corporation law reviewer2-2

8/11/2019 Corporation Law Reviewer2-2

1/92

CORPORATION LAW

Corporation is one of the types of business

organizations. It is also the most important in economic

development.

INTRODUCTION

Sole proprietorship

- One man form of business entity, personallyanswers all liabilities, but enjoys all the profits with the

eclusion of others

- !imited shareholders responsibility

- "aid subscription in full, you are no longer liable

"artnership

- #ased on mutual trust and confidence

$oint venture

- one time grouping of persons whether they benatural or juridical

- does not entail continuity because after theunderta%ing is completed it is already the end

- particular partnership and joint venture would

be similar, but there is already a decision of theSupreme Court declaring them as different

- when they do not register, it does not eist

- &oreign corporations enters into an agreementwith a domestic corporation, it must be registered.

'enerally they do not need to be registered.

Corporations

- (hey may enter into joint venture, but generallythey cannot enter into a partnership, but there are

eceptions allowed by the S)C* the + eceptions mustgo hand in hand

. (he articles of incorporation epresslyauthorized the corporation to enter into contracts of

partnership

. (he agreement or articles of partnership mustprovide that all the partners will manage the

partnership and

+. (he articles of partnership must stipulate thatall the partners are and shall be jointly and severally

liable for all obligations of the partnership.

DEFINITION AND ATTRIBUTES

/ attributes of a corporation

. 0rtificial being

. Created by operation of law

+. 1ight of succession

/. "owers, attributes and properties epresslyauthorized by law or incident to its eistence.

2octrine of limited capacity

- Only such powers as are epressly granted to it

by law and by its articles of incorporation includingothers which are incidental to such conferred powers,

those reasonably necessary to accomplish its purpose

and those which may be incidental to its eistence

- Can do things as the law as%s or allows it to do

- If it does anything beyond, it shall beconsidered as 3!(10 4I1)S

'eneral rule* 5oral damages cannot be granted

to corporations

)ception* &ilipinas #roadcasting 6etwor% Inc.vs. 0go 5ed

- In cases of slander, libel and other forms ofdefamation 7should not 8ualify because the code does

not 8ualify whether natural or juridical9 0rt. : of the

civil code*

0rt. :. 5oral damages may be recovered inthe following and analogous cases*

79 0 criminal offense resulting in physical injuries

79 ;uasi-delicts causing physical injuries

7+9 Seduction, abduction, rape, or other lascivious acts

7/9 0dultery or concubinage

79 !ibel, slander or any other form of defamation

7?9 5alicious prosecution

7:9 0cts mentioned in 0rticle +@:

7@9 0cts and actions referred to in 0rticles , =, >,?, :, +@, +, +/, and +


2/92

- 6o. < may also be a disadvantage

0 corporation is a person, therefore protected

by the due process clause and e8ual protection clause of

the Constitution

CLASSIFICATION OF CORPORATIONS

Section + Stoc% and non-stoc%

- Importance of %nowing, determining whatprovisions of the code or the law may be applicable

Section 3. Classes of corporations. -Corporations formed or organized under this Code maybe stoc% or non-stoc% corporations. Corporations whichhave capital stoc% divided into shares and areauthorized to distribute to the holders of such sharesdividends or allotments of the surplus profits on thebasis of the shares held are stoc% corporations. 0ll other

corporations are non-stoc% corporations. 7+a9 6on-stoc%- title @

Stoc%- section


3/92

- "arent or oldingB subsidiaries and affiliates

- 0ffiliates- no majority vote

SMC 12%

CBP

)1S)D C#"l E

E

0ffiliate is subject to common control by the E

owners

2e jure

- cannot be attached by the state even in a 8uowarranto proceeding

2e facto

- eists by virtue of colorable compliance

- 0ttached directly only by the state in a 8uowarranto proceeding

Corporation by estoppel

- So defectively formed, but still consideredcorporation, but only in relation to those who cannot

deny their eistence section @ and

FORMATION AND ORGANIATION

+ stages

. Creation

. 1e-organization or 8uasi-reorganization

+.

/. 2issolutionBwinding-up

"urpose clause

- 2efining the scope of authority of the corporateenterprise pr underta%ing. #oth confirmed and limited

/ limitations of purpose clause

. !awful

. Specific or stated concisely

+. 5ore than one, the primary and secondarymust be specified

/. !awfully combined

- "rovision that states, cannot be issued lessthan par, eception is treasury shares because it can be

issued less than par

0 corporation commences only upon issuance

of the certificate, prior thereto it has no being and

cannot transact business. "romoters cannot act for a

projected corporation

5etro 5anila - paid up capital re8uirement is @

5

6on- stoc%- mere mention of the operating

capital

5ention the authorized capital

1estrictions

- 5andatory in close

- 6ot mandatory in ordinary

6on-stoc%

- If value is not more than @@,@@@

0 corporation cannot use any other name

unless it has been amended

Section :

- If confusingly similar it will not be allowed to beregistered

- 4erification slip from the records officer

Section 1!. Commencement of corporateeistence.- 0 private corporation formed or organizedunder this Code commences to have corporate eistenceand juridical personality and is deemed incorporatedfrom the date the Securities and )change Commissionissues a certificate of incorporation under its officialseal and thereupon the incorporators,stoc%holdersBmembers and their successors shallconstitute a body politic and corporate under the name

stated in the articles of incorporation for the period oftime mentioned therein, unless said period is etended


