only natural persons can be
incorporators.
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UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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115
relationappliesifthefailuretofiletheapplication
for extension within the term of the corporation
isduetotheneglectoftheofficerwithwhomthe
certificateisrequiredtobefiledortoawrongful
refusalonhisparttoreceiveit(Aquino,Philippine
Corporate Law Compendium, 2006). SHARES OF
STOC
(4)CLASSIFICATIONOFSHARES
Q:Whatarethekindsorclassificationsofshare?
A:
1. Parvalueshares
2. Noparvalueshares
3. Commonshares
4. Preferredshares
5. Redeemableshares
6. Treasuryshares
7. Foundersshare
8. Votingshares
9. Nonvotingshares
10. Convertibleshares
11. Wateredstock
12. Fractionalshare
13. Sharesinescrow
14. Overissuedstock
15. Streetcertificate
16. Promotionshare
Q:Whatareparvalueshares?
Q:Whatarenoparvalueshares?
A:Theseareshareshavingnostatedvalueinthe
articleofincorporation.
A:
1. Shares which are no par value, cannot
haveanissuedpriceoflessthanP5.00;
2. Theentireconsiderationforitsissuance
constitutes capital so that no part of it
shouldbedistributedasdividends;
3. They cannot be issued as preferred
stocks;
116
4.
5.
6.
Q:Whatarecommonshares?
Q:Whatarepreferredshares?
A:Theseentitletheshareholdertosomepriority
ondistributionofdividendsandassetsoverthose
holdersofcommonshares.
Q:Areholdersofpreferredsharescreditors?
Q:Whatarethekindsofpreferredshares?
A:
1. Preferred shares as to assets Shares
which gives the holder preference in
the distribution of the assets of the
corporationincaseofliquidation.
2. PreferredsharesastodividendsShares
which are entitled to receive dividends
onsaidsharetotheextentagreedupon
before any dividends at all are paid to
theholdersofcommonstock.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
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CORPORATION LAW
a.
Toputsimply,thesearesharesreacquiredbythe
corporation. They are called treasury shares
because they remain in the corporate treasury
untilreissued.Moreimportantly,theyhaveno:
1. VotingRights
2. Righttodividends.
Q:Whatareredeemableshares?
A:
1. Issuanceofredeemablesharesmustbe
expressly provided in the articles of
incorporation;
2. Thetermsandconditionsaffectingsaid
shares must be stated both in the
articles of incorporation and in the
certificatesofstock;
3. Redeemablesharesmaybedeprivedof
voting rights in the articles of
incorporation,
unless
otherwise
providedintheCode.(Sec.6,par.6)
4. Redemption cannot be made if it will
causeinsolvencyofthecorporation.
Q:Whataretreasuryshares?
A:
1. To collect or compromise unpaid
indebtednesstothecorporation;
2. Toeliminatefractionalshares;
3. To pay dissenting or withdrawing
stockholders entitled to payment for
theirshares;
4. Redemption;and
5. Closecorporation.
Q:Whatarethelimitationsontreasuryshares?
A:
1. They may be reissued or sold again as
longastheyareheldbythecorporation
astreasuryshares.
2. Cannotparticipateindividends.
3. It cannot be represented during
stockholdersmeetings.
4. The amount of URE equivalent to the
cost of treasury shares being held shall
be restricted from being declared and
issuedasdividends.
Note:Whentreasurysharesaresoldbelowitsparor
issued value, there can be no watering of stock
because such watering contemplates an original
issuanceofshares.
Q:Whatarefounders'shares?
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117
Q:Whatarevotingshares?
Q:Whatarenonvotingshares?
A:Shareswithoutrighttovote.
Thelawonlyauthorizesthedenialofvotingrights
in the case of redeemable shares and preferred
shares,providedthatthereshallalwaysbeaclass
or series of shares which have complete voting
rights.
Q:Whataretheinstanceswhenholdersofnon
votingsharesareallowedtovote?
A:Theseredeemableandpreferredshares,when
such voting rights are denied, shall nevertheless
beentitledtovoteonthefollowingfundamental
matters:
1. Amendmentofarticlesofincorporation
2. Adoptionandamendmentofbylaws
3. Sale,lease,exchange,mortgage,pledge
or other disposition of all or
substantially all of the corporate
property
4. Incurring,creatingorincreasingbonded
indebtedness
5. Increaseordecreaseofcapitalstock
6. Merger or consolidation of the
corporation with another corporation
orothercorporations
7. Investment of corporate funds in
another corporation or business in
accordancewiththisCode
8. Dissolution of the corporation. (Sec. 6
par.6)
Q:Whatareconvertibleshares?
118
Q:Whatisafractionalshare?
A:Asharewithavalueoflessthanonefullshare.
Q:Whataresharesinescrow?
A:Subjecttoanagreementbyvirtueofwhichthe
share is deposited by the grantor or his agent
with a third person to be kept by the depositary
untiltheperformanceofcertainconditionorthe
happening of a certain event contained in the
agreement.
Q:Whatisanoverissuedstock?
A:Itisastockissuedinexcessoftheauthorized
capitalstock;itisnullandvoid.
Q:Whatisastreetcertificate?
Q:Whatispromotionalshare?
A:Thisisashareissuedbypromotersorthosein
some way interested in the company, for
incorporating the company, or for services
rendered in launching or promoting the welfare
ofthecompany.
Q:Areclassesofsharesinfinite?
Q:Whomayclassifyshares?
A:
1. Incorporators the classes and number
of shares which a corporation shall
issue are first determined by the
incorporatorsasstatedinthearticlesof
incorporationfiledwiththeSEC.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
F.INCORPORATIONANDORGANIZATION
Q:Whatisincorporation?
A:
1. Promotion
2. Incorporation(Sec10)
3. Formalorganizationandcommencementof
businessoperations(Sec22)
(1)PROMOTER
Q:Whoisapromoter?
A:Isapersonwhobringsaboutorcausetobring
about the formation and organization of a
corporationby:
1. bringing together the incorporators or
the persons interested in the
enterprise,
2. procuring subscriptions or capital for
thecorporationand
3. setting in motion the machinery which
leads to the incorporation of the
corporationitself.
Q:Whatistheliabilityofapromoter?
A:Allpromoter(s)havejointpersonalliabilityfor
acorporationthatwasneverformed.Heremains
liableoncontractsevenafterincorporationeven
thoughcorporationadoptsthecontract.
Q:Arepromotersagentsofacorporation?
A:
1. Englishtheunderwritersellswhatthe
corporationcannotsell
2.
3.
(2)SUBSCRIPTIONCONTRACT
Q:Whatisasubscriptioncontract?
Q:Whatarethekindsofsubscriptioncontracts?
A:
1. GR: Preincorporation subscription
entered into before the incorporation
and irrevocable for a period of six (6)
months from the date of subscription
unlessallothersubscribersconsentorif
the corporation failed to materialize. It
cannot also be revoked after filing the
Articles of Incorporation with the SEC
(Sec.61)
XPN:Whencreditorswillbeprejudiced
thereby.
2. Postincorporation
subscription
enteredintoafterincorporation.
(3)PREINCORPORATIONSUBCRIPTION
AGREEMENTS
Q:Whoarerequiredtopaytheirsubscriptionin
full?
A:
1. Nonresident foreign subscribers upon
incorporation must pay in full their
subscriptions unless their unpaid
subscriptions are guaranteed by a
surety bond or by an assumption by a
resident stockholder through an
affidavitofliability.
2. Incaseofnoparvalueshares,theyare
deemedfullypaidandnonassessable.
Q:Isastockholderentitledtothesharesofstock
subscribedalthoughnotfullypaid?
A: Yes. As long as the shares are not considered
delinquent,theyareentitledtoallrightsgranted
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119
toitwhetherornotthesubscribedcapitalstocks
arefullypaid.
A:
SUBSCRIPTION
Maybemadebeforeor
afterincorporation
Subscriberbecomesa
stockholderevenifhehas
notfullypaidthe
subscription
Cannotbereleasedfromhis
subscriptionunlessall
stockholdersagreethereto
andnocreditoristhereby
prejudiced
Corporatecreditorsmay
proceedagainstthe
subscriberforhisunpaid
subscriptionincasethe
assetsofthecorporation
arenotsufficienttopay
theirclaims
Maybeinanyform,written
ororal,expressorimplied,
andtherefore,notcovered
bytheStatuteofFrauds
Subscriptionpriceare
consideredassetsofthe
corporation,hence,
creditorsmaygoafterthem
PURCHASE
Maybemadeonly
afterincorporation
Buyerdoesnot
becomea
stockholderuntilthe
fulfillmentofthe
termsofthesaleand
registrationthereof
inthebooksofthe
corporation
Thecorporationmay
rescindorcancelthe
contractfornon
fulfillmentofthe
contractbythebuyer
Creditorsmaynot
proceedagainstthe
buyerfortheunpaid
priceasthereisno
privityofcontract
betweenthem
Inpurchase
amountingtomore
than500pesos,the
StatuteofFrauds
shallapply
Purchasepricedoes
notbecomeassetsof
thecorporation
unlessfullypaid
120
(4)CONSIDERATIONFORSTOCKS
A:
1. Actualcashpaidtothecorporation;
4. Prior
corporate
obligations
or
indebtedness
5.
6.
(5)ARTICLESOFINCORPORATION
Q:Definearticlesofincorporation.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
Q:WhatarethecontentsofAOI?
A:NaPPlaTINumASONO
1. Nameofcorporation
2. Purpose/s, indicating the primary and
secondarypurposes
3. Placeofprincipaloffice
5.
6.
7.
Note:Todeterminepropervenueinfiling
ofanaction
Termofexistence
Names, nationalities and residences of
Incorporators
6. Number of directors or trustees, which
shall not be less than 5 nor more than
15,exceptforcorporationsole
7. Names, nationalities, and residences of
the persons who shall Act as directors
or trustees until the first regular ones
areelectedandqualified
8. IfaStockcorporation,theamountofits
authorized capital stock, number of
shares and in case the shares are par
value shares, the par value of each
share;
9. Names,nationalities,numberofshares,
and the amounts subscribed and paid
by each of the Original subscribers
which shall not be less than 25% of
authorizedcapitalstock;
10. IfNonstock,theamountofcapital,the
names,residences,andamountpaidby
eachcontributor,whichshallnotbeless
than25%oftotalsubscription;nameof
treasurerelectedbysubscribers;and
11. Other matters as are not inconsistent
with law and which the incorporators
may deem necessary and convenient.
(Sec.14)
4.
5.
Q:WhendoesamendmentofAOItakeeffect?
Q:WhataretheprovisionsofAOIthatcannotbe
amended?
A:Thosemattersreferringtoaccomplishedfacts,
excepttocorrectmistakes.
E.g.
1. Namesofincorporators
2. Names of original subscribers to the
capital stock of the corporation and
theirsubscribedandpaidupcapital
3. Namesoftheoriginaldirectors
4. Treasurer elected by the original
subscribers
5. Memberswhocontributedtotheinitial
capitalofthenonstockcorporation
6. Witnesses to and acknowledgement
withAOI
Q:Whatarethelimitationsintheamendmentof
AOI?
A:
1. Theamendmentmustbeforlegitimate
purposes and must not be contrary to
other provisions of the Corporation
CodeandSpeciallaws;
2. ApprovedbymajorityofBOD/BOT;
3. Vote or written assent of stockholders
representing 2/3 of the outstanding
capitalstockor2/3ofmembers;
4. The original and amended articles
together shall contain all provisions
required by law to be set out in the
articles of incorporation. Such articles,
as amended, shall be indicated by
underscoringthechange/smade;
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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121
A:
1. Ifsuchisnotsubstantiallyinaccordance
withtheformprescribed
2. The purpose/s of the corporation are
patently
unconstitutional,
illegal,
immoral, or contrary to government
rulesandregulations
3. Thetreasurersaffidavitconcerningthe
amount of capital stock subscribed
and/orpaidisfalse
4. The required percentage of ownership
of the capital stock to be owned by
Filipino citizens has not been complied
with.(Sec.17)
Q:IsthereanautomaticrejectionoftheAOIor
anyamendmentthereto?
A:
122
Note:Theaboveshallnotbeapplicableifitisdueto
causes beyond the control of the corporation as
determinedbySEC.
Q:Isthedissolutionorrevocationduetofailure
tooperateorinoperationautomatic?
A:No,SECisoftheopinionthatthereshouldbe
proper proceedings for the revocation of AOI in
compliancewithdueprocess.
(6)CORPORATENAME
A:
1. The proposed name is identical or
deceptively or confusingly similar to
thatofanyexistingcorporation
2. Anyothernameprotectedbylaw;or
3. Patently deceptive, confusing or
contrarytoexistinglaws.(Sec.18)
4. The corporate name shall contain the
word Corporation or its abbreviation
Corp.orIncorporated,orInc.
5. Thepartnershipnameshallcontainthe
wordCompanyorCo.
6. For limited partnership, the word
LimitedorLtd.Shallbeincluded
7. If the name or surname of a person is
used as part of a corporate or
partnership name, the consent of said
person or his heirs must be submitted
except if that person is a stockholder,
member,partneroradeclarednational
hero.
8. The name of a dissolved firm shall not
be allowed to be used by other firms
within3yearsaftertheapprovalofthe
dissolution of the corporation by SEC,
unless allowed by the last stockholders
representing at least majority of the
outstanding capital stock of the
dissolved firm (SEC Memorandum
Circular14).
A:No,itisthesamecorporationwithadifferent
name,anditscharacterisinnorespectchanged.
(Republic Planters Bank v. CA, G.R. No. 93073,
Dec21,1992)
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
(7)REGISTRATIONANDISSUANCEOF
CERTIFICATEOFINCORPORATION
A:
1. Nameverificationslip
2. AOIandbylaws
3. Treasurersaffidavit
4. Registrationdatasheet
5. Proof of payment of subscription like
Bank Certificate of Deposit if the paid
upcapitalisincash
6. Favorable endorsement from proper
government agency in case of special
corporations.
Q:Whatisthecontentofatreasurersaffidavit?
Q:Whatisthedoctrineofcorporateentity?
A:
GR:Acorporationcomesintoexistenceupon
the issuance of the certificate of
incorporation. Then and only then will it
acquireajuridicalpersonality.
(8)ELECTIONOFDIRECTORSANDTRUSTEES
A:
1. At a meeting of stockholders or
members called for the election of
directors or trustees, there must be
2.
3.
4.
5.
Q:Whohasjurisdictionoverelectioncontestsin
stockandnonstockcorporation?
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
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123
Q:Whoarethecorporateofficers?
A:
1. President Must be a director at the
timetheassumesoffice,notatthetime
ofappointment;
2. Treasurer May or may not be a
director;asamatterofsoundcorporate
practice,mustbearesident
3. Secretary Need not be a director
unlessrequiredbythebylaws;mustbe
aresidentandcitizenofthePhilippines;
(Sec.25);and
4. Such other officers as may be provided
inthebylaws.
A:
CORPORATEOFFICER
Positionisprovidedfor
inthebylawsorunder
theCorporationCode.
RTCactingasaspecial
commercialcourthas
jurisdictionoverintra
corporatecontroversies.
CORPORATE
EMPLOYEE
Employedbytheaction
ofthemanagingofficer
ofthecorporation.
LAhasjurisdictionin
caseoflabordisputes.
(9)ADOPTIONOFBYLAWS
Q:Whatarebylaws?
Q:Whataretherequisitesforthevalidityofby
laws?
A:
1.
2.
124
3.
Q:Whatisthebindingeffectofbylaws?
A:
Q:Givetheproceduresinadoptingbylaws.
2. Postincorporation
a. Vote of the majority of the
stockholders representing the
outstanding capital stock or
members;
b. Bylaws shall be signed by the
stockholders or members voting
forthem;
c. It shall be kept in the principal
office of the corporation and
subject to the inspection of the
stockholders ore members during
officehours
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
d.
Copythereof,dulycertifiedby the
BOD or BOT countersigned by the
secretary of the corporation, shall
be filed with the SEC and shall be
attached with the original AOI.
(Sec.46)
2.
Q:Whatistheeffectofnonfilingofthearticles
ofincorporationwithintherequiredperiod?
Q:Whatarethecontentsofbylaws?
A:
1. Time, place and manner of calling and
conducting regular or special meetings
ofdirectorsortrustees
2. Time and manner of calling and
conducting regular or special meetings
ofthestockholderormembers
3. The required quorum in meeting of
stockholders or members and the
mannerofvotingtherein
4. The form for proxies of stockholders
andmembersandthemannerofvoting
them
5. The
qualification,
duties
and
compensation of directors or trustees,
officersandemployees
6. Time for holding the annual election of
directors or trustees and the mode or
mannerofgivingnoticethereof
7. Mannerofelectionorappointmentand
the term of office of all officers other
thandirectorsortrustees
8. Penaltiesforviolationofthebylaws
9. In case of stock corporations, the
mannerofissuingcertificates
10. Suchothermattersasmaybenecessary
for the proper or convenient
transaction of its corporate business
andaffairs.(Sec.47)
Q:Whatarethewaysofamending,repealingor
adoptingnewbylaws?
A:
A:
AOI
Conditionprecedent
intheacquisitionof
corporateexistence
BYLAWS
Conditionsubsequent;its
absencemerelyfurnishesa
groundfortherevocation
ofthefranchise
Essentiallyacontract
betweenthe
corporationandthe
stockholders/
members;between
thestockholders/
memberinterse,and
betweenthe
corporationandthe
State;
Fortheinternal
governmentofthe
corporationbuthasthe
forceofacontractbetween
thecorporationandthe
stockholders/members,
andbetweenthe
stockholdersandmembers;
Executedbefore
incorporation
Maybeexecutedafter
incorporation.Sec.46
allowsthefilingoftheby
lawssimultaneouslywith
theArticlesof
Incorporation
Amendedbya
majorityofthe
directors/trustees
andstockholders
representing2/3of
theoutstanding
capitalstock,or2/3
ofthemembersin
caseofnonstock
corporations
Powerto
amend/repealarticles
cannotbedelegated
bythestockholders/
memberstothe
boardofdirectors/
trustees
Maybeamendedbya
majorityvoteoftheBOD
andmajorityvoteof
outstandingcapitalstockor
amajorityofthemember
innonstockcorporation
Powertoamendorrepeal
bylawsoradoptnewby
lawsmaybedelegatedby
the2/3oftheoutstanding
capitalstockor2/3ofthe
membersinthecaseof
nonstockcorporation
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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125
G.CORPORATEPOWERS
Q:Whatarethekindsofpowersofcorporation?
A:
1. Express powers Granted by law,
Corporation Code, and its Articles of
Incorporation or Charter, and
administrativeregulations
(1)GENERALPOWERS
A:SuSuCoABSPMEDPO
1. ToSUeandbesued
2. OfSUccession
3. ToadoptanduseofCorporateseal
4. ToamenditsArticlesofIncorporation
5. ToadoptitsBylaws
6. For Stock corporations: issue and sell
stocks to subscribers and treasury
stocks; for nonstock corporations:
admitmembers
7. To Purchase, receive, take or grant,
hold, convey, sell, lease, pledge,
mortgage and deal with real and
personalproperty,securitiesandbonds;
8. ToEnterintomergerorconsolidation
9. To Make reasonable Donations for
public welfare, hospital, charitable,
cultural, scientific, civic or similar
purposes, provided that no donation is
giventoany
a. Politicalparty,
b. Candidateand
c. Partisanpoliticalactivity.
126
Q:Whatarethelimitationsofthecorporationin
dealingwithproperty?
A:
1. In dealing with any kind of property, it
must be in the furtherance of the
purpose for which the corporation was
organized.
3.
Speciallawsubjecttotheprovisionsof
theBulkSalesLaw
Q:Whataretherequisitesforavaliddonation?
A:
1. Donationmustbereasonable
2. Must be for valid purposes including
public welfare, hospital, charitable,
cultural, scientific, civic or similar
purposes
3. Mustnotbeanaidinany
a. Politicalparty,
b. Candidateand
c. Partisanpoliticalactivity
4. Donation must bear a reasonable
relation to the corporations interest
andnotbesoremoteandfanciful.
Q:Canacorporationactassuretyorguarantor?
A:
GR:No.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
Q: What are the specific powers of a
corporation?
A:
1. Power to extend or shorten corporate
term.(Sec.37)
2. Increase or decrease corporate stock.
(Sec.38)
3. Incur, create, or increase bonded
indebtedness.(Sec.38)
4. Denypreemptiveright.(Sec.39)
5. Sell, dispose, lease, encumber all or
substantially all of corporate assets.
(Sec.40)
6. Purchaseoracquireshares.(Sec.41)
7. Invest corporate funds in another
corporation or business for other
purpose other than primary purpose
.(Sec.42)
8. Declare dividends out of unrestricted
retainedearnings.(Sec.43)
9. Enter into management contract with
another corporation (not with an
individual or a partnership within
general powers) whereby one
corporation undertakes to manage all
orsubstantiallyallofthebusinessofthe
other corporation for a period not
longer than five (5) years for any one
term.(Sec.44)
10. Amend Articles of Incorporation. (Sec.
16)
(2)SPECIFICPOWERS
(a)POWERTOEXTENDORSHORTEN
CORPORATETERM
4.
5.
(b)POWERTOINCREASEORDECREASECAPITAL
STOCK
3. Writtennoticeoftheproposedincrease
ordiminutionofthecapitalstockandof
thetimeandplaceofthestockholders
meetingatwhichtheproposedincrease
or diminution of the capital stock must
beaddressedtoeachstockholderathis
place of residence as shown on the
booksofthecorporationanddeposited
totheaddresseeinthepostofficewith
postageprepaid,orservedpersonally
4. Acertificateinduplicatemustbesigned
by a majority vote of the directors of
the corporation and countersigned by
the chairman and the secretary of the
stockholdersmeeting,settingforth:
Note:Maybeusedasmeanstovoluntarilydissolvea
corporation
A:
1. MajorityvoteoftheBODorBOT;
2. Ratification by 2/3 of the SH
representing outstanding capital stock
or by at least 2/3 of the members in
caseofnonstockcorporation;
3. Written notice of the proposed action
and of the time and place of the
meeting shall be addressed to each
stockholder or member at his place of
residenceasshownonthebooksofthe
corporation and deposited to the
addressee in the post office with
postageprepaid,orservedpersonally;
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
127
d.
e.
A:TheapplicationtobefiledwiththeSECshallbe
accompanied by the sworn statement of the
treasurerofthecorporation,showingthatatleast
25% of the amount subscribed has been paid
eitherincashorpropertyorthattherehasbeen
transferred to the corporation property the
valuation of which is equal to 25% of the
subscription.
Note:Therewillbenotreasurersaffidavitincaseof
decrease in capital stock. Corporation need not
exhaust its original capital before increasing capital
stock.
Q:Whatarethewaysofincreasingordecreasing
thecapitalstock?
A:Byincreasingordecreasingthe:
1. Numberofsharesandretainingthepar
value;
2. Par value of existing shares without
increasingordecreasingthenumberof
shares;
128
3.
Q:Whatisbondedindebtedness?
A:Itisalongtermindebtednesssecuredbyreal
orpersonalproperty(corporateassets).
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
(c)POWERTODENYPREEMPTIVERIGHT
Q:Whatispreemptiveright?
Q:Whatisthepurposeofpreemptiveright?
A:Yes,unlessthereisanexpressrestrictioninthe
AOI.
Q:WhenshouldstockholderAexercisethepre
emptiveright?
A:No,thestockholdermaynotexerciseappraisal
right because the matter that he dissented from
is not one of those where right of appraisal is
available under the Corporation Code. (1999 Bar
Question)
Q:Distinguishpreemptiverightfromrightof
firstrefusal.
A:
PREEMPTIVERIGHT
Maybeexercisedeven
whenthereisnoexpress
provisionoflaw
Pertainstounsubscribed
portionoftheauthorized
capitalstock.Arightthat
maybeclaimedagainst
thecorporation.It
includestreasuryshares.
RIGHTOFFIRST
REFUSAL
Arisesonlybyvirtueof
contractual
stipulationsbutisalso
grantedunderthe
provisionsonclose
corporation
Exercisableagainst
anotherstockholderof
thecorporationofhis
sharesofstock
Q:Whataretheinstanceswhenpreemptive
rightisnotavailable?
A:
1. Sharestobeissuedtocomplywithlaws
requiring stock offering or minimum
stockownershipbythepublic;
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UNIVERSITYOFSANTOTOMAS
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129
2.
3.
4.
5.
(d)SELL,LEASE,EXCHANGE,MORTGAGE,PLEDGE
OROTHERDISPOSITION(SLEMPO)OFALLOR
SUBSTANTIALLYALLOFCORPORATEASSETS
Q:Whataretheproceduralrequirements?
A:
1. MajorityvoteoftheBODorBOT
2. Ratification
by
stockholders
representingatleast
2/3 of the
outstanding capital stock or by at least
2/3 of the members in case of non
stockcorporation
3. Written notice of the proposed action
and of the time and place of the
meetingaddressedtoeachstockholder
or member at his place of residence as
shownonthebooksofthecorporation
and deposited to the addressee in the
post office with postage prepaid, or
servedpersonally.(Sec.40)
A:Ifthecorporationwouldbe:
1. rendered incapable of continuing the
business,or
2. accomplishing the purpose for which it
wasincorporated.
A:
1. If sale is necessary in the usual and
regularcourseofbusiness;
130
2.
A:
GR: The selling corporation of all or
substantially all of the assets of the
purchasing corporation shall not be liable for
thedebtsofthetransferorcorporation.
XPN:
1. Express or implied assumption of
liabilities;
2. Mergerorconsolidation;
3. If the purchase was in fraud of
creditors;
4. If the purchaser becomes a
continuationoftheseller;
5. If there is violation of the Bulk Sales
Law.
(e)POWERTOACQUIREOWNSHARES
Q:Canacorporationacquireitsownshares?
A:
GR:Intheabsenceofstatutoryauthority,the
corporationcannotacquireitsownshares
XPN:SECOpinion,Oct.12,1992,imposedthe
followingconditionsonitsexercise:
1. Thecapitalofthecorporationmustnot
beimpaired;
2. Legitimate and proper corporate
objectiveisadvanced;
3. Condition of the corporate affairs
warrantsit;
4. Transactionisdesignedandcarriedout
ingoodfaith
5. Interest of creditors not impaired, that
is, not violative of the trust fund
doctrine.
Note:Sec.41oftheCoderequiresthat:
1. the acquisition should be for a legitimate
corporatepurpose;and
2. there should be unrestricted retained
earnings[URE].
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
3.
A:
1. To eliminate fractional shares out of
stockdividends;
2. To collect or compromise an
indebtednesstothecorporation,arising
out of unpaid subscription, in a
delinquency sale and to purchase
delinquentsharessoldduringsaidsale;
3. To pay dissenting or withdrawing
stockholders (in the exercise of the
stockholdersappraisalright);
4. Toacquiretreasuryshares;
5. Redeemable shares regardless of
existenceofretainedearnings;
6. Toeffectadecreaseofcapitalstock;
7. In close corporations, when there is a
deadlock in the management of the
business.
(g)INVESTCORPORATEFUNDSINANOTHER
CORPORATION OR BUSINESS FOR OTHER
PURPOSEOTHERTHANPRIMARYPURPOSE
Q:Whataretherequirements?
A:
1. Approval by the majority vote of the
BODorBOT
2. Ratification
by
stockholders
representing at least 2/3 of the
outstanding capital stock or by at least
2/3 of the members in case of non
stockcorporation
3. Ratificationmustbemadeatameeting
dulycalledforthepurposes,and
4. Prior written notice of the proposed
investment and the time and place of
themeetingshallbemadeaddressedto
eachstockholderormemberbymailor
bypersonalservice.
Q:Whatareunrestrictedretainedearnings?
Q:Whoareentitledtoreceivedividends?
A:Thestockholdersofrecorddateinsofarasthe
corporation is concerned; if there is no record
date, the stockholders at the time of declaration
ofdividends(notatthetimeofpayment).
Q:Whoareentitledtoreceivedividendsincase
ofmortgagedorpledgedshares?
A:
GR: The mortgagor or the pledgor has the
righttoreceivethedividends.
Q:Whataretheformsofdividends?
A:
1. Cash
2. Stock
Anydissentingstockholdershallhaveappraisalright.
Note:Stockdividendsarewithheldfromthe
delinquent stockholder until his unpaid
subscriptionisfullypaid.
3. Property
(f)POWERTODECLAREDIVIDENDSOUTOF
UNRESTRICTEDRETAINEDEARNINGS(URE)
Note:Stockholdersareentitledtodividends
PRORATA based on the total number of
shares and not on the amount paid on
shares.
Q:Whataretherequirements?
A:
1. Existence of unrestricted retained
earnings
2. Resolutionoftheboard
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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131
Q:Whenmaycorporationdeclaredividends?
A:
GR:Evenifthereareexistingprofits,BODhas
discretion to determine whether dividends
aretobedeclared.
XPNtoXPN:
1. Definite corporate expansion projects
approvedbytheboardofdirectors;
2. Corporation is prohibited under any
loan agreement with any financial
institution or creditor from declaring
dividends without its/his consent and
suchconsenthasnotyetbeensecured;
3. Theretentionisnecessaryunderspecial
circumstances obtaining in the
corporation, such as when there is a
need for special reserve for probable
contingencies.
Q:Whatarethesourcesofdividends?