4/92

or the corporation is sooner dissolved in accordance withlaw. 7n9

- Fords corporation or inc. either in full orabbreviated form must be included

Section 1". Corporate name. - 6o corporatename may be allowed by the Securities and )change

Commission if the proposed name is identical ordeceptively or confusingly similar to that of any eistingcorporation or to any other name already protected bylaw or is patently deceptive, confusing or contrary toeisting laws. Fhen a change in the corporate name isapproved, the Commission shall issue an amendedcertificate of incorporation under the amended name.7n9

2octrine of secondary meaning

- 0 word or phrase originally incapable ofeclusive appropriation Gusually genericH with reference

to an article in the mar%et, because of geographically or

otherwise descriptive, might nevertheless have been

used so long and so eclusively by one producer with

reference to his article that, in that trade and to that

branch of the purchasing public, the word or phrase has

become to mean that the article was his product.

Section ?

- !yceum of the "hilippines case, the additionalgeographical name does not ma%e it confusingly similar

- actual confusion is not necessary - "hilips caseit is enough that there is probable confusionJ

re8uisites must be proven

- that the complainant corporation ac8uired aprior right over the use of such corporate name

- identical, deceptively or confusingly, patentlydeceptive

principal office

- statement of principal office is re8uired

- city and municipality not only province must bespecified

- principal office 6O( operations office

- necessary because it will establish theresidence of corporations

- venue of actions for or against the corporations

- venue of meetings

- section


5/92

- )ception* cooperatives and corporationprimarily organized to hold e8uities in rural ban%s

ow about minorsK

- 6O, because they must be of legal age

5ay a corporation organized by incorporators

consisting solely of foreigners

- Des, there is no nationality re8uirement onlyresidence, as long as majority are residents of the "hil

2efine incorporators Lsec.


6/92


7/92


8/92

- It may include such other preferences notinconsistent with the Code. (his is so because Section =

of the said law allows a stoc% corporation to issue

preferred shares subject only to the limitations imposed

therein which are*

a. (hey can be issued only with sated par valueand,

b. (he preferences must be stated in the articlesof incorporation and in the certificate of stoc%,

otherwise, each share shall be, in all respect, e8ual to

every other share.

"articipating

- 5ust be stated because the presumption is thatit is participating

Cumulative

- Irrespective of whether or not they whereearned

"referred

- 5ay be denied

- 3nless denied they are still entitled

Fhat if hindi i-declare %ahit na may dividends

rights for the previous yearsK 5ay they be denieddividend rights because they are non holders of non-

cumulativeK 6O()* DO3 C066O( CO5")! ()

CO1"O10(IO6 (O 2)C!01) 2I4I2)62S 36!)SS I(

)RC))2S @@ E "0I2 3" C0"I(0! S)C. /+

Section 43."ower to declare dividends. - (heboard of directors of a stoc% corporation may declaredividends out of the unrestricted retained earningswhich shall be payable in cash, in property, or in stoc% toall stoc%holders on the basis of outstanding stoc% heldby them* "rovided, (hat any cash dividends due ondelin8uent stoc% shall first be applied to the unpaidbalance on the subscription plus costs and epenses,while stoc% dividends shall be withheld from the

delin8uent stoc%holder until his unpaid subscription isfully paid* "rovided, further, (hat no stoc% dividend shallbe issued without the approval of stoc%holdersrepresenting not less than two-thirds 7B+9 of theoutstanding capital stoc% at a regular or special meetingduly called for the purpose. 7=a9

Stoc% corporations are prohibited from retainingsurplus profits in ecess of one hundred 7@@E9 percentof their paid-in capital stoc%, ecept* 79 when justifiedby definite corporate epansion projects or programsapproved by the board of directors or 79 when thecorporation is prohibited under any loan agreement withany financial institution or creditor, whether local orforeign, from declaring dividends without itsBhis consent,and such consent has not yet been secured or 7+9 whenit can be clearly shown that such retention is necessary

under special circumstances obtaining in thecorporation, such as when there is need for specialreserve for probable contingencies. 7n9

- It depends because there are three types ofnon-cumulative preferred shares

- 2iscretionary dividend type

- 5andatory if earned

- )arned cumulative or dividend credit type

Compare cumulative share from non-

cumulative, earned cumulative or dividend credit type

- Cumulative share whether or not earned

- 6on-cumulative earned cumulative or dividendcredit type- only if earned

"ar

- stated par value shall not be issued less thanpar

6o par

- without stated par value

- once fully paid no longer liable

Corporations cannot use its capitals in declaring

dividends not all can issue no par value section =

4oting

- entitled to vote at any motion brought up inwriting

6on-voting

- not entitled to vote

Fhat types of shares may be denied of the

right to voteK

- "referred and redeemable shares

Is it correct to state that common shares can

never be denied the right to voteK

- Only preferred and redeemable shares aredenied unless provided in this code

- "F)2)6' 50-2)6D D36' CO55O6 S01)S,A0SI D36' &O362)1S S01)S 5)1O6 SI!06'

)RC!3SI4) 1I'(S 60 SI!0 !06' 06' 5)1O6, SO

"F)2) SI!06' #35O(O FI( 1)'012S (O

SO5)(I6' 60 I62I 60 S0AO" 6' CO55O6 S01)1I'(S


9/92


10/92


11/92

- "rior there to it has no being

- (he transfer of the property was not valid, itli%ewise did not have the right to transfer

2e jure

- Strict or substantial compliance

2e facto

- / re8uisites must go hand in hand ta%e outanyone of them there can be no de facto corporation

. (here is a valid statute under which thecorporation could have been created as a de jure

corporation.