A:
XPN:Dividendscanbedeclaredoutofcapital
inthefollowinginstances:
1. Dividends from investments wasting
assetscorporation;
2. Liquidatingdividends
Q:Whatarethesourcesofretainedearnings?Is
itavailablefordividends?
A:
SOURCESOFRETAINED
EARNINGS
PaidinsurplusItisthe
differencebetweenthe
parvalueandtheissued
valueorsellingpriceof
theshares
Revaluationsurplus
Increaseinthevalueofa
fixedassetasaresultof
itsappreciation.Theyare
bynaturesubjectto
fluctuations.
Cannotbedeclaredas
dividendsbecause
thereisnoactualgain
(gaininpaperonly).
Reductionsurplus the
surplusarisesfromthe
reductionoftheparvalue
oftheissuedsharesof
stocks.
GainfromSaleofReal
Property
Itcannotbedeclared
ascashdividendbut
canbedeclaredonlyas
stockdividends
Availableasdividends
TreasuryShares
Cannotbedeclaredas
stockorcashdividends
butitmaybedeclared
aspropertydividend
OperationalIncome
Income
Availableasdividends
Q:Distinguishcashandstockdividends.
A:
CASHDIVIDENDS
Partofgeneralfund
Resultsincashoutlay
Notsubjecttolevyby
corporatecreditors
Declaredonlybythe
boardofdirectorsat
itsdiscretion
(majorityofthe
quorumonly,not
majorityofallthe
board)
Doesnotincreasethe
corporatecapital
Itsdeclarationcreates
adebtfromthe
corporationtoeachof
itsstockholders
Ifreceivedby
individual:subjectto
tax;
Ifreceivedby
corporation:not
subjecttotax
AVAILABILITYFOR
DIVIDENDS
Cannotberevoked
afterannouncement
Itcannotbedeclared
ascashdividendbut
canbedeclaredonlyas
stockdividends
Appliedtotheunpaid
balanceofdelinquent
shares
STOCKDIVIDENDS
Partofcapital
Nocashoutlay
Onceissued,canbelevied
bycorporatecreditors
becausetheyrepartof
corporatecapital
Declaredbytheboard
withtheconcurrenceof
thestockholders
representingatleast2/3
oftheoutstandingcapital
stockataregular/special
meeting
Corporatecapitalis
increased
Nodebtiscreatedbyits
declaration
Notsubjecttotaxeither
receivedbyindividualora
corporation
Canberevokeddespite
announcementbutbefore
issuance
Canbewithhelduntil
paymentofunpaid
balanceofdelinquent
shares
132
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
Q: May stock dividends be issued to a person
whoisnotastockholderinpaymentofservices
rendered?
A:No.Onlystockholdersareentitledtopayment
ofstockdividends.(Nielson&Co.,Inc.v.Lepanto
ConsolidatedMiningCo.,G.R.No.21763,Dec.17,
1966).
(h)POWERTOENTERINTOMANAGEMENT
CONTRACT
Q:Whatisamanagementcontract?
A:
GR: Management contract shall be entered
into for a period not longer than 5 years for
anyoneterm.
XPN:Incasesofservicecontractsoroperating
agreements which relate to the exploitation,
development, exploration or utilization of
naturalresources,itmaybeenteredforsuch
periods as may be provided by the pertinent
lawsorregulations.
(i)ULTRAVIRESACTS
Q:Whatareultraviresacts?
Q:Whatarethetypesofultraviresacts(UVA)?
Note:Sec.44refersonlytoamanagementcontract
with another corporation. Hence, it does not apply
to management contracts entered into by a
corporationwithnaturalpersons.
Q:Whataretherequirements?
A:
1. Contract must be approved by the
majority of the BOD or BOT of both
managingandmanagedcorporation;
2. Ratified by the stockholders owning at
least the majority of the outstanding
capital stock, or members in case of a
nonstock corporation, of both the
managing
and
the
managed
corporation,atameetingdulycalledfor
thepurpose
3. Contract must be approved by the
stockholders
of
the
managed
corporation owning at least 2/3 of the
outstanding capital stock entitled to
vote,2/3memberswhen:
a. Stockholders representing the
same interest in both of the
managing and the managed
corporation own or control more
than 1/3 of the total outstanding
capitalstockentitledtovoteofthe
managingcorporation;
b. Majority of the members of the
BOD of the managing corporation
also constitute a majority of the
BODofthemanagedcorporation.
A:
1.
2.
3.
A:
1. Ifitisprovidedinthebylaws
2. Ifauthorizedbytheboard
3. Under the doctrine of apparent
authority
4. Whentheactwasratified
Q:Whatisthedoctrineofapparentauthority?
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
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133
Q:Whataretheeffectsofanultraviresact?
Thesearetheeffectsforthespecificacts:
Q:Whatarethedistinctionsbetweenultravires
actsandillegalacts?
A:
ULTRAVIRESACT
Notnecessarilyunlawful,
butoutsidethepowers
ofthecorporation
Canberatified
Canbindthepartiesif
whollyorpartly
executed
ILLEGALACTS
Unlawful;againstlaw,
morals,publicpolicy,
andpublicorder
Cannotberatified
Cannotbindtheparties
A:
1. State
a. Obtainajudgmentofforfeiture;or
b. The SEC may suspend or revoke
thecertificateofregistration
2. Stockholders
a. Injunction;or
b. Derivativesuit
134
3.
(j)DOCTRINEOFINDIVIDUALITYOF
SUBCRIPTION
(k)DOCTRINEOFEQUALITYOFSHARES
Q:Whatisthedoctrineofequalityofshares?
(l)TRUSTFUNDDOCTRINE
Q:Whatisthetrustfunddoctrine?
A:Thesubscribedcapitalstockofthecorporation
is a trust fund for the payment of debts of the
corporationwhichthecreditorshavetherightto
look up to satisfy their credits, and which the
corporationmaynotdissipate.Thecreditorsmay
sue the stockholders directly for the latters
unpaidsubscription.
(3)HOWEXERCISED
Q:Howarecorporatepowersexercised?
A:
1. BytheshareholdersTheshareholders
participate in controlling the affairs of
thecorporationbyexercisingtheirright
to vote. They can elect the directors
who will actually govern the
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
corporation and they can also vote on
importantmattersthatarestillreserved
to them by the Corporation Code.
(Aquino,2006)
g.
2.
BytheBoardofDirectorsTheBoardof
Directorsisprimarilyresponsibleforthe
governance of the corporation. Their
primary duty is to set the policies for
the accomplishment of the corporate
objectives. (Art. 3, Revised Code of
Corporate Governance). They elect the
officers who carry out the policies that
theyhaveestablished.
3.
To adopt/amend/repeal the by
laws or adopt new bylaws. (Secs.
46,48)
2.
Proprietaryrights
a. To transfer stock in the corporate
book.(Sec.63)
b. To receive dividends when
declared.(Sec.43)
c. To the issuance of certificate of
stock or other evidence of stock
ownership.(Sec.63)
d. Toparticipateinthedistributionof
corporate assets upon dissolution.
(Sec.118,119)
e. To preemption in the issue of
shares.(Sec.39)
3.
Remedialrights
a. To inspect corporate books. (Sec.
74)
b. To recover stock unlawfully sold
fordelinquency.(Sec.69)
c. To demand payment in the
exercise of appraisal right. (Secs.
41,81)
d. To be furnished recent financial
statements or reports of the
corporationsoperation(Sec.75);
e. To bring suits (derivative suit,
individual suit, and representative
suit).
H.STOCKHOLDERSANDMEMBERS
A:Apersonbecomesashareholderthemoment
he:
1. Entersintoasubscriptioncontractwith
an existing corporation (he is a
stockholder upon acceptance of the
corporation of his offer to subscribe
whether the consideration is fully paid
ornot),
2. Purchase treasury shares from the
corporation,or
3. Acquires shares from existing
shareholders by sale or any other
contract.
(1)FUNDAMENTALRIGHTS
(2)PARTICIPATIONINMANAGEMENT
(a)PROXY
Q:Whatisaproxy?
Q:Whataretherequirementsforavalidproxy?
A:
Q:Whataretherightsofstockholders?
A:
1. ManagementRight
a. Toattendandvoteinpersonorby
proxy at a stockholders meetings.
(Secs.50,58)
b. To elect and remove directors.
(Secs.24,18)
c. To approve certain corporate acts.
(Sec.58)
d. To compel the calling of the
meetings.(Sec.50)
e. Tohavethecorporationvoluntarily
dissolved.(Sec.118,119)
f. To enter into a voting trust
agreement.(Sec.59)
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
135
3.
4.
Noproxyshallbevalidandeffectivefor
aperiodlongerthan5yearsatanyone
time. (Sec.58 B.P. 68 as amended by
Sec.20,SRC)
Note:Innonstockcorporationstherighttovoteby
proxy,oreventherighttovoteitselfmaybedenied
to members in the articles of incorporation or the
bylawsaslongasthedenialisnotdiscriminatory.
Q:Whatisthedurationofproxy?
A:
1. Specificproxyauthoritygrantedtothe
proxy holder to vote only for a
particularmeetingonaspecificdate.
2. Continuingproxygrantsauthoritytoa
proxy to appear and vote for and in
behalfofashareholderforacontinuing
periodwhichshouldnotbemorethan5
yearsatanyonetime.
Q:Whatistheextentofauthorityofaproxy?
A:
1. GeneralproxyAgeneraldiscretionary
power to attend and vote at annual
meeting.
2. LimitedproxyRestricttheauthorityto
votetospecifiedmattersonlyandmay
direct the manner in which the vote
shallbecast
136
A:
1. ElectionoftheBOD/BOT
2. Voting in case of joint ownership of
stock
3. VotingbytrusteeunderVTA
4. Pledgeormortgageofshares
5. Asprovidedforinthebylaws
Q:Howandwhenisaproxyrevoked?
A:Aproxymayberevokedinwriting,orallyorby
conduct.
XPN:Saidproxyiscoupledwithinteresteven
itmayappearbyitstermstobeirrevocable.
(b)VOTINGTRUSTAGREEMENT
Q:Whatisavotingtrustagreement(VTA)?
Q:WhatarethespecificlimitationsonVTA?
A:
1. VTA can be entered into for a period
not exceeding 5 years at any one time
except when it is a condition in a loan
agreement but shall automatically
expireuponfullpaymentoftheloan;
2. Itmustbeinwritingandnotarized,and
shall specify the terms and conditions
thereof;(Sec.59)
A:
1. Execution and notarization of the VTA
stating the terms and conditions
thereof
2. Acertifiedcopyofsuchagreementshall
be filed with the corporation and with
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
the SEC, otherwise, it is ineffective and
unenforceable
3. Thecertificate/sofstockcoveredbythe
VTAshallbecancelled
5. Thetransfershallbenotedinthebooks
of the corporation, that it is made
pursuanttosaidVTA
Q:Whatistheeffectofavotingtrustagreement
withrespecttotherightsofthetrustorandthe
trustee?
Q:Whatarethedistinctionsbetweenavoting
trustagreementandproxy?
A:
Note:Unlessexpresslyrenewed,allrightsgrantedin
a voting trust agreement shall automatically expire
attheendoftheagreedperiod,andthevotingtrust
certificatesaswellasthecertificatesofstockinthe
name of the trustee or trustees shall thereby be
deemedcancelledandnewcertificatesofstockshall
bereissuedinthenameofthetransferors.(Sec.59)
Q:Whatisapoolingagreement?
VOTINGTRUST
Theagreementis
irrevocable
Trusteeacquireslegal
titletothesharesofthe
transferringstockholder
Notonlyrighttovoteis
given,otherrightsas
wellexcepttherightto
receivedividends
Thetrustmayvotein
personorbyproxy
unlesstheagreement
providesotherwise
Theagreementmustbe
notarized
Trusteeisnotlimitedto
actatanyparticular
meeting
Thesharecertificate
shallbecancelledand
transferredtothe
trustee
Atrusteecanvoteand
exercisealltherightsof
thestockholdereven
whenthelatteris
present
Thevotingrightis
divorcedfromthe
ownershipofstocks
Anagreementmustnot
exceed5yearsatany
onetimeexceptwhen
thesameismadea
conditionofaloan.
Governedbythelawon
trust
PROXY
Revocableanytime
exceptonewithinterest
Proxyhasnolegaltitle
tothesharesofthe
principal
Onlyrighttovoteis
given
Theproxymustvotein
person
Proxyneednotbe
notarized
Proxycanonlyactata
specifiedstockholders
meeting(ifnot
continuing)
Nocancellationofthe
certificateshallbemade
Aproxycanonlyvotein
theabsenceofthe
ownersofthestock
Therighttovoteis
inherentinor
inseparablefromthe
righttoownershipof
stock
Aproxyisusuallyof
shorterduration
althoughunderSec.58
itcannotexceed5years
atanyonetime
Governedbythelawon
agency
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
137
Q:Whenarepoolingagreementsvalid?
(c)CASESWHENSTOCKHOLDERSACTIONIS
REQUIRED
A:SeeAppendixE
(3)PROPRIETARYRIGHTS
A:
1. RighttoDividend
2. RightofFirstRefusal
3. AppraisalRight
4. RighttoInspect
5. PreemptiveRight
6. RighttoVote
138
Q:Whoisentitledtoreceivedividends?
A:
GR: Those stockholders at the time of
declaration. Dividends belong to the person
who owns the stock when the dividend is
declared.
XPN:
1. Incaseanyamendmenttothearticlesof
incorporation has the effect of changing
orrestrictingtherightsofanystockholder
or class of shares, or of authorizing
preferences in any respect superior to
those of outstanding shares of any class,
orofextendingorshorteningthetermof
corporateexistence.
2. In case of sale, lease, exchange, transfer,
mortgage, pledge or other disposition of
all or substantially all of the corporate
property and assets as provided in the
Code.
3. Incaseofmergerorconsolidation.
Q:Whatistherightoffirstrefusal?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
contractualstipulation,orwhenitisprovidedfor
inthearticlesofincorporation.
2.
Q:Whenarenonvotingsharesentitledtovote?
XPN:Thepledgeeormortgageeisexpresslygiven
bythepledgorormortgagorsuchrightinwriting
which is recorded on the appropriate corporate
books.
Q:Whatistheruleincaseofjointownershipof
stock?
XPN:Ifthereisawrittenproxy,signedbyallthe
coowners, authorizing one or some of them or
any other person to vote such share or shares.
Provided,That whenthesharesareownedinan
"and/or"capacitybytheholdersthereof,anyone
of the joint owners can vote said shares or
appointaproxytherefor.
Q:WhatistheRighttoInspect?
1. Itmustbeexercisedatreasonablehourson
businessdays;
2. Thestockholderhasnotimproperlyusedany
information he has secured through any
previousexaminationand
3. Demand is made in good faith or for a
legitimatepurpose.
Q:WhatisPreemptiveright?
Q:Howcanthestockholdersexercisetheirright
tovote?