. 0n attempt, in good faith, to form a corporationaccording to the re8uirements of law, which goes farenough to amount to a colorable complianceJ with the

law

+. 0 user of corporate powers, the transaction ofbusiness in some way as if it were a corporation and,

/. 'ood faith in claiming to be and doing businessas a corporation.

0re the rights and obligations between officers

and directors of a de jure and de facto the sameK

- D)S. 'overned by the same law, rules andregulations

Only important in determining, is for the

purpose of applying the rules with regards to the direct

and collateral attac%

(he eistence of a de jure cannot be

8uestioned even by the State, either directly or

indirectly

)istence of a de facto can be 8uestioned only

by the State directly in a 8uo warranto proceeding only

5unicipality of 5alabang vs. #enito

- Fhat is the missing lin% so as to consider it ade factoK 0 law, because the eecutive order is

unconditional

- 0n unconditional act affords no rights, createsno office

- !egal contemplation it was never passed at all

- It can therefore be 8uestioned by any person

If the certificate of registration has not been

issued, may a corporation de facto eistK

- 6OT

- 6umber / re8uirement, good faith in claimingto be and doing business as a corporation

all vs. "iccio

- 5issing lin% is good faith

- (he certificate was not yet issued by the S)C,the members %new and therefore they were not acting

in good faith, therefore anybody can 8uestion its

eistence


- So defectively formed so that they are not to beconsidered a de jure or de facto

- 'eneral partners- liable even beyond hispromise even his personal properties are prone to

attachment

!ozano vs. 2elos Santos

- &ounded on principle of e8uity

- )ercise corporate powers

- )nters with business with +rdparties

- Fhen there is no +rdpersons involved and theproblem arises between there members, therefore they

themselves %now that there is no corporation by

estoppel

0lbert vs. 3niversity

- :=< case, no section yet

- 0pplied where the rules governing agency

- 0 person purporting in behalf of a non eistingcorporation

- Section , you arrive at the same decision

Chiang Aai Sie% vs. C0

- SC based its decision from the provision of theeducation act

- It cannot immune itself by virtue of its noncompliance with the law


12/92

0ssuming there was no lawK

- D)S, it may still be sued as a school for the past+ years the school represented itself as possessed of

juridical personality

'eneral rule* a +rdparty transacting with a non

eistent corporation shall be estopped to deny

0sia ban%ing vs. standard products

- 'eneral rule* absence of fraud a person whohas dealt with a non incorporated corporation shall be

stopped to deny from actions in which it had benefited

- )emptions* when there is fraud the generalrule shall not apply

Salvatierra vs. 'arlitos

- 0s a general rule a person who has contractedit a corporation lac%ing personality

- 2octrine is not applicable where fraud ta%espart in the transaction

0nother eemption

International epress travel and tours vs. C0

-6o fraud in this case

- ow come Aahn was made liableK

- 2octrine of incorporation

- 0pplies only if that person is trying to escapefrom a contract where he is benefited

- In this case petitioner is not trying to escapeliability, but rather the one claiming from the contract

Fould this apply to foreign corporationK

- D)S, it may apply

- 'eorg 'rotjahn vs. Isnami

0 foreign corporation cannot gain access to our

courts unless they attain a license to engage in business

in the "hilippines but applying corporation by estoppels,

the court allowed

5unicipality of 5alabangcase

- 6o law, hence may be 8uestioned by anyperson

- 0n unconstitutional act is not a law, t confersno rights, it imposes no duties, it affords no protections,

it crates o office, it is in legal contemplation, as

inoperative as though it had never been passes

all vs. "iccio

- 6o good faith


- 0dmission, conduct or agreement

- Fill not apply among members themselvesthere must be a +rdparty

- Cannot escape when benefited

- 'eneral rule* you deal with a corporation, as toestop it

- )ceptions* . fraudulently misrepresents thethird person may file an action directly to those

members, . +rdparty will not be estopped if he is not

trying to escape liability

possible remedies

- Chiang %ai sie% case

- 0lbert case

Fhat would be the effect if the corporation

failed to commence transactionK

- 0utomatic

Operated but becomes subse8uently

inoperative for < years only a ground for suspension,

proper notice and hearing

Commencement

- )ample realty company

CORPORATE C(ARTER AND ITS AMENDMENTS

Fhat do you understand by the word charterK

Is it the same as articles of incorporationK

- Corporate charter is broader

&ranchise

- "rimary power granted by the state to be andact as a corporation


13/92

- Secondary franchise is the right or privilegethat the corporation may eercise

Dou cannot issue investment contracts without

a secondary franchise, %ailangan primary muna hindi

pwede mauna secondary %asi sa section : it does not

eist until issued with a certificate of registration orincorporation

Corporate entity

- Corporation eist separately and independentlyfrom the stoc%holders

- Stoc%holders cannot bring an action, to bringbac% the properties of a corporation

- Corporation has no interest in the individualproperties of its members

Sulo ng #ayan vs. 0raneta

- Corporation cannot bring an action for therecovery of the properties of its members