A: The stockholders can exercise their right to
vote through the election, replacement and
removalofBoardofDirectorsorTrusteesandon
other corporate acts which require stockholders
approval.
A:Theissuanceofnonvotingsharesissubjectto
the following conditions under Section 6 of the
CorporationCode:
1. Onlypreferredorredeemablesharesmaybe
madenonvotingshares;
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
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139
(4)REMEDIALRIGHTS
A:
1. Derivativesuitonebroughtbyoneor
more stockholders or members in the
name and on behalf of the corporation
toredresswrongscommittedagainstit
or to protect or vindicate corporate
rights, whenever the officials of the
corporation refuse to sue or are the
ones to be sued or hold control of the
corporation. The requisites are as
follows:
2.
Individualsuitandactionbroughtbya
stockholder against the corporation for
directviolationofhiscontractualrights.
3.
Q:Whichcourthasjurisdictionoveraderivative
suit?
Q:AA,aminoritystockholder,filedasuitagainst
BB, CC, DD, and EE, the holders of majority
shares of MOP Corporation, for alleged
misappropriation of corporate funds. The
complaint averred, inter alia, that MOP
Corporation is the corporation in whose behalf
and for whose benefit the derivative suit is
brought. In their capacity as members of the
140
(5)OBLIGATIONSOFASTOCKHOLDER
Q:Whataretheobligationsofstockholders?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
(6)MEETINGS
Q:Whenwillstockholders/membersmeetingbe
held?
A:
DATEOFMEETING
1.
2.
2.
Regularmeeting
Annuallyondate
fixedintheby
1.
laws;or
Ifthereisnodate
inthebylaws
2.
anydateinApril
asdeterminedby
theboard.
Specialmeeting
1.
Anytimedeemed
necessary;or
Asprovidedinthe
2.
bylaws
Venue:Principaloffice
1.
2.
3.
REQUIREDWRITTEN
NOTICE
1.
A:
Within
the
periodprovided
inthebylaws
Intheabsence
ofprovisionin
thebylaws2
weekspriorto
themeeting.
Withinthe
periodprovided
inthebylaws
Ifnoprovision
inthebylaws
1weekpriorto
themeeting
4.
5.
Itmustbeheldintheproperplace;
Itmustbeheldatthestateddateandat
the appointed time or at a reasonable
timethereafter;
Itmustbecalledbytheproperperson:
a. The person or persons designated
in the bylaws have authority to
call stockholders or members
meeting
b. Intheabsenceofsuchprovisionin
the bylaws it may be called by a
directorortrusteeorbyanofficer
entrustedwiththemanagementof
thecorporation
c. A stockholder or member may
make the call on order of the SEC
wheneverforanycausethereisno
personauthorizedtocallameeting
d. The special meeting for the
removal of directors or trustees
may be called by the secretary or
bystockholderormember.
Theremustbeapreviousnotice
Theremustbeaquorum
A:
1. Delinquent shares shall not be entitled
tovote
2. Treasury shares have no voting rights
while they remain in the treasury (Sec.
57)
3. Fractionalsharesshallnotbeentitledto
vote
4. Escrow shares shall not be entitled to
vote before the fulfillment of the
conditionimposedthereon
5. Unpaid shares, if not delinquent, are
entitledtoalltherightsofastockholder
includingtherighttovote
6. Sequesteredshares
As a rule, the right to vote remains on
the shareholder and the entity making
the sequestration may not exercise the
righttovote
XPN:TheTwoTieredTest
a. Whether there is a prima facie
evidence showing that the said
shares are illgotten and thus
belongtotheState
b. Whether there is an immediate
danger of dissipation thus
necessitating their continued
A:
GR:Shallconsistofthestockholdersrepresenting
majority of the outstanding capital stock or a
majority of the actual and living members with
voting rights, in the case of nonstock
corporation. (Tan v. Sycip, G.R. No. 153468, Aug.
17,2006)
XPN:
1. Adifferentquorummaybeprovidedfor
inthebylaws
2. The corporation code provides for
certain resolutions that must be
approved by at least 2/3 of the
outstandingcapitalstock,inwhichcase,
majority of the outstanding capital
stock is insufficient to constitute a
quorum, presence of the stockholders
representing 2/3 of the outstanding
capital stock is necessary for such
purpose.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
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141
7.
8. Sharesjointlyowned(Sec.56)consent
ofallthecoownersisnecessary,unless
thereisawrittenproxysignedbyallthe
coowners. If shares are owned in an
and/or capacity by the holders
thereof,anyoneofthejointownerscan
voteorappointaproxythereof.
Q: Is teleconferencing or videoconferencing
valid?
A:Yes.(R.A.8792,asimplementedbySECMemo.
CircularNo.15,Nov30,2001)provided:
1. Directors must express their intent on
teleconferencing;
2. Properidentificationofthoseattending;
3. Thecorporatesecretarymustsafeguard
the integrity of the meeting by
142
recordingit.Thereisnoviolationofthe
AntiWire Tapping Act (R.A. 4200)
because all the parties to the board
meeting are aware that all the
communicationsarerecorded.
Note:Thebasictypesofteleconferencingare:
1. Videoconferencing;
2. Computerconferencing;
3. Audioconferencing.
I.BOARDOFDIRECTORANDTRUSTEES
(1)REPOSITORYOFCORPORATEPOWERS
Q:Whoshallexercisecorporatepowers?
A:
XPN:
1. In case of delegation to the Executive
Committee duly authorized in the by
laws;
3.
Q:Whoisanindependentdirector?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
Note: All other companies not covered are
encouraged to have independent directors on their
board.
A:
1. Majority of the directors/trustees must
beresidentsofthePhilippines(Sec.23)
2. He must not have been convicted by
finaljudgmentofanoffensepunishable
byimprisonmentforperiodexceeding6
years or a violation of the Corporation
Code,committedwithin5yearspriorto
thedateofhiselection(Sec.27)
3. Hemustbeoflegalage
4. Other qualifications as may be
prescribedinspeciallawsorregulations
orinthebylawsofthecorporation
Q:Whatarethegroundsfordisqualificationofa
director?
A:
1. Conviction by final judgment of an
offense punishable by imprisonment
exceeding6years
2. Violation of the Corporation Code
committed within 5 years prior to his
electionorappointment(Sec27)
(2)TENURE,QUALIFICATIONSAND
DISQUALIFICATIONSOFDIRECTORS
Q:WhatisthetermofofficeofBOD/BOT?
A:
GR:Theregulardirectorshallholdofficefor
1year.
XPN:Ifnoelectionisheld,thedirectorsand
officersshallholdpositionunderaholdover
capacity until their successors are elected
and qualified. This is applicable to a going
concern where there is no break in the
exercise of the duties of the officers and
directors.(SECOpinion,Dec.15,1989).
Q:Whatarethequalificationsofadirector?
A:
1. Mustownatleast1shareofthecapital
stock;
Note:Ownershipofstockshallstandinhis
nameonthebooksofthecorporation.
Apersonwhodoesnotownastockatthe
time of his election or appointment does
not disqualify him as director if he
becomes a shareholder before assuming
the duties of his office. (SEC Opinions,
Nov.9,1987&Apr.5,1990)
2.
Note:PleasereadArt3.[E]oftheRevisedCodeof
CorporateGovernance.
(3)ELECTIONS
Q:Whatarethedifferentmethodofvoting?
A:
1. Straightvotingeverystockholdermay
votesuchnumberofsharesforasmany
persons as there are directors to be
elected.
2. Cumulativevotingforonecandidatea
stockholder is allowed to concentrate
his votes and give one candidate, as
many votes as the number of directors
tobeelectedmultipliedbythenumber
ofhissharesshallequal.
Mustbeanaturalperson;
A:Adirectorshouldhavethefollowing:
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
143
(4)REMOVAL
Q:Whomayremovedirectorsortrustees?
A:
However,ifthedirectorwaselectedby
the minority, there must be cause for
removal because the minority may not
be deprived of the right to
representation to which they may be
entitledunderSec.24oftheCode.(Sec.
28)
144
thevoteoftheBoardofDirectorsissufficientfor
thepurpose.(2001BarQuestion)
(5)FILLINGOFVACANCIES
Q:Whatarethewaysoffillingupthevacancies
intheboard?
A:
(6)COMPENSATION
Q:Howaredirectorscompensated?
A:
XPN:
1. Whentheircompensationisfixedinthe
bylaws
2. When granted by the vote of
stockholders representing at least a
majority of the outstanding capital
stockataregularorspecialmeeting
3. When they are also officers of the
corporation
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
4.
(8)BUSINESSJUDGMENTRULE
Q:Whatisbusinessjudgmentrule?
XPN:Unlesssuchcontractsaresounconscionable
and oppressive as to amount to a wanton
destructionofrightsoftheminority. (Ingersoll v.
Malabon Sugar Co., G.R. No. L16977, Apr. 21,
1922)
A:
2. Directorsandofficersactingwithinsuch
business judgment cannot be held
personallyliableforsuchacts.
(9)SOLIDARYLIABILITYFORDAMAGES
Q:Whatisthelimitationonthecompensationof
directors?
A:Innocaseshallthetotalyearlycompensation
of directors, as such directors exceed 10% of the
netincomebeforeincometaxofthecorporation
duringtheprecedingyear.(Sec.30)
(7)DISLOYALTY
Q:Whatisdoctrineofcorporateopportunity?
Ifsuchactisratifiedbyavoteofthestockholders
representing at least 2/3 of the outstanding
capital stock, the director is excused from
remittingtheprofitrealized.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
145
A:
GR: The directors or trustees are not liable
solidarily with the corporation by reason of
theirseparateanddistinctpersonalities.
XPN:
1. Willfully and knowingly voting for and
Assenting to patently unlawful acts of
thecorporation;(Sec.31)
2. Gross negligence or bad faith in
directing the affairs of the corporation;
(Sec.31)
3. Acquiring any personal or pecuniary
Interestinconflictofduty;(Sec.31)
4. Agreeing or stipulating in a contract to
holdhimselfliablewiththecorporation;
or
5. By virtue of a specific provision of Law
(Uichicovs.NRLC,G.R.No.121434,June
2,1997).
Q:Whencouldadirectorbesolidaryliablewith
thecorporationforterminationofemployees?
A:Onlywhentheterminationisdonewithmalice
or in bad faith on the part of the director.
Without any evidence of bad faith or malice,
directors may not be held personally liable
(Equitable Banking Corporation vs. NLRC, GR No.
02467,June13,1997).
(10)LIABILITIESFORWATEREDSTOCKS
146
(11)PERSONALLIABILITY
Q:Whataretheinstanceswhereadirectormay
beheldpersonallyliable?
A:
1. Willfullyandknowinglyvotingforand
Assentingtopatentlyunlawfulactsof
thecorporation.(Sec.31)
2. Gross negligence or bad faith in
directing the affairs of the corporation.
(Sec.31)
3. Acquiring any personal or pecuniary
Interestinconflictofduty.(Sec.31)
4. Actingwithoutauthorityorinexcessof
authority or are motivated by illwill,
malice or bad faith, which gives rise to
consequent damages. (Lim vs. NLRC,
G.R.No.80685.March16,1989)
5. Consenting to the issuance of Watered
stocks, or, having knowledge thereof,
failing to file objections with the
secretary.(Sec.65)
(12)RESPONSIBILITIESFORCRIMES
(13)SPECIALFACTDOCTRINE
Q:WhatisSpecialFactDoctrine?
A:Itisadoctrineholdingthatacorporateofficer
withsuperiorknowledgegainedbyvirtueofbeing
an insider owes a limited fiduciary duty to a
shareholder in transactions involving transfer of
stock(MiriamWebsterDictionary,2006).
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
(14)INSIDEINFORMATION
Q:WhatisinsideInformation?
(15)CONTRACTS
A:
1. Contracts which are entered by one or
more
of
the
corporate
directors/trustees,orofficers(Sec.32)
Voidable at the option of the
corporation,unless:
a. The
presence
of
such
director/trustee in the board
meeting approving the contract
was not necessary to constitute a
quorum;
b. The vote of such director/trustee
in the board meeting approving
thecontractwasnotnecessaryfor
theapprovalofthecontract;
c. Thecontractisfairandreasonable
underthecircumstances;
d. Inthecaseofanofficer,therewas
previous authorization by the
boardofdirectors.
Q:SupposethatthebylawsofXCorporation,a
miningfirm,providesthat"Thedirectorsshallbe
relieved from all liability for any contract
enteredintobythecorporationwithanyfirmin
which the directors may be interested." Thus,
director A acquired claims which overlapped
with X's claims and were necessary for the
development and operation of X's mining
properties.Isthebylawprovisionvalid?Why?
(16)EXECUTIVECOMMITTEE
Q:Whatisanexecutivecommittee?
2.
Q:Whatistheeffectiftheinterlockingdirectors
interest in nominal in one corporation and
substantialinanother?
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
147
Q:Arethedecisionsoftheexecutivecommittee
subjecttoappealtotheboard?
A:No.However,iftheresolutionoftheExecutive
Committee is invalid, i.e. not one of the powers
conferred to it, it may be ratified by the board
(SECOpinion,July29,1995).
Q:Whatarethelimitationsonthepowersofthe
executivecommittee?
A:Itcannotactonthefollowing:
1. Mattersneedingstockholderapproval
2. Fillingupofboardvacancies
3. Amendment, repeal or adoption of by
laws
4. Amendmentorrepealofanyresolution
oftheBoardwhichbyitsexpressterms
isnotamendableorrepealable
5. Cashdividenddeclaration.(Sec.3)
Q:Whataretheexecutivecommitteesprovided
intheRevisedCodeofCorporateGovernance?
A:
1. AuditCommittee
2. NominationCommittee
3. Compensation and Remuneration
Committee
(17)MEETINGS
Q:WhenwillBOD/BOTmeetingsbeheld?
A:
DATEOFMEETING
Q:WhatistherequirednumberofBOD/BOTto
constitutequorum?
A:
GR: Majority of the number of directors or
trustees.
Note:
GR: Every decision of at least a majority of the
directors or trustees present at a meeting at
which there is quorum shall be valid as a
corporateact.
XPN:
1.
2.
REQUIREDWRITTEN
/VERBALNOTICE
RegularMeeting
1. Withintheperiod
Thedatefixed
providedinthe
inthebylaws;
bylaws
or
2. Intheabsenceof
2. Ifthereisno
provisioninthe
dateintheby
bylaws1day
lawsshallbe
priortothe
heldmonthly
scheduled
meeting
Venue:Anywhere
1.
SpecialMeeting
1. Withintheperiod
1. Anytimeupon
providedinthe
thecallofthe
bylaws
president;or
2. Ifnoprovisionin
2. Asprovidedin
thebylaws1
thebylaws
daypriortothe
scheduled
Venue:Anywhere
meeting
Q:Whoshallpresideatallmeetings?