Caram vs. C0

- Stoc%holders cannot be held liable for thelegitimate obligations of the corporation, they eist

separately and independently from one another

Cruz vs. 2alisay

- &inal judgment against a corporation cannot beenforced against stoc%holders

1ustan "ulp vs. C0

- Corporation eist separately and independently

- Corporation are juridical entities, they eist onlyin legal contemplation, can act only through its

authorized representatives

Soriano vs. C0

- (hey are not personally liable

- (hey where signed for and in behalf of thecorporation

"alay inc. vs. Clave

- !iabilities incurred by the corporation cannot beenforced against stoc%holders, etc., even if stoc%holders,

etc. happens to own a substantial interest in the

corporation, mere ownership does not disregard the

corporate entity theory

Corporate entity for legal or legitimate

purposes only

(wo or more corporations, one of them will be

treated as a mere alter-ego

Dou cannot pierce the veil of corporate fiction

when there are no facts attendant in the case

Corporate )ntity (heory

- (he corporation is possessed with a personalityseparate and distinct from the individual stoc%holders or

members and is not affected by the personal rights,

obligations or transactions of the latter

Instrumentality rule

- Fhere one corporation is so organized andcontrolled and its affairs are conducted so that it is, infact, a mere instrumentality or adjunct of the other, the

fiction of the corporate entity of the instrumentalityJ

may be disregarded

- Courts are concerned with reality and not form

- 5ere ownership of all or substantially all of theshares of stoc% of a corporation is not, in itself,

insufficient ground for disregarding the separate

corporate personality. 0nd for the separate personality

of the corporation to be disregarded, the wrong doing

must be clearly and convincingly established

- &raud must be proven by clear and convincinglyevidence amounting to more than preponderance. It

cannot be justified by speculation and can never be

presumed. 0nd only if it sought to hold the stoc%holders

liable directly for corporate debt

"alacio vs. &ely

- "iercing the veil of corporate fiction

- &ely trans and the other corporation is one and

the same

5arvel bldg. vs. 2avid

- (here must be facts before the court will bejustified in piercing the veil of corporate fiction

- Corporation was a mere etension of thepersonality of the person

Dutivo and sons vs. Court of (a 0ppeals

-Fhat where the facts or circumstances arrived

by the court hereK


14/92


15/92

&raud must be clear and convincing evidence

more than preponderance

1emo $r. vs. I0C

- (he resolution was not entered to defraudanyone

2el 1osario vs. 6ational !abor Commission

- (he wrongdoing must be clearly established

- (here must be facts to support

- "ayment of claims cannot thus be presumed

Indophil (etile 5ill vs. C0!IC0

- ow do you distinguish this ruling to !aCampana, having the same issues*

- !a campana, one payroll, employees weremade interchangeable. 0crylic had its own standards

"6# vs. 1itratto 'roup

- Control test

- 6ot mere majority but rather complete

- (win ace was only a subse8uent interestedparty

- 0ssets and machineries

0mendment of the articles of incorporation

- )press power granted to a corporation

Section =

- 0ppraisal right

- Section ? to object on certain acts andtransactions

Section "1.Instances of appraisal right. - 0nystoc%holder of a corporation shall have the right todissent and demand payment of the fair value of hisshares in the following instances*

. In case any amendment to the articles ofincorporation has the effect of changing or restrictingthe rights of any stoc%holder or class of shares, or ofauthorizing preferences in any respect superior to thoseof outstanding shares of any class, or of etending orshortening the term of corporate eistence

. In case of sale, lease, echange, transfer, mortgage,pledge or other disposition of all or substantially all ofthe corporate property and assets as provided in theCode and

+. In case of merger or consolidation. 7n9

- 1ight granted only in specified instances

0re non-voting shares included in amending the articles

of incorporation

@@Bs RDU-----0#C

@@Bs

(o

@ @@Bs

P5BS what would be the

B+K

Section = last paragraph

4oting shares are ecluded ecept the foregoing

instances

+ +

/ /

< -eetin ,*?? e o6en to in6ection > *n>+i7ecto7: t7tee: toc,o?+e7 o7 -e-e7 o9 t,e

co76o7*tion *t 7e*on*?e ,o7 on ine +*>*n+ ,e -*> +e-*n+: in @7itin: 9o7 * co6> o9e;ce76t 97o- *i+ 7eco7+ o7 -inte: *t ,ie;6ene.

Is there any defense available that could beraisedK #y the corporate officers to justify the refusalK

- Des, the code provides that*and "rovided, further, (hat it shall be a

defense to any action under this section that t,e6e7on +e-*n+in to e;*-ine *n+ co6> e;ce76t97o- t,e co76o7*tion 7eco7+ *n+ -inte ,*i-67o6e7?> e+ *n> in9o7-*tion ec7e+ t,7o,*n> 67io7 e;*-in*tion o9 t,e 7eco7+ o7 -inte o9c, co76o7*tion o7 o9 *n> ot,e7 co76o7*tion: o7@* not *ctin in oo+ 9*it, o7 9o7 * ?eiti-*te

676oe in -*in ,i +e-*n+.J Fhat is the stoc% and transferK Fhere shouldstoc% and transfer be %eptK Can it be %ept elsewhereK

Stoc% corporations must also %eep a boo% tobe %nown as the Nstoc% and transfer boo%N, in @,ic,-t e e6t * 7eco7+ o9 *?? toc in t,e n*-eo9 t,e toc,o?+e7 *?6,*etic*??> *77*ne+ t,eint*??-ent 6*i+ *n+ n6*i+ on *?? toc 9o7@,ic, c7i6tion ,* een -*+e: *n+ t,e +*teo9 6*>-ent o9 *n> int*??-ent * t*te-ent o9e8e7> *?ien*tion: *?e o7 t7*n9e7 o9 toc -*+e:t,e +*te t,e7eo9: *n+ > *n+ to @,o- -*+e *n+c, ot,e7 ent7ie * t,e >0?*@ -*> 67ec7ie.(he stoc% and transfer boo% shall be e6t in t,e67inci6*? o99ice o9 t,e co76o7*tion o7 in t,e o99iceo9 it toc t7*n9e7 *ent and shall be open for

inspection by any director or stoc%holder of thecorporation at 7e*on*?e ,o7 on ine +*>.

Stoc% and transfer agent

- 1ecords every movement

- "erson who monitors movement by the minutesor by the hours

- 6on-stoc% corporation- stoc% and transfer boo%s

- Club share- membership

0re stoc%holders entitled to financialstatementsK

- Des, they are entitled to a copy, the codeprovides that*

Section #. 1ight to financial statements. -Fithin ten 7@9 days from receipt of a written re8uest ofany stoc%holder or member, the corporation shall furnishto him its most recent financial statement, which shallinclude a balance sheet as of the end of the last taableyear and a profit or loss statement for said taable year,showing in reasonable detail its assets and liabilities andthe result of its operations.

0t the regular meeting of stoc%holders ormembers, the board of directors or trustees shallpresent to such stoc%holders or members a financialreport of the operations of the corporation for thepreceding year, which shall include financial statements,duly signed and certified by an independent certifiedpublic accountant.

owever, if the paid-up capital of thecorporation is less than "/ and >/ provides that 0ny

officer or agent of the corporation who shall refuse toallow any director, trustees, stoc%holder or member ofthe corporation to eamine and copy ecerpts from its


62/92

records or minutes, in accordance with the provisions ofthis Code, shall be liable to such director, trustee,stoc%holder or member for damages, and in addition,shall be guilty of an offense which shall be punishableunder Section // of this Code. (he latter provisionimposes a penalty of a fine of not less than ",@@@ butnot more than "@,@@@ or an imprisonment for not lessthan +@ days but not more than < years, or both, at the

discretion of the court. If the refusal is pursuant to aresolution or order of the board, the liability shall beimposed upon the directors or trustees who voted forsuch refusal.

2efense of the responsible corporate officer

1. (hat the person demanding has improperlyused any information secured through any prioreamination of the records or minutes of suchcorporation or of any other corporation

2. (hat he was not acting in good faith or for alegitimate purpose in ma%ing his demand

3. (he right is limited or restricted by special lawor the law of it creation.

F.'. "hilpotts vs. "hilippine 5anufacturing Co.

- (he right of inspection given to a stoc%holdercan be eercised either by himself or by any properrepresentative or attorney-in-fact, and either with orwithout the attendance of the stoc%holder

- (he right may be regarded as personal, in thesense that only a stoc%holder may enjoy it but theinspection and eamination may be made by another.Otherwise it would be unavailing in many instances.

o 6ote* 3sually hires an auditor or accountant to

safeguard his interest

"ardo vs. ercules !umber Co.

- (he law is clear, it may be eercised duringreasonable hours on any business days, the by-lawscannot deny this right all together

- (he general right given by the statute may notbe lawfully abridged to the etent attempted in thisresolution. It may be admitted that the officials in chargeof a corporation may deny inspection when sought atunusual hours or under other improper conditions butneither the eecutive officers nor the board of directorshave the power to deprive a stoc%holder of the rightaltogether.

- (he corporation, or its responsible directors andofficers cannot unduly restrict this right of inspectionand may not arbitrarily set a few days of the year withinwhich the stoc%holder may ma%e the inspection.

- 0 by-law unduly restricting the right ofinspection is undoubtedly invalid

4egaruth vs. Isabela Sugar Co.

- 2irectors of a corporation have the un8ualifiedright to inspect the boo%s and records of the corporationat all reasonable hours.

- Fe do not conceive, however, that a director orstoc%holder has any absolute right to secure certifiedcopies of the minutes of the corporation until theseminutes have been written up and approved by thedirectors.

5ay a stoc%holder of a holding companyinspect the boo%s and records of a subsidiaryK

- It depends

- (he right of the stoc%holders to eaminecorporate boo%s etends to wholly-owned subsidiarywhich is completely under the control and managementof the parent company where he is such a stoc%holder.

#ut if the two entities 7subsidiary and parent9 are legallybeing operated as separate and distinct entities, there is

no such right of inspection on the part of the stoc%holderof the parent company.