148
Theelectionofofficerswhichshallrequire
thevoteofamajorityofallthemembers
oftheboard.(Sec.25[2])
No board approval is necessary where
thereiscustom,usageandpracticeinthe
corporation not requiring prior board
approvalorwheresubsequentapprovalis
sufficient.(BoardofLiquidatorsv.Kalaw,
G.R.No.L18805,Aug.14,1967)
Q:WhatistheeffectofAbstention?
A:Anabstentionmayhavethepracticaleffectof
a "no" vote since the motion may fail for lack of
sufficient"yes"votes.Unlessagreaternumberis
called for in the articles or bylaws, a matter is
deemed "approved" by the board if at any
meeting at which a quorum is present at least a
majority of the required quorum of directors
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
votes in favor of the action (Sec 7211, United
StatesCorporationCode).
2.
3.
4.
Q:WhentoAbstain?
J.CAPITALAFFAIRS
(1)CERTIFICATEOFSTOCK
Q:Whatisacertificateofstock?
A:
1. The certificate must be signed by the
president
or
vicepresident,
countersigned by the secretary or
assistantsecretary
5.
Thecertificatemustbesealedwiththe
sealofthecorporation
Thecertificatemustbedelivered
Theparvalueastoparvalueshares,or
full subscription as to no par value
shares must be fully paid, the basis of
which is the doctrine of indivisibility of
subscription
The original certificate must be
surrendered where the person
requesting the issuance of a certificate
is a transferee from the stockholder
(Bitongv.CA.,G.R.No.123553,July13,
1998).
A:
SHAREOFSTOCK
Unitofinterestina
corporation
Itisanincorporeal
orintangible
property
Itmaybeissuedby
thecorporation
evenifthe
subscriptionisnot
fullypaid.
CERTIFICATEOFSTOCK
Evidenceoftheholders
ownershipofthestock
andofhisrightasa
shareholderandofhis
extentspecifiedtherein.
Itisconcreteand
tangible
Itmaybeissuedonlyif
thesubscriptionisfully
paid.
(A)NATUREOFTHECERTICIATE
Q:Whatisthenatureofacertificateofstock?
A:Acertificateofstockisaprimafacieproofthat
thestockdescribedthereinisvalidandgenuinein
theabsenceofanevidencetothecontrary.
(B)UNCERTIFICATEDSHARES
Q:Whatisanuncertificatedshare?
A: An uncertificated share is a subscription duly
recorded in the corporate books but has no
correspondingcertificateofstockyetissued.
Q:Mayastockholderalienatehissharesevenif
there is no certificate of stock issued by the
corporation?
A:Yes.Theabsenceofacertificateofstockdoes
not preclude the stock holder from alienating or
transferringhissharesofstock.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
149
Q:Isastockcertificatenegotiable?
Q:Whyisastockcertificatenotnegotiable?
Q:AistheregisteredownerofStockCertificate
No.000011.Heentrustedthepossessionofsaid
certificatetohisbestfriendBwhoborrowedthe
said endorsed certificate to support B's
application for passport (or for a purpose other
than transfer). But Bsold the certificate to X, a
bonafidepurchaserwhoreliedontheendorsed
certificates and believed him to be the owner
thereof.
CanAclaimthesharesofstocksfromX?Explain.
150
purchaserwhoreliedontheendorsementbyA
ofthecertificateofstock.(2001BarQuestion)
i.REQUIREMENTSFORVALIDTRANSFEROF
STOCK
A:
1. The certificate of stock must be duly
endorsed by the transferor or his legal
representative.
2. There must be delivery of the stock
certificate.
3. To be valid against third parties, the
transfermustberecordedinthebooks
of the corporation. (G.R. No. 124535,
September28,2001)
Q:Howaresharesofstocktransferred?
A:
1. If represented by a certificate, the
following must be strictly complied
with:
a. Indorsementbytheownerandhis
agent
b. Deliveryofthecertificate
c. To be valid to third parties, the
transfer must be recorded in the
books of the corporation. (Rural
Bank of Lipa v. CA, G.R. No.
124535,Sept28,2001).
2. Ifnotrepresentedbyacertificate(such
aswhenthecertificatehasnotyetbeen
issuedorwhereforsomereasonisnot
inthepossessionofthestockholder).
a. By means of deed of assignment:
and
b. Suchisdulyrecordedinthebooks
ofthecorporation.
Q:AistheregisteredownerofStockCertificate
No.000011.Heentrustedthepossessionofsaid
certificatetohisbestfriendBwhoborrowedthe
said endorsed certificate to support B's
application for passport (or for a purpose other
than transfer). But Bsold the certificate to X, a
bonafidepurchaserwhoreliedontheendorsed
certificates and believed him to be the owner
thereof.
CanAclaimthesharesofstocksfromX?Explain.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
A: No. Since the shares were already transferred
to"B","A"cannotclaimthesharesofstockfrom
"X". The certificate of stock covering said shares
havebeendulyendorsedby"A"andentrustedby
himto"B".Byhissaidacts,"A"isnowestopped
from claiming said shares from "X", a bona fide
purchaserwhoreliedontheendorsementbyA
ofthecertificateofstock.(2001BarQuestion)
(D)ISSUANCE
Q:Whatistheruleonrighttoissuance?
(E)STOCKANDTRANSFERBOOK
A:
1. Book for the minutes of SH and BOD
meetings
2. Recordoftransactions
3. Stockandtransferbook
4. Otherbooksrequiredtobekept
i.CONTENTS
Q:Whatarethecontentsofastockandtransfer
book?
A:
1. All stocks in the name of the
stockholdersalphabeticallyarranged
2. Amount paid and unpaid on all stocks
and the date of payment of any
installment
Note:Tobindthecorporationthedeedeffectingthe
transfer must be duly recorded in the corporate
books.(Sec.63)
A:
1. Petitionformandamus
2. Suit for specific performance of an
expressorimpliedcontract
3. May sue for damages where specific
performancecannotbegranted
Thelawdoesnotprescribeaperiodwithinwhich
the registration of the transfer of shares should
be effected. Hence, the action to enforce the
right does not accrue until there has been a
demandandarefusalconcerningthetransfer.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
151
3.
4.
Alienation,saleortransferofstocks
Other entries as the bylaws may
prescribe
5.
6.
ii.WHOMAYMAKEVALIDENTRIES
A:Theobligationanddutyfallsonthecorporate
secretary. If the corporate secretary refuses to
comply, the stockholder may rightfully bring suit
to compel performance. The stockholder cannot
take the law on to his hands; otherwise such
entry shall be void. (Torres, Jr. v. CA, G.R. No.
120138,Sept.5,1997)
Q:Whatistheprobativevalueofthestockand
transferbook?
A:
1. Any director, trustee, stockholder or
member
2. Votingtrustcertificateholder
3. Stockholderofsequesteredcompany
4. Beneficialownersofshares
Q:WhatisthebasisofSHsrightofinspection?
A:
1. The right must be exercised during
reasonablehoursonbusinessdays
2. Thepersondemandingtherighthasnot
improperly used any information
obtained through any previous
examination of the books and records
ofthecorporation
3. Thedemandismadeingoodfaithorfor
legitimate purpose germane to his
interestasastyockholder.(Sec.74)
4. Itshouldfollowtheformalitiesthatmay
berequiredinthebylaws
152
(F)LOSTORDESTROYEDCERTIFICATES
A:
1. The registered owner of a certificate of
stock in a corporation or his legal
representative shall file with the
corporation an affidavit in triplicate
setting forth, if possible, the
circumstances as to how the certificate
was lost, stolen or destroyed, the
number of shares represented by such
certificate, the serial number of the
certificate and the name of the
corporationwhichissuedthesame.
3. Aftertheexpirationofone(1)yearfrom
the date of the last publication, if no
contest has been presented to said
corporation regarding said certificate of
stock, the right to make such contest
shallbebarredandsaidcorporationshall
cancelinitsbooksthecertificateofstock
whichhasbeenlost,stolenordestroyed
and issue in lieu thereof new certificate
ofstock.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
Q:Maythecorporationbesuedfortheissuance
of new certificates of stock in case of lost or
destroyedcertificate?
A:
1. No, the corporation cannot be made
liable. Except in cases of fraud, bad
faith, or negligence on the part of the
corporation and its officers, no action
maybebroughtagainstanycorporation
which have issued certificates of stock
inlieuofthoselost,stolen,ordestroyed
pursuant to the procedure prescribed
bylaw.
Q:Whatifthereareoppositionsontheissuance
of new certificates, what may the corporation
do?
Q:Whenmayacorporationissueareplacement
certificate of subscription without waiting for
theexpirationofoneyear?
A:Theregisteredownershallfileabondorother
security effective for a period of one (1) year in
which caseanewcertificatemaybeissuedeven
before the expiration of the one (1) year period.
Provided,Thatifacontesthasbeenpresentedto
saidcorporationorifanactionispendingincourt
regarding the ownership of said certificate of
stock which has been lost, stolen or destroyed,
theissuanceofthenewcertificateofstockinlieu
thereofshallbesuspendeduntilthefinaldecision
by the court regarding the ownership of said
certificateofstockwhichhasbeenlost,stolenor
destroyed.(Sec.73)
(G)SITUSOFSHARESOFSTOCK
Q:Whereisthesitusofsharesofstock?
(2)WATEREDSTOCK
(A)DEFINITION
Q:Whatisawateredstock?
A:Astockissuedinexchangeforcash,property,
share, stock dividends, or services lesser than its
parvalue.
WateredStocksincludestocks:
1. Issued without consideration (bonus
share)
2. Issued for a consideration other than
cash, the fair valuation of which is less
than its par or issued value (discount
share)
3. Issuedasstockdividendwhenthereare
nosufficientretainedearningstojustify
it
4. Issued as fully paid when the
corporation has received a lesser sum
ofmoneythanitsparorissuedvalue
Note:Waterinthestockrepresentsthedifference
between the fair market value at the time of the
issuance of the stock and the par or issued value f
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
153
Wateredstocksreferonlytooriginalissueofstocks
but not to a subsequent transfer of such stocks by
thecorporation.
(B)LIABILITYOFDIRECTORSFORWATERED
STOCKS
Q:Whatistheextentoftheliabilityofdirectors
who consented to the issuance of a watered
stock?
Note:PursuanttoSec.65oftheCorporationCode,a
directororofficerwhoconsentstotheissuanceofa
watered stock or having knowledge thereof does
notforthwithexpresshiswrittenobjectionwiththe
corporate secretary is liable jointly and severally
withthestockholderconcernedforthewaterinthe
stockinfavorofthecorporationanditscreditors.
(C)TRUSTFUNDDOCTRINEFORLIABILITYFOR
WATEREDSTOCK
Q:Whatisthetrustfunddoctrine?
A:Thesubscribedcapitalstockofthecorporation
is a trust fund for the payment of debts of the
corporationwhichthecreditorshavetherightto
look up to satisfy their credits, and which the
corporationmaynotdissipate.
A:Thesolidaryliabilityofthedirectorsemanates
from the fiduciary character of the position of
directororcorporateofficer.
(3)PAYMENTOFBALANCEOFSUBSCRIPTION
Q:Whoarerequiredtopaytheirsubscriptionin
full?
A:
1. Nonresident foreign subscribers upon
incorporation must pay in full their
subscriptions unless their unpaid
subscriptions are guaranteed by a surety
bond or by an assumption by a resident
154
Q:Whenshouldthebalanceofthesubscription
bepaid?
A:Itshouldbepaid:
1. On the date specified in the
subscription contract, without need of
demandorcall,or
2. If no date of payment has been
specified, on the date specified on the
callmadebytheBOD;orwithin30days
from the date of call (grace period is
granted
3. When insolvency supervenes upon a
corporation and the court assumes
jurisdiction to wind it up, all unpaid
subscriptions become payable on
demand, and are at once recoverable,
withoutnecessityofanypriorcall.
Q:Willtheunpaidbalanceaccrueinterest?
Note:InterestcontemplatedinSec.66ispertainsto
moratoryinterestwhichistheinterestonaccountof
delay,whileSec.67speaksofcompensatoryinterest
whichistheineterstonaccountofsubscriptioninan
installmentbasis.
(A)CALLBYBOARDOFDIRECTORS
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
A: A call is made in a form of board resolution
that unpaid subscription to the capital stock are
due and payable and the same or such
percentage thereof shall be collected, together
withallaccruedinterest,onaspecifieddateand
that if no payment is made within 30 days from
said date, all stocks covered by said subscription
shall thereupon become delinquent and shall be
subjecttopublicauctionsale.
(B)NOTICEREQUIREMENT
Q:Whatisthenoticerequirementincasethere
isacalloftheboardofdirectorsforpaymentof
subscription?
A:Thenoticeofthecallhastobeservedonthe
stockholdersconcernedinthemannerprescribed
inthecall,whichmayeitherbebyregisteredmail
and/orpersonaldeliveryandpublication.
(4)SALEOFDELINQUENTSHARES
Q:Whenwillthesharebecomedelinquent?
1.
2.
3.
4.
5.
6.
A:
1. The person participating in the
delinquency sale who offers to pay the
full amount of the balance of the
subscription together with the accrued
interest, costs of advertisement and
expenses of sale, for the smallest
numberofshares;
2. If there is no bidder as mentioned
above, the corporation may bid for the
same,andhetotalamountdueshallbe
credited as paid in full in the books of
the corporation. Such shares shall be
consideredastreasuryshares.
Q:Whataretheremediesofcorporationsto
enforcepaymentofstocks?
A:
1. Extrajudicialsaleatpublicauction(Sec.
67)
2. Judicialaction(Sec.70)
A:
Note:Theboardisnotboundtoacceptthehighest
bid unless the contrary appears. This is for the
reason that in public sale, the bidder is the one
makingtheoffertopurchasewhichthecorporation
isfreetoacceptorreject.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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155
Q:Canastockholderassailthedelinquencysale?
(A)EFFECTOFDELINQUENCY
Q:Whataretheeffectsofstockdelinquency?
A:
1. Uponthestockholder
a. Accelerates the entire amount of
theunpaidsubscription;
b. Subjects the shares to interest
expensesandcosts;
c. Disenfranchises the shares from
any right that inheres to the to a
stockholder, except the right to
dividends (but which shall be
appliedtoanyamountdueonsaid
shares, or, in the case of stock
dividends, to be withheld by the
corporation until full payment of
thedelinquentshares.(Sec.43)
(B)CALLBYRESOLUTIONOFBOARDOF
DIRECTORS
Q:Doesacalloftheboardofdirectorsrequired
todeclareastockdelinquent?
156
(C)NOTICEOFSALE
Q:Whatisthenoticerequirementincaseofsale
ofdelinquentstock?
(D)AUCTIONSALE
Q:Whatistheprocedurefortheauctionsaleof
adelinquentshare?
A:Theprocedureisasfollows:
1. The board of directors shall pass a
board resolution ordering the sale of
delinquentstock.
2. A notice of sale and copy of the board
resolution ordering the sale shall be
sent to every delinquent stockholder
either personally or by registered mail
or; published once a week for 2
consecutive weeks in a newspaper of
general circulation in the province or
city where the principal office of the
corporation,asspecifiedinitsarticlesof
incorporation,islocated.
3. The minimum bid shall be the full
amount of the balance on the
subscription plus the accrued interest,
cost of advertisement and expenses of
saleforthesmallestnumberofshares.
4. Thesalewillbeawardedtothehighest
bidderwhowillbegivenacertificateof
sale and the same will be registered in
thebooksofthecorporation.
5. Should there be no bidder, the
corporation may bid for the same if it
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
has unrestricted earnings to cover the
amount.
A:Giventhetotalamountdue,thehighestbidder
is determined by the smallest number of shares
orafractionofasharethatthebidderiswillingto
buyforsaidtotalamount.
1. Thereshouldbeallegationandproofof
irregularity or defect in the notice of
saleorinthesaleitself.
2. Thepartyfilingtheactionmustfirstpay
thepartyholdingthestockthesumfor
which the stock was sold with legal
interestfromthedateofsale.
3. Theactionisfiledwithin6monthsfrom
thedateofsale.
A:Yes.Theactionprescribes6monthsfromsuch
sale.
(5)ALIENATIONOFSHARES
A:Asbetweenthepartiestothecontractofsale,
registration of the transfer of shares is not
required for the sale to be valid but until it has
been recorded in the books of the corporation,
the transferee will not be considered as a
stockholderofthecorporation.
Q:Whatarethereasonsfortherecordalofthe
alienationofshares?
A:Thereasonsfortherecordalare:
1. Toenablethecorporationtoknowatall
timestheiractualstockholders.
2.
3.
(A)ALLOWABLERESTRICTIONSONTHESALEOF
SHARES
A:Yes,buttheauthoritygrantedtoacorporation
to regulate the transfer of its stock does not
empower it to restrict the right of a stockholder
to transfer his shares, but merely authorizes the
adoption of regulations as to the formalities and
procedure to be followed in effecting transfer
(Thomson vs. CA, G.R. No. 116631, October
28,1998).
Q:Whataretherequisitesforarestrictiontobe
valid?
A:Tobevalid,restrictionsonthesale/transferof
sharesmustbe:
1. Providedinthearticlesofincorporation
and
2. it must be printed at the back of the
certificateofstock.
Note:Thelatterrequirementisneededtobindthird
persons who may buy or deal with the shares of
stock.
(B)SALEOFPARTIALLYPAIDSHARES
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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157
(C)SALEOFAPORTIONOFSHARESNOTFULLY
PAID
Q:Isthesaleofaportionofsharesnotfullypaid
allowed?
A:Yes,incaseofdelinquentshares.
(D)SALEOFALLSHARESNOTFULLYPAID
A:Yesbuttobindthecorporation,consentofthe
corporationshallbeobtainedunlessnotallowed
byAOI.
(E)SALEOFFULLYPAIDSHARES
Q:Isthesaleoffullypaidsharesallowed?
(F)REQUISITESOFAVALIDTRANSFER
A:
1. There must be a delivery of the stock
certificate.
2. The certificate of stock must be duly
endorsed by the transferor or his legal
representative.
3. To be valid against third parties, the
transfermustberecordedinthebooks
of the corporation (Rural Bank of Lipa
vs.CA,G.R.No. 124535,September28,
2001).
(G)INVOLUNTARYDEALINGS
Q:Whatisinvoluntarydealing?
158
1.
2.
3.
4.
Attachment
Saleonexecutionofjudgmentorsales
fortaxes
Adverseclaims
Foreclosureofmortgageofstocks
Q:Mustinvoluntarydealingsberegistered?
A:Yes.Itistheactofregistrationwhichcreatesa
constructive notice to the whole world of such
instrument or court writ or process and is the
operative act that conveys ownership or affects
the land insofar as third persons are concerned.
(Aquino,p.185,2007ed)
K.DISSOLUTIONANDLIQUIDATION
Q:Whatismeantbydissolution?
(1)MODESOFDISSOLUTION
A:VoluntaryandInvoluntarydissolution.
(A)VOLUNTARY
Q:Whatarethevoluntarymodesofdissolution
ofacorporation?
A:
1. Wherenocreditorsareaffected
Procedure:
a. Majority vote of the board of
directorsortrustees;and
b. Resolution duly adopted by the
affirmative
vote
of
the
stockholdersowningatleast2/3of
the outstanding capital stock or at
least 2/3 of the members at a
meeting duly called for that
purpose.
c. A copy of the resolution
authorizingthedissolutionshallbe
certifiedbyamajorityoftheboard
of directors or trustees and
countersigned by the secretary of
thecorporation.
d. Such copy shall be filed with SEC.
(Sec.118)
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
2.
3.
4.
5.
Wherecreditorsareaffected
Procedure:
a. Filingapetitionfordissolutionwith
theSEC
b. Such petition must be signed by
majority of the board of directors
ortrustees
c. Must also be verified by the
presidentorsecretaryoroneofits
directors
d. The dissolutionwas resolved upon
by the affirmative vote of the
stockholders representing at least
2/3 of the outstanding capital
stock or at least 2/3 of the
members at a meeting duly called
forthatpurpose.
e. If there is no sufficient objection,
andthematerialallegationsofthe
petition are true, a judgment shall
be rendered dissolving the
corporation and directing such
disposition of its assets as justice
requires, and may appoint a
receiver to collect such assets and
pay the debts of the corporation.
(Sec.119)
6.
(B)INVOLUNTARY
A:
1. Byexpirationofcorporateterm
Q:WhatareexamplesofdissolutionbytheSEC
underexistinglaws?
3. Revocationorforfeitureofthefranchise
orcertificateofincorporationduetoits
misuse or nonuse pursuant to quo
warranto proceedings filed by the
SolicitorGeneral.
4. Failuretofilerequiredreports.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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159
(2)METHODSOFLIQUIDATION
Q:Whatarethemodesofliquidation?
A:
1. Bythecorporationitselforitsboardof
directorsortrustees;(Sec.122,par.1)
2. Byatrusteetowhomtheassetsofthe
corporation had been conveyed. (Sec.
122, par. 2); (Board of Liquidators v.
Kalaw,G.R.No.L18805,Aug.14,1967)
3. By a management committee or
rehabilitation receiver appointed by
SEC;(Sec.119,lastpar.)
A:No,acorporationintheprocessofliquidation
has no legal authority to engage in any new
business, even if the same is in accordance with
the primary purpose stated in its article of
incorporation.
160
Q:XCorporationshorteneditscorporatelifeby
amending its articles of incorporation. It has no
debts but owns a prime property located in
Quezon City. How would the said property be
liquidated among the five stockholders of said
corporation? Discuss two methods of
liquidation.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
Q:Whataretheconsequencesiftheliquidation
isnotterminatedwithinthe3yearperiod?
A:
1. Pending suits for or against the
corporation which were initiated prior
to the expiration of the 3year period
shall continue. (Gelano v. CA, G.R. No.
L39050,Feb.24,1981)
2. New actions may still be filed against
the trustee of the corporation even
aftertheexpirationofthe3yearperiod
but before the affairs of said
corporationhavebeenfinallyliquidated
or settled by the trustee. (Republic v.
Marsman, G.R. No. L18956 Apr. 27,
1972)
3. A corporation which has a pending
action which cannot be finished within
the 3year period is authorized to
convey all its property, including
pendingchosesofaction,ofatrusteeto
enableittoprosecuteanddefendsuits
by or against the corporation beyond
the3yearperiod.Wherenotrusteeis
appointed, its counsel who prosecuted
and represented the interest of the
corporation may be considered as
trusteeofsaidcorporation,atleastwith
respect to the matter in litigation
(Gelanov.CA,G.R.No.L39050,Feb.24,
1981). The directors may also be
permitted to continue as trustees to
complete the liquidation. (Clemente v.
CA,G.R.No.82407,Mar.27,1995)
4. The creditors of the corporation who
were not paid may follow the property
of the corporation that may have
passedtoitsstockholdersunlessbarred
by prescription or laches or disposition
ofsaidpropertyinfavorofapurchaser
ingoodfaith.
A:No.Theappointmentofareceiveroperatesto
suspendtheauthorityofacorporationandofits
directors and officers over its property and
effects, such authority being reposed in the
receiver (Yam v. CA, G.R. No. 104726 Feb 11,
1999).
Q:WhenmaytheCommissionappointareceiver
toundertakethewindingupandliquidationofa
corporation?
Q:Whatistheeffectifthecorporationappoints
a trustee and convey all its property to him for
the benefit of stockholders, members, creditors
andotherpersonsininterest?
L.OTHERCORPORATIONS
(1)CLOSEDCORPORATION
Q:Whatisaclosecorporation?
A:
1. Whosearticlesofincorporationprovide
that:
a. All the corporations issued stock
of all classes, exclusive of treasury
shares, shall be held of record by
not more than a specified number
or persons not exceeding twenty
(20);
b. All the issued stock of all classes
shall be subject to one or more
specifiedrestrictionsontransfer;
c. Thecorporationshallnotlistinany
stockexchangeormakeanypublic
offering of any of its stock of any
class.
2. Whosestocks,atleast2/3ofthevoting
stocks or voting rights of which are
owned or controlled by another
corporation which is a close
corporation.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
161
(A)CHARACTERISTICSOFACLOSE
CORPORATION
A:
1. Stockholders may act as directors
without need of election and therefore
areliableasdirectors
2. Stockholders 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
stockholders to more than the
maximumareinvalid
5. Corporate actuations may be binding
evenwithoutaformalboardmeeting,if
the stockholder had knowledge or
ratified the informal action of the
others
6. Preemptive right extends to all stock
issues
7. Deadlock in board are settled by the
SEC, on the written petition by any
stockholder
8. Stockholder may withdraw and avail of
hisrightofappraisal
Q:Whatcannotbeaclosecorporation?
A:MOSBIPEP
1. Miningcompanies
2. Oilcompanies
3. Stockexchanges
4. Banks
5. Insurancecompanies
6. Publicutility
7. Educationalinstitutions
8. Other corporation declared to be
vestedwithPublicinterest.(Sec.96)
162
(B)VALIDITYONRESTRICTIONSONTRANSFEROF
SHARES
Q: What are the conditions for validity of
restrictionsontransferofshares?
A:
1. SuchrestrictionsmustappearintheAOI
and in the bylaws as well as in the
certificateofstock,otherwisetheyshall
not be binding on any purchaser
thereofingoodfaith
2. They shall not be more onerous than
grantingtheexistingstockholdersorthe
corporationstheoptiontopurchasethe
shares of the transferring stockholders
withsuchreasonableterms,conditions,
orperiodstatedtherein
Q:Whatisthenatureofrestrictionsontransfer?
(C)ISSUANCEORTRANSFEROFSTOCKIN
BREACHOFQUALIFYINGCONDITION
Q:Cangoodfaithbeadefenseintheissuanceor
transferinbreachofqualifyingconditions?
A:No,accordingtoSec.99,thereisaconclusive
presumptionofknowledgeoftherestrictions.
(D)WHENBOARDMEETINGISUNNECESSARYOR
IMPROPERLYHELD
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
4.
Allthedirectorshaveexpressorimplied
knowledgeoftheactioninquestionand
makenopromptobjectionthereto.
Q:Whatistheremedyincaseofdeadlocksina
closecorporation?
A:TheSECmaybeaskedtointerveneandtheSEC
mayperformsuchactionsthatmaybenecessary
under the circumstances including the
appointmentofaprovisionaldirectorwho,asan
impartialpersonwillhaveallthepowersofaduly
electeddirector.
(2)NONSTOCKCORPORATION
(A)DEFINITION
Evenifthereisastatementofcapitalstock,foras
long as there is no distribution of unrestricted
retainedearningstoitsmembers,thecorporation
isnonstock.
(E)PREEMPTIVERIGHT
(F)AMENDMENTTOTHEARTICLESOF
INCORPORATION
Q:CorporationA,aclosecorporation,amended
its articles of incorporation and removed the
provision that all shares of stock, exclusive of
treasury stock, shall be held by a specified
numberofshareholdersnotexceeding20.
A:
1. It does not have capital stock divided
intoshares
(B)PURPOSES
(G)DEADLOCKS
Q:Whatisdeadlockinaclosecorporation?
A:Itiswhenthedirectorsorstockholdersareso
divided respecting the management of the
business and affairs of the corporation that the
votesrequiredforanycorporateactioncannotbe
obtainedandasaresult,businessandaffairscan
no longer be conducted to the advantage of the
stockholdersgenerally.
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UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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163
(C)TREATMENTOFPROFITS
Q:Mayanonstockcorporationearnprofit?
Q:Ifanonstockcorporationearnsprofit,doesit
rendersuchcorporationastockcorporation?
A:No.Thefactthatanonstockcorporationearns
a profit does not make it a profitmaking
corporation where such profit or income is used
for purposes set forth in its articles of
incorporation and is not distributed to its
incorporators,membersorofficers.
(D)DISTRIBUTIONOFASSETSUPON
DISSOLUTION
Q:Whatistheorderofdistributionofassetson
dissolutionofnonstockcorporations?
A:
1. Allitscreditorsshallbepaid
164
(3)RELIGIOUSCORPORATION
Q:Whatisareligiouscorporation?
Q:Arereligiousgroupsrequiredtoberegistered
withtheSEC?
A:No,theCorporationCodedoesnotrequireany
religiousgroupstoberegisteredasacorporation
but if it wants to acquire legal personality, its
membersshouldincorporateundertheCode.
Q:WhatarethekindsofReligiousCorporation?
A:
1. Corporation sole a special form of
corporation,usuallyassociatedwiththe
clergy, consisting of one person only
andhissuccessors,whoisincorporated
bylawtogivesomelegalcapacitiesand
advantages(Sec.110);
(A)CORPORATIONSOLE
Q:Howisacorporationsoleorganized?
(i)NATIONALITY
Q:Whatisthenationalityofacorporationsole?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
4.
nationalizationlaws,nationalityisdeterminednot
bythenationalityofitspresidingelderbutbythe
nationality of its members, constituting the sect
in the Philippines. Thus, the Roman Catholic
ChurchcanacquirelandsinthePhilippinesevenif
it is headed by the Pope. (Roman Catholic
Apostolic Church v. Land Registration
Commission,G.R.No.L8451,Dec.20,1957)
Q:Mayacorporationsoleacquireproperty?