0D0!0- O!2I6' CO5"06DB"01)6( CO5"06D

S3#SI2I01I)S* #"IB'!O#)B0D0!0 !062 7not wholly-owned subsidiary9

o O!2 0(!)0S(


63/92

5erger and consolidation

- In corporate parlance it is called spin-off

- 0lmost a year ago San 5iguel separated itsbrewery business

- San 5iguel Corporation is now a full timeholding company it can later on absorb the company

- Corporations are granted by the code to mergeor consolidate

- most common type of corporate recognition

- not the same in every case

- but most common in the weal financial orinsolvent condition, aim is to bring it bac% to its financialcapability

- also a method of recapitalizationo purchase and sale of corporate assets is

another form of corporate reorganization

ow do you value the assets of the mergingcorporation, do you consider goodwillK

&irst secure favorably recommendation ofgovernment agency

- Section !. )ffectivity of merger orconsolidation. - (he articles of merger or ofconsolidation, signed and certified as herein abovere8uired, shall be submitted to the Securities and)change Commission in 8uadruplicate for its approval*P7o8i+e+: T,*t in t,e c*e o9 -e7e7 o7cono?i+*tion o9 *n o7 *nin intittion:i?+in *n+ ?o*n *oci*tion: t7t co-6*nie:in7*nce co-6*nie: 6?ic ti?itie: e+c*tion*?intittion *n+ ot,e7 6eci*? co76o7*tiono8e7ne+ > 6eci*? ?*@: t,e 9*8o7*?e7eco--en+*tion o9 t,e *667o67i*te o8e7n-ent*enc> ,*?? 9i7t e ot*ine+.If the Commission issatisfied that the merger or consolidation of thecorporations concerned is not inconsistent with theprovisions of this Code and eisting laws, it shall issue a

certificate of merger or of consolidation, at which timethe merger or consolidation shall be effective.

If, upon investigation, the Securities and)change Commission has reason to believe that theproposed merger or consolidation is contrary to orinconsistent with the provisions of this Code or eistinglaws, it shall set a hearing to give the corporationsconcerned the opportunity to be heard. Fritten notice ofthe date, time and place of hearing shall be given toeach constituent corporation at least two 79 wee%sbefore said hearing. (he Commission shall thereafterproceed as provided in this Code. 7n9

5erger

- 0 union effected by absorbing one or moreeisting corporations by another which survives and

continues the combined business- It is the uniting of two or more corporations bythe transfer of property to one of them which continue ineistence, the other or the others being dissolved andmerged therein.

0 #

0 transfers all assets, properties, rights, obligations,liabilities to #

# issues shares of stoc%s in echange of the transfer

0 is then dissolved and # S314I4)S

o "arties to a merger are called constituent

corporation

Consolidation

- (he uniting or amalgamation of two or more

eisting corporations to form a new corporation

- In merger there is a surviving corporation, theothers are dissolved, while in consolidation, allconstituent are dissolved and a new one organized

0 #

C

!i%e all other corporate acts, it emanates fromthe board

1. (he board of directors or trustees of eachconstituent corporations shall *667o8e * 6?*n ofmerger or consolidation setting forth the mattersre8uired in section >=

2. A667o8*? of the plan > t,e toc,o?+e77e67eentin 2)3 o9 t,e ott*n+in c*6it*? toco7 2)3 o9 t,e -e-e7 in non0toc co76o7*tionofeach of such corporations at separate corporatemeetings called for the purpose

3. "rior noticeof such meeting, @it, * co6> o7--*7> o9 t,e 6?*n o9 -e7e7 o7 cono?i+*tionshall be given to all stoc%holders or members at leasttwo 79 wee%s prior to the scheduled meeting, either6e7on*??> o7 7eite7e+ -*i? stating the purpose

thereof4. )ecution of the articles of merger orconsolidation by each constituent corporations to beine+ > t,e 67ei+ent o7 8ice067ei+ent *n+ce7ti9ie+ > t,e co76o7*te ec7et*7> o7 *it*ntec7et*7> ettin 9o7t, t,e -*tte7 7ei7e+ inection "

5. S-iion o9 t,e *7tic?e o9 -e7e7 o7cono?i+*tion in *+76?ic*te to t,e SECsubject tothe re8uirement of section >: that if it involvecorporations under the direct supervision of any othergovernment agency or governed by special laws thefavorable recommendation of the government agencyconcerned shall first be secured and

6. I*nce o9 t,e ce7ti9ic*te o9 -e7e7 o7

cono?i+*tion > t,e SECat which time the merger orconsolidation shall be effective. If the plan, however, isbelieved to be contrary to law, the S)C shall set ahearing to give the corporations concerned anopportunity to be heard upon proper notice andthereafter, the Commission shall proceed as provided inthe Code.

0lthough merger and consolidation is anepress power granted to corporation, it is subject tolimitations, as maybe proscribed by law

Fhat would be the effect of merger orconsolidationK Lsec. ?@M

1. (here will only be a single corporation. In caseof merger, the surviving corporation or the consolidatedcorporation in case of consolidation

2. (he termination of the corporate eistence ofthe constituent corporations, ecept that of the survivingcorporation or the consolidated corporation

3. (he surviving corporation or the consolidatedcorporation will possess all the rights, privileges,immunities and powers and shall be subject to all theduties and liabilities of a corporation organized underthe Code

4. (he surviving or consolidated corporation shallpossess all the rights, privileges, immunities andfranchises of the constituent corporations, and allproperty and all receivables due, including subscriptionsto shares and other choses in action, and every otherinterest of, or belonging to or due to the constituentcorporations shall be deemed transferred to and vested

in such surviving or consolidated corporation withoutfurther act and deed and,


64/92


65/92

- &alse, a stoc%holder in a close corporation mayfor any reason compel the close corporation that he bepaid the fair value of his shares

Can he eercise his appraisal rights in the first placeK ehasnt even paid his subscription in full.

5ay a stoc%holder who hasnt paid hissubscription in full eercise his appraisal rightsK

- Des, he can eercise his appraisal rights, byreconciling the provisions of section >, section ? andsection ?=

Section 2.1ights of unpaid shares.- oldersof subscribed shares not fully paid which are notdelin8uent ,*?? ,*8e *?? t,e 7i,t o9 *toc,o?+e7. 7n9

Section "2. ow right is eercised. - (heappraisal right may be eercised by any stoc%holder whoshall have voted against the proposed corporate action,by ma%ing a written demand on the corporation withinthirty 7+@9 days after the date on which the vote wasta%en for payment of the fair value of his shares*"rovided, (hat failure to ma%e the demand within suchperiod shall be deemed a waiver of the appraisal right. If

the proposed corporate action is implemented oraffected, t,e co76o7*tion ,*?? 6*> to c,toc,o?+e7: 6on 77en+e7 o9 t,e ce7ti9ic*te o7ce7ti9ic*te o9 toc 7e67eentin ,i ,*7e: thefair value thereof as of the day prior to the date onwhich the vote was ta%en, ecluding any appreciation ordepreciation in anticipation of such corporate action.

If within a period of sity 7=@9 days from thedate the corporate action was approved by thestoc%holders, the withdrawing stoc%holder and thecorporation cannot agree on the fair value of the shares,it shall be determined and appraised by three 7+9disinterested persons, one of whom shall be named bythe stoc%holder, another by the corporation, and thethird by the two thus chosen. (he findings of themajority of the appraisers shall be final, and their award

shall be paid by the corporation within thirty 7+@9 daysafter such award is made* "rovided, (hat no paymentshall be made to any dissenting stoc%holder unless thecorporation has unrestricted retained earnings in itsboo%s to cover such payment* and "rovided, further,(hat upon payment by the corporation of the agreed orawarded price, the stoc%holder shall forthwith transferhis shares to the corporation. 7n9

Section "$.6otation on certificates rights oftransferee. - Fithin ten 7@9 days after demandingpayment for his shares, a dissenting stoc%holder shallsubmit the certificates of stoc% representing his sharesto the corporation for notation thereon that such sharesare dissenting shares. is failure to do so shall, *t t,eo6tion o9 t,e co76o7*tion, terminate his rights underthis (itle. If shares represented by the certificates

bearing such notation are transferred, and thecertificates conse8uently cancelled, the rights of thetransferor as a dissenting stoc%holder under this (itleshall cease and the transferee shall have all the rights ofa regular stoc%holder and all dividend distributionswhich would have accrued on such shares shall be paidto the transferee. 7n9

- 6otation is not mandatory, it is evendiscretionary because the code provides at the optionof the corporationJ because it never issued one for thatmatter since the subscriptions are not yet fully paid

5ay the corporation be compelled to pay theinterest of 0

+@@ (,


66/92


67/92

6o person shall be elected as trustee unless heis a member of the corporation.

3nless otherwise provided in the articles ofincorporation or the by-laws, officers of a non-stoc%corporation may be directly elected by the members. 7n9

;ualificationsK

1. e is a member of the association

2. 5ajority thereof must be residents of the"hilippines and,

3. Other 8ualifications as may be provided for inthe by-laws.

'overning board in a non-stoc%

- #oard of (rustees, however section +?provides that*

Section 13".2esignation of governing boards.- (he provisions of specific provisions of this Code to thecontrary notwithstanding, non0toc o7 6eci*?co76o7*tion -*>: t,7o, t,ei7 *7tic?e o9inco76o7*tion o7 t,ei7 >0?*@: +ein*te t,ei7o8e7nin o*7+ > *n> n*-e ot,e7 t,*n *o*7+ o9 t7tee. also applies to a non-stoc%corporation, same holds true to the manner of removalLsec. : ad +@M

Section 2. 2is8ualification of directors,trustees or officers. - 6o person convicted by finaljudgment of an offense punishable by imprisonment fora period eceeding si 7=9 years, or a violation of thisCode committed within five 7


68/92

"ower is inherent and may be eercised incertain situations*

1. Fhen an offense is committed which, althoughit has no immediate relation to a members duty assuch, it is so infamous as to render him unfit for societyof honest men, which is indictable at common law

2. Fhen the offense is a violation of his duty as

member of the corporation and,3. Fhen the offense is of a mied nature, beingboth against his duty as a member of the corporation,and also indictable at common law.

If the conduct of the member comes within any of thiscases, it is a ground for valid epulsion although it maynot be epressly made so by the by-laws

Chinese D5C0 vs. Ching

- 1ight of the corporation to choose who themembers are, cannot be in8uired or intervened by thecourt

- (he appealed decision thus contravened theestablish principle that the courts cannot strip a memberof a non-stoc% corporation of his membership thereinwithout cause.

!ions Club International vs. C0

- Courts will not generally interfere on mattersinvolving the internal affairs of an unincorporatedassociation such as election contest unless the actscomplained of are arbitrary, oppressive, fraudulent,violative of civil rights and the li%e

- 'eneral rule is that the courts will not interferewith the internal affairs of an unincorporated associationso as to settle disputes between the members, or8uestions of policy, discipline, or internal government,so long as the government of the society is fairly andhonestly administered in conformity with its by-laws andthe law of the land, and no property or civil rights areinvolved.