A:
1. By obtaining an order from the RTC of
the province where the property is
situated after notice of the application
for leave to sell or mortgage has been
givenbypublicationorotherwise
A:Byaccessiontotheofficebythesuccessorsof
any chief archbishop, bishop, priest, minister,
rabbiorpresidingelder.(Sec.114)
Innonstockcorporations,theamendmentneeds
the concurrence of at least twothirds of its
membership.Ifsuchapprovalmechanismismade
tooperateinacorporationsole,itsonemember
in whom all the powers of the corporation
technicallybelongs,needstogettheconcurrence
of twothirds of its membership (Iglesia
Evangelica Metodista v. Bishop Lazaro. GR.
184088July6,2010).
Q:Whataretherequirementsforamendmentof
the articles of incorporation of a corporation
sole?
(ii)RELIGIOUSSOCIETIES
Q:Whatarereligioussocieties?
A:Religioussocietiesaregroupswithinareligious
denomination such as religious order, diocese,
synodordistrictorganization.
Q:Canreligioussocietiesincorporatethemselves
for the administration and management of its
affairs,propertiesandestate?
Q:Howisacorporationsoledissolved?
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
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165
A:SeeSec.116
(4)FOREIGNCORPORATIONS
Q:Whatisaforeigncorporation?
Note:Thedefinitionespousestheincorporationtest
and the reciprocity rule and is significant for
licensingpurposes.
(A)BASESOFAUTHORITYOVERFOREIGN
CORPORATION
Q:Whatarethebasesofauthorityoverforeign
corporation?
A:
1. Consent
2. DoingbusinessinthePhilippines
(i)CONSENT
(ii)DOCTRINEOFDOINGBUSINESS
Q:Whatarethejurisdictionaltestsofdoingor
transacting business in the Philippines for
foreigncorporations?
A:
1. TwinCharacterizationTest
a. Continuity Test doing business
implies a 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.
b. Subsequent Test a 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.
(Philippine
Corporate Law, Villanueva, 2001
ed.)
2. ContractTest
Whether the contracts entered into by
the foreign corporation, or by an agent
acting under the control and direction
of the foreign corporation, are
consummatedinthePhilippines.
166
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
Q: What are the considered as doing or
transacting business in the Philippines for
foreigncorporations?
A:
1. Soliciting orders, service contracts,
andopeningoffices
2. Appointing
representatives,
distributors domiciled in the
Philippinesorwhostayforaperiod
or periods totaling 180 days or
more
3. Participating in the management,
supervision or control of any
domestic business, firm, entity, or
corporationinthePhilippines
4. Any act or acts that imply a
continuity of commercial dealings
orarrangements,andcontemplate
tosomeextenttheperformanceof
acts or works or the exercise of
some functions normally incident
to and in progressive prosecution
of, the purpose and object of its
organization.
A:
1. The foreign corporation should file a
verified application containing and
togetherwiththefollowing:
a. Designated resident agent (who
will receive summons and notices
forthecorporation;
b. aspecialpowerofattorneyshould
also be submitted for such
purpose;
2. An agreement that if it ceases to
transactbusinessorifthereisnomore
resident agent, summons shall then be
servedthroughSEC;
3. Oath of Reciprocity. Certificate under
Oath of the authorized official of the
foreign corporations country that
allowsFilipinocitizensandcorporations
todobusinessinsaidcountry.
4. Within60daysfromissuanceoflicense,
the corporation should deposit at least
P100, 000.00 (cash, property or bond)
for the benefit of creditors subject to
furtherdepositeverysixmonths.
A:Foreigncorporationsneedlicenseto:
1. Placethemunderthejurisdictionofthe
court;
2. Place them in the same footing as
domesticcorporation;
3. Protect the public in dealing with the
saidcorporation.
A:
1. Doctrine of isolated transactions
foreign corporations, even unlicensed
ones can sue or be sued on a
transactionorseriesoftransactionsset
apart from their common business in
the sense that there is no intention to
engage in a progressive pursuit of the
purpose and object of business
transaction (Eriks Pte. Ltd. v. CA, G.R.
No.118843,Feb.6,1997)
2. InparidelictoruleinthecaseofTop
Weldmanufacturingvs.ECEDS.A.(G.R.
No. L44944, Aug. 9, 1985), the court
denied the relief prayed for by
petitioner when it ruled that the very
purpose of the law was circumvented
and evaded when the petitioner
entered into the said agreements
despitetheprohibitioncontainedinthe
questioned law. The parties were
considered as being in pari delicto
because they equally violated R.A. No.
5455.
1. Solicitingorders
2. Servicecontracts
3. Appointing representatives or distributors
domiciled in the Philippines or who in any
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
167
calendaryearstayinthecountryforaperiod
orperiodstotaling180daysormore
4. Openingoffices,whethercalledliasonoffices
orbranches
5. Establishing a factory, workshop or
processingplant
6. Undertaking building construction or
erectionprojects
7. Openingastore,whetherwholesaleorretail
without prejudice to the provisions of the
RetailTradeAct
8. Maintaining or operating a warehouse for
business purposes including the storage,
displayordeliveryofitsownproducts
9. Participating
in
the
management,
supervision or control of any domestic
business, firm, entity or corporation in the
Philippines
10. Anyotheractoractsthatimplyacontinuity
of commercial dealings or arrangements,
and contemplate to that extent,
performance normally incident to , and in
progressive prosecution of, commercial gain
orofthepurposeandobjectofthebusiness
organization
11. Itshallnotinclude:
a. Mere investment as a shareholder
by a foreign entity in domestic
corporations duly registered to do
business and/or the exercise of
suchrightsassuchinvestor
b. Having a nominee director or
officer to represent its interests in
suchcorporations
c. Appointing a representative or
distributor domiciled in the
Philippines
which
transacts
business in its own name and for
itsownaccount
12. Thefollowingactsbythemselvesshallnotbe
deemeddoingbusinessinthePhil:
a. The publication of a general
advertisement
through
newspapers, brochures or other
publicationmediaorthroughradio
ortelevision
b. Maintaining the stock of goods in
the Phil solely for the purpose of
having the same processed by
anotherentityinthePhil.
c. CollectinginformationinthePhil.
d. Performing services auxiliary to an
existingcontractorsale,whichare
notonacontinuingbasis.
168
(B)NECESSITYOFALICENSETODOBUSINESS
(i)REQUISITESFORISSUANCEOFLICENSE
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
1.
Copyofitsarticlesofincorporationand
bylaws, certified in accordance with
law
2. Their translation to an official language
ofthePhilippines,ifnecessary.
3. The application, which shall be under
oath.
4. Attached to the application for license
shall be a duly executed certificate
underoathbytheauthorizedofficialor
officials of the jurisdiction of its
incorporation,attestingtothefactthat:
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
corporationingoodstanding.
c. If such certificate is in a
foreignlanguage,atranslation
thereof in English under oath
of the translator shall be
attachedthereto.
Theapplicationshalllikewisebeaccompaniedby
a statement under oath of the president or any
other person authorized by the corporation,
showing to the satisfaction of the SEC and other
governmental agency in the proper cases that
the:
Q:Whatisthepurposeofappointingaresident
agent?
A:No,whilearesidentagentmaybeawareofthe
actionsfiledagainsttheprincipal,hemaynotbe
aware of the actions initiated by the principal,
therefore he cannot sign the certificate of non
forumshoppingthatisarequirementforfilingof
an initiatory pleading in court (Expert Travel &
ToursInc.v.CA,G.R.No.152392,May26,2005).
(C)PERSONALITYTOSUE
A:No.
GR: Only foreign corporations that have been
issued a license to operate a business in the
Philippineshavethepersonalitytosue.(Sec.133)
(D)SUABILITYOFFOREIGNCORPORATIONS
Q:Canaforeigncorporationwithoutanylicense,
engagedindoingbusinessinthePhilippines,be
suedinthecountry?
(ii)RESIDENTAGENT
Q:Whocanbearesidentagent?
A:
1. An individual, who must be of good
moral character and of sound financial
standing,residinginthePhilippines;or
2. 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.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
169
(E)INSTANCESWHEREANUNLICENSEDFOREIGN
CORPORATIONBEALLOWEDTOSUE
A:
1. Isolatedtransactions;
1. The action aims to protect its good
name,goodwill,andreputation;
2. The subject contracts provide that
Philippinecourtswillbetheonlyvenue
tofuturedisputesorcontroversies;
3. Alicensesubsequentlygrantedenables
the foreign corporation to sue on
contracts executed before the grant of
thelicense;
4. Recovery of erroneously delivered
property;
5. Where the unlicensed foreign
corporationhasadomesticcorporation.
A:Yes,theforeigncorporationmentionedabove
may sue in trademark or service mark
enforcement action. This is in accordance with
Section 160, in relation to Section 3 of R.A. No.
8393, The Intellectual Property Code. (Sehwani
Inc.v.InnOut Burger,G.R.No.171053,Oct.15,
2007)
(F)GROUNDSFORREVOCATIONOFLICENSE
A:
1. Failure to file annual reports required
bytheCode;
3. FailuretoinformtheSECofthechange
ofaddressoftheresidentagent;
170
5.
6.
7.
8.
Amisrepresentationinmaterialmatters
inreports;
(M)MERGERANDCONSOLIDATION
1.DEFINITIONANDCONCEPT
Q:Whatismerger?
Q:Whatisconsolidation?
A:
MERGER
Alloftheconstituent
corporationsinvolved
aredissolvedexcept
one
Nonewcorporationis
created
Thesurviving
corporationacquires
alltheassets,
liabilities,andcapital
stockofallconstituent
corporations
CONSOLIDATION
Allconsolidated
corporationsaredissolved
withoutexception
Asinglenewcorporation
emerges
Allassets,liabilities,and
capitalstockofall
consolidatedcorporations
aretransferredtothenew
corporation
(2)CONSTITUENTVS.CONSOLIDATED
CORPORATION
Q:Whatisthedifferencebetweenaconstituent
andconsolidatedcorporation?
A:Aconstituentcorporationiscreatedwhentwo
or more corporations merge into a single
corporation which is one of those merging
corporations. A consolidated corporation, on the
other hand, is created when two or more
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
CORPORATION LAW
corporations merge into an entirely new
corporation.
(3)PLANOFMERGERORCONSOLIDATION
Q:Whatisaplanofmergerorconsolidation?
A:Theplanofmergerorconsolidationshallset
forththefollowing:
1. Names of corporations involved
(constituentcorporations)
2. Termsandmodeofcarryingitout
3. Statement of changes, if any, in the
present
articles
of
surviving
corporation; or the articles of the new
corporation to be formed in case of
consolidation.
(4)ARTICLESOFMERGERORCONSOLIDATION
Q:Whatisanarticleofmergerorconsolidation?
(5)PROCEDURE
A:
1. Boardofeachcorporationshalldrawup
a plan of merger or consolidation,
settingforth:
a. Names of corporations involved
(constituentcorporations)
b. Termsandmodeofcarryingitout
c.
2.
3.
Statementofchanges,ifany,inthe
present articles of surviving
corporation; or the articles of the
new corporation to be formed in
caseofconsolidation.
4.
5.
6.
7.
FourcopiesoftheArticlesofMergeror
Consolidationshallbesubmittedtothe
SEC for approval. Special corporations
like banks, insurance companies,
building and loan associations, etc.,
8.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
171
9.
2.
3.
4.
(6)EFFECTIVITY
A:UponissuancebytheSECofthecertificateof
mergerandconsolidation.
Inthecaseofmergerorconsolidationofbanksor
banking institutions, building and loan
associations, trust companies, insurance
companies,
public
utilities,
educational
institutions and other special corporations
governed by special laws, the favorable
recommendation of the appropriate government
agencyshallfirstbeobtained.
(7)LIMITATIONS
(8)EFFECTS
A:Theeffectsofmergerorconsolidationare:
1. Theconstituentcorporationsshallbecomea
singlecorporationwhich:
a. Incaseofmerger,shallbethesurviving
corporation designated in the plan of
merger
b. In case of consolidation, shall be the
consolidated corporation designated in
theplanofconsolidation
172
5.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
I.STATEPOLICY(PURPOSE)
A:
1. Establish a sociallyconscious market
thatregulatesitself
2. Encourage widest participation of
ownership in enterprises and enhance
democratizationofwealth
3. Promotedevelopmentofcapitalmarket
4. Protect investors and ensure full and
fairdisclosureaboutsecurities
5. Minimize, if not totally eliminate,
insider trading and other fraudulent or
manipulative devices; and practices
whichdistortsthefreemarket
II.POWERSANDFUNCTIONSOFTHESECURITIES
ANDEXCHANGECOMMISSION(SEC)
A:
1. Regulatory
b. Formulate
policies
and
recommendations
on
issues
concerningthesecuritiesmarket;
d. Approve,reject,suspend,revokeor
require
amendments
to
2.
h. Prepare,approve,amendorrepeal
rules, regulations and orders, and
issue opinions and provide
guidance on and supervise
compliance with such rules,
regulationsandorders
i.
Deputize any and all enforcement
agenciesoftheGovernmentaswell
asanyprivateinstitutions
j.
Compel the officers of any
registered
corporation
or
association to call meetings of
stockholdersormembers
l.
Exercise such other powers as
whichareincidentaltotheprimary
powersoftheCommission
Adjudicative
a. Issueceaseanddesistorder
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
173
d.
Ordertheexamination,searchand
seizure of all documents, papers,
files and records, tax returns, and
books of accounts of any entity or
personunderinvestigation.
III.SECURITESTOBEREGISTERED
Q:Whataresecurities?
A:Securitiesareshares,participationorinterests
inacorporationorinacommercialenterpriseor
profitmaking venture and evidenced by a
certificate,contract,instrument,whetherwritten
orelectronicincharacter.Itincludes:
Q:Whatisregistrationwithregardtosecurities?
A: ItisthedisclosingtotheSECofallmaterial
andrelevantinformation about the issuer of
thesecurity.
Q:Whyisregistrationofsecuritiesmandated?
A:Itspurposeistoinformthepublicforthemto
beabletomakegoodbusinessjudgment.Itisthe
filingofregistrationstatement.
Q:Whatistherulewithregardtoregistrationof
securities?
174
A:
GR:Nosecuritycanbesoldorofferedforsale
or distribution within the Philippines unless
accompaniedbyaregistrationstatementfiled
withandapprovedbytheSEC.
XPN:
1. Exemptsecurities
2. Securitiessoldinexempttransactions.
Q:Whataretheeffectsofnonregistration?
Q:Whataretheexemptsecurities?
A:
1. Any security issued or guaranteed by
the Government of the Philippines, or
by any political subdivision or agency
thereof, or by any person controlled or
supervised by, and acting as
instrumentalityofsaidgovernment.
3. Certificatesissuedbyareceiverorbya
trusteeinbankruptcydulyapprovedby
theproperadjudicatorybody.
5. Anysecurityissuedbyabankexceptits
ownsharesofstock.
Note:Beinganissuerofanexemptsecuritydoesnot
exempt such issuer from the requirement of
submissionofreportsfullandfairdisclosure.
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A:
1. Anyjudicialsale,orsalebyanexecutor,
administrator, guardian, receiver or
trusteeininsolvencyorbankruptcy
5. Saleofcapitalstockofacorporationto
itsownstockholdersexclusively
7. Deliveryofsecurityinexchangeforany
other security pursuant to the right of
conversion
9. Share
subscriptions
prior
to
incorporation or in pursuance of an
increaseinitsauthorizedcapitalstock
11. Salebyissuertofewerthan20persons
in the Philippines during any 12 month
period
IV.PROCEDUREFORREGISTRATIONOF
SECURITIES
A:
1. Application All securities required to
be registered shall be registered
throughthefilingbyissuerwithSEC,of
aswornregistrationstatement.
2. ProspectusTheregistrationstatement
shallincludeanyprospectusrequiredor
permittedtobedelivered;
5.
6.
7.
WrittenconsentofexpertThewritten
consent of the expert named as having
certified any part of the registration
statement or any document used in
connectiontherewithshallalsobefiled
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
175
8.
c.
2.
SECPowerforproductionofbooksThe
SECmay:
a. Compel the production of all
the books and papers of such
issuer
b. Administeroaths
c. Examine the officers of such
issuer, or any other person
connected therewith as to its
businessandaffairs
3.
9.
1. Theissuer:
a. Has been judicially declared
insolvent
b. Has violated any of the provisions
oftheCode,therulespromulgated
pursuant thereto, or any order of
the SEC of which the issuer has
notice in connection with the
offering for which a registration
statementhasbeenfiled
176
4.
Hasbeenorisengagedorisabout
to
engage
in
fraudulent
transactions
Has made any false or misleading
representationsofmaterialfactsin
any prospectus concerning the
issueroritssecurities;or
d. Has failed to comply with any
requirement that the SEC may
impose as a condition for
registration of the security for
which registration statement has
beenfiled.
Theregistrationstatementisonitsface
incomplete or inaccurate or includes
anyuntruestatementofamaterialfact
or omits to state a material fact
requiredtobestatedtherein.
Theissueroranyunderwriterhasbeen
convicted by a competent judicial or
administrative body of an offense
involving moral turpitude and/or fraud
or is enjoined by the SEC or other
competent judicial or administrative
body for violations of securities,
commoditiesandotherrelatedlaws
Fraudinprocuringregistration
Serious misrepresentation as to
objectivesofcorporation
Refusal to comply with lawful order of
SEC
Continuous inoperation for at least 5
years
Failure to file bylaws within required
period
Failuretofilereports
Othersimilargrounds.(Sec.6[L])
6.
7.
A:
1. If any time, the information contained
in the registration statement filed is or
has become misleading, incorrect,
inadequate or incomplete in any
materialrespect;or
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
3.
4.
Q:Aresecuritymarketprofessionalsrequiredto
beregistered?
Q:Whatismargintrading?
Q:Whatisthemarginallowancestandard?
A:Theyarethebroker,dealer,associatedperson
ofabrokerordealer,andasalesman.
Q:Whoisabroker?
Q:Whoisadealer?
Q:Whoisasalesman?
A:Heisanaturalperson,employedassuch,oras
anagent,byadealer,issuerorbrokertobuyand
sellsecurities;butforthepurposeofregistration,
shallnotincludeanyemployeeofanissuerwhose
compensation is not determined directly or
indirectlyonsalesofsecuritiesoftheissuer.
A: Thebrokersanddealers.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
177
V.PROHIBITIONSONFRAUD,MANIPULATIONS
ANDINSIDERTRADING
A.MANIPULATIONOFSECURITYPRICES
A:
1. Transactions intended to create active
trading:
a. WashSaleengagingintransaction
inwhichthereisnogenuinechange
intheactualownershipofasecurity
b. MatchedSaleThereisachangeof
ownership in the securities by
entering an order for the
purchase/sale of security with the
knowledge that a simultaneous
orderofsubstantiallythesamesize,
time, and price, for the sale or
purchase of any such security, has
or will be entered by or for the
sameordifferentparties.
c. Similar transactions where there is
nochangeofbeneficialownership.
178
thepurposeofmanipulatingprices
aredrawingunsuspectinginvestors
into the market leaving them
defrauded of their money and
securities.
A:
1.
2.
Isthearrangementlawful?
If the sale materializes, what is it
called?
No.Thearrangementisnotlawful.Itis
anartificialmanipulationofthepriceof
securities. This is prohibited by the
SecuritiesRegulationCode.
If the sale materializes, it is called a
wash sale or simulated sale. (2001 Bar
Question)
B.SHORTSALES
Q:WhatisShortSelling?
A:Itisthesellingofshareswhichthesellerdoes
not actually own or possess and therefore he
cannot,himself,supplythedelivery.
C.FRAUDULENTTRANSACTIONS
Q:Whatareconsideredfraudulenttransactions?
A:
1. Obtainingmoneyorpropertybymeans
of any untrue statement of a material
fact
D.INSIDERTRADING
Q:Whatisinsidertrading?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
Q:Whoisaninsider?
Q:Whomaybeaninsider?
A:
1. Theissuer
2. A director or officers of or a person
controllingtheissuer
3. A person whose relationship or former
relationship to the issuer gives him
access to material information about
the issuer or the security that is not
generallyavailabletothepublic
4. A government employee, or director ,
or officer of an exchange, clearing
agency
and/or
selfregulatory
organizationwhohasaccesstomaterial
information about an issuer or a
security that is not generally available
tothepublic;or
5. Constructive Insider A person who
learns such information by a
communication from any of the
foregoing insiders. (Sec. 3.8) (1995 Bar
Question)
A: Itshallbeunlawful:
1. Foraninsidertocommunicatematerial
nonpublicinformationabouttheissuer
or the security to any person who
thereby becomes an insider, where
original insider communicating knows
or has reason to believe that such
personwilllikelybuyorsellonthebasis
ofsuchinformation
2. For any person, other than the tender
offeror,whoisinpossessionofmaterial
nonpublic information relating to such
tender offer to transact securities
coveredbythetenderoffer
3. For the tender offeror, or those acting
in his behalf, the issuer of securities
covered by the tender offer, and any
insider, to communicate material non
public information relating to the
tenderofferwhichwouldlikelyresultin
violation of prohibition of the insider
fromtrading.
Q:Whenisinformationmaterialnonpublic?
A:If:
1. Information about the issuer or the
security which has not been generally
disclosedtothepublicandwouldlikely
affect the market price of the security
after being disseminated to the public
and the lapse of a reasonable time for
the market to absorb the information;
or
2. Would be considered by a reasonable
person
important
under
the
circumstancesindetermininghiscourse
ofactionwhethertobuy,sellorholda
security(Sec.27.2).(1995BarQuestion)
A:
1. That the information was acquired not
on account of his relationship with the
issuer;or
2. That the other party knew or can be
presumed to know the material
information.
VI.PROTECTIONOFINVESTORS
A:
1. TenderOfferRule
2. Rulesonproxysolicitation
3. Disclosurerule
A.TENDEROFFERRULE
Q:Whatisatenderoffer?
A:Publiclydeclaredintentiontobuysecuritiesof
publiccompaniesgiventoallstockholdersby:
1. FilingwiththeSECadeclarationtothat
effect,andpayingthefilingfee.
2. Furnishing the issuer a statement
containing the information required of
the issuers as SEC may prescribe,
including subsequent or additional
materials.
3. Publishingallrequestsorinvitationsfor
tender, or materials making a tender
offerorrequestingorinvitinglettersof
suchsecurity.
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
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totendertheirsharesonthetermsspecifiedinthe
offer.
Q:Whatisthepurposeoftenderoffer?
A:Tenderofferisinplacetoprotecttheinterest
of minority stockholders of a target company
againstanyschemethatdilutesthesharevalueof
the investments. It affords such minority
shareholderstheopportunitytowithdraworexit
from the company under reasonable terms, a
chance to sell their shares at the same price as
thoseofthemajoritystockholders.
Q:Inwhatinstancesisatenderofferrequiredto
bemade?
A:
TheSRCprovides:
1. The person intends to acquire 15% or
more of the equity share of a public
company pursuant to an agreement
made between or among the person
andoneormoresellers.
2. The person intends to acquire 30% or
more of the equity shares of a public
companywithinaperiodof12months.
3. The person intends to acquire equity
shares of a public company that would
resultinownershipofmorethan50%of
thesaidshares.
However,theIRRoftheSRCprovides:
1. The person intends to acquire 35% or
more of the equity share of a public
company pursuant to an agreement
made between or among the person
andoneormoresellers.
2. The person intends to acquire 35% or
more of the equity shares of a public
companywithinaperiodof12months.
3. The person intends to acquire equity
shares of a public company that would
resultinownershipofmorethan51%of
thesaidshares.
A:
1. Thoselistedonanexchange;or
2. Thosewithassetsofatleast50Mpesos
andhaving200shareholdersowningat
least100shareseach.
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Q:Whataretheunlawfulandprohibitedacts
relatingtotenderoffers?
A:Itshallbeunlawfulforanypersonto:
1. Make any untrue statement of a
material fact or omit to state any
materialfactnecessaryinordertomake
statementsmadenotmisleading,and
2. Engageinanyfraudulent,deceptive,or
manipulative acts or practices in
connection with any tender offer or
requestorinvitationfortenders,orany
solicitation of security holders in
opposition to or in favor of any such
offer,request,orinvitation.
B.RULESONPROXYSOLICITATION
A:
1. Itmustbeinwriting
2. Itmustbesignedbythestockholderor
hisdulyauthorizedrepresentative
3. Itmustbefiledbeforethescheduled
meetingwiththecorporatesecretary
(Sec.20)
Q:Whataretherulesonproxysolicitationwith
regardtobrokerordealer?
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
Q:Whendoesdisclosurebegin?
Q:Mayitbesuspended?
A:Yes.Itmaybesuspendedwhenonthefirstday
of the fiscal year if it has less than 100
shareholders(Rule17.1,SRCIRR).
securityistraded,andtotheCommission
aswornstatementcontaining:
a. Hispersonalcircumstances
b. The nature of such beneficial
ownership
c. If the purpose was to acquire control
of the business, any plans the
recipient may have affecting a major
changein
d. thebusiness
e. The number of shares beneficially
owned,andthenumberofsharesfor
whichthereisarighttoacquire
f. granted to such person or his
associates
g. Informationastoanyagreementwith
athirdpersonregardingthesecurities
(Sec.18)
Q:Whendoesthedisclosurerequirementend?
A:
GR: Disclosure does not end because once a
reporting company, it remains as such even
when registration of securities has been
revoked(Rule13SCRIRR).
XPN:Iftheprimarylicenseisrevoked.
Q:Givethereportorialrequirements.
A:
1. Issuers:
a. Within135days,aftertheend ofthe
issuers fiscal year, an annual report
which shall include, a balance sheet,
profit and loss statement and
statementofcashflows,forsuchlast
fiscal year, certified by an
independent
certified
public
accountant, and a management
discussion and analysis of results of
operations;
b. Other periodical reports for interim
fiscal periods and current reports on
significantdevelopmentsoftheissuer
(Sec.17)
2. PersonsAcquiringSecurities:
If the issuer is one that has to make a
report, any person who acquires directly
or indirectly the beneficial ownership of
more than 5% of such class, or in excess
of such lesser per centum as the
Commission may prescribe, shall, within
10 days after such acquisition or such
reasonable time as fixed by the
Commission, submit to the issuer of the
security, to the Exchange where the
VII.CIVILLIABILITIES
A:
1. FalseRegistrationStatement.(Sec.56)
2. Fraud with connection to prospectus,
communicationsandreports.(Sec.57)
3. Fraud in connection with security
transactions.(Sec.58)
4. Manipulation of security prices. (Sec.
60)
5. Insidertrading.(Sec.61)
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
181
1. Theissuerandeverypersonwhosigned
theregistrationstatement
2. Every person who was a director of, or
any other person performing similar
functions, or a partner in, the issuer at
thetimeofthefilingoftheregistration
statement or any part, supplement or
amendment thereof with respect to
whichhisliabilityisasserted
3. Every person who is named in the
registration statement as being or
about to become a director of, or a
person performing similar functions, or
a partner in, the issuer and whose
writtenconsenttheretoisfiledwiththe
registrationstatement
4. Everyauditororauditingfirmnamedas
having
certified
any
financial
statementsusedinconnectionwiththe
registrationstatementorprospectus
5. Every person who, with his written
consent, which shall be filed with the
registrationstatement,hasbeennamed
ashavingpreparedorcertifiedanypart
of the registration statement, or as
having prepared or certified any report
orvaluationwhichisusedinconnection
with the registration statement, with
respect to the statement, report, or
valuation,whichpurportstohavebeen
preparedorcertifiedbyhim
6. Every selling shareholder who
contributed to and certified as to the
accuracyofaportionoftheregistration
statement,withrespecttothatportion
of the registration statement which
purports to have been contributed by
him
7. Every underwriter with respect to such
security
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A:Anypersonwhowillfullyparticipatesinanyact
or transaction in violation of Section 24 shall be
liabletoanypersonwhoshallpurchaseorsellany
securityatapricewhichwasaffectedbysuchact
ortransaction.
A:Anypersonincaseoflegaltenderwho:
1. Purchases or sells a security while in
possession of material information not
generallyavailabletothepublic.
2. Communicates material nonpublic
information
Q:Howarethepersonsenumeratedliable?
A:Jointlyandseverally
A:RegionalTrialCourt
MERCANTILELAWTEAM:
ADVISER:ATTY.AMADOE.TAYAG;SUBJECTHEAD:EARLM.LOUIEMASACAYAN;
ASST.SUBJECTHEADS:KIMVERLYA.ONG&JOANNAMAYD.G.PEADA;MEMBERS:MA.ELISAJONALYNA.BARQUEZ,ANGELIR.CARPIO,
ANTONETTET.COMIA,ALBANROBERTLORENZOF.DEALBAN,JOEBENT.DEJESUS,CHRISJARKACEM.MAO,ANNAMARIEP.OBIETA,
RUBYANNEB.PASCUA,FLORANGELAT.SABAUPAN,GIANFRANCESNICOLEC.VILCHES
A:
1. The court can award not exceeding
triple theamount of the transaction
plusactualdamage
A:Incasesof:
1. BadFaith
2. Fraud
3. Malevolenceor
4. Wantonness in the violation of SRC or the
rulesandregulationspromulgated
ACADEMICSCHAIR:LESTERJAYALANE.FLORESII
UNIVERSITYOFSANTOTOMAS
VICECHAIRSFORACADEMICS:KARENJOYG.SABUGO&JOHNHENRYC.MENDOZA
Facultad de Derecho Civil
V ICECHAIRFORADMINISTRATIONANDFINANCE:JEANELLEC.LEE
VICECHAIRSFORLAYOUTANDDESIGN:EARLLOUIEM.MASACAYAN&THEENAC.MARTINEZ
183