- )ceptions are the following*a. Fhere law and justice so re8uire, and theproceedings of the association are subject to judicialreview where there is fraud, oppression, or bad faith, orwhere the action complained of is capricious, arbitrary,or unjustly discriminatory

b. (o grant relief in case property or civil rights areinvaded, although it has also been held that theinvolvement of property rights does not necessarilyauthorize judicial intervention, in the absence ofarbitrariness, fraud or collusion.

c. 0re violative of the laws of the society, or thelaw of the land, as by depriving the person of dueprocess of law

d. (here is lac% of jurisdiction on the part of the

tribunal conducting the proceedings, where theorganization eceeds its powers, or where theproceedings are otherwise illegal

Corporations, stoc% and non-stoc%, may bedissolved in accordance and pursuant to the provisionsof Sections ? to of the Corporation Code and thepertinent provisions of ".2. :@-0, as amended. If suchbe the case, the assets of the corporation are to bedistributed in accordance with law and establishedjurisprudence.

If a non-stoc% corporation is dissolved how willits properties be distributedK

Section !4. 1ules of distribution. - In casedissolution of a non-stoc% corporation in accordance withthe provisions of this Code, its assets shall be applied

and distributed as follows*

. 0ll liabilities and obligations of the corporation shallbe paid, satisfied and discharged, or ade8uate provisionshall be made therefore

. 0ssets held by the corporation upon a conditionre8uiring return, transfer or conveyance, and whichcondition occurs by reason of the dissolution, shall bereturned, transferred or conveyed in accordance withsuch re8uirements

+. 0ssets received and held by the corporation subject tolimitations permitting their use only for charitable,religious, benevolent, educational or similar purposes,but not held upon a condition re8uiring return, transferor conveyance by reason of the dissolution, shall betransferred or conveyed to one or more corporations,societies or organizations engaged in activities in the"hilippines substantially similar to those of thedissolving corporation according to a plan of distributionadopted pursuant to this Chapter

/. 0ssets other than those mentioned in the precedingparagraphs, if any, shall be distributed in accordancewith the provisions of the articles of incorporation or theby-laws, to the etent that the articles of incorporationor the by-laws, determine the distributive rights of

members, or any class or classes of members, orprovide for distribution and

not -o7e t,*n * 6eci9ie+ n-e7 o96e7on: not e;cee+in t@ent>


69/92

ie+ toc o9 *?? c?*e ,*?? e 5ect to oneo7 -o7e 6eci9ie+ 7et7iction on t7*n9e76e7-itte+ > t,i Tit?e *n+ toc e;c,*ne o7 -*e *n>6?ic o99e7in o9 *n> o9 it toc o9 *n> c?*.6otwithstanding the foregoing, a corporation shall notbe deemed a close corporation when at least two-thirds7B+9 of its voting stoc% or voting rights is owned or

controlled by another corporation which is not a closecorporation within the meaning of this Code.

- #etween and among themselves, they feel andact ali%e

- 6ot more than @ stoc%holders

- Specified persons, if you are not specified, youcannot be a stoc%holder

- 0ll the issued stoc%s of all classes is subject torestrictions

- Shall not be listed in the stoc% echange notpublicly offered

- + 8ualifying conditions must be contained inthe articles of incorporation, to be considered as a closecorporation, if not, it will not be considered as such and

will be governed by the general provisions of the code- )ven if @@ E is owned by one person it will notbe considered a close corporation without the +8ualifying provisions

- Identity of stoc%holders, specified persons

- 0ctive management either as directors orpartners in management

- Combination of the corporation and partnershiptype of business

5ay any type of corporation, be organized assuch close corporationK

- 6o, the + 8ualifying conditions must be present

Fhat if B+ of the outstanding capital stoc% isowned by another corporation which is also a close

corporation, will it be a close corporationK- 6o, it will only be a closed corporation if B+ ofthe voting stoc%s of a close corporation is also owned bya close corporation. It must be votingJ stoc%s

- )ven if another corporation owns or controlsB+ of the voting stoc%s of a close corporation, the lattermay still be considered as such close corporation if thecorporation owning or controlling the shares is also aclose corporation.

6otwithstanding the foregoing, a corporationshall not be deemed a close corporation when at leasttwo-thirds 7B+9 of its voting stoc% or voting rights isowned or controlled by another corporation which is nota close corporation within the meaning of this Code.J

Fhat %ind of corporations cannot be a close

corporationK1. 5ining or oil companies,

2. Stoc% echange

3. #an%s and insurance companies,

4. "ublic utilities

5. )ducational institutions

6. Corporations vested with public interest

Classification of directors

- Ordinary stoc%- no such right

- Close corporation-yes there is such a right

Section :> is a permissive provision

Section !. 0rticles of incorporation. - (hearticles of incorporation of a close corporation may

provide*. &or a classification of shares or rights and the8ualifications for owning or holding the same and

restrictions on their transfers as may be stated therein,subject to the provisions of the following section

. &or a classification of directors into one or moreclasses, each of whom may be voted for and electedsolely by a particular class of stoc% and

+. &or a greater 8uorum or voting re8uirements inmeetings of stoc%holders or directors than those

provided in this Code. 0fter classification what thenK

- 0fter classification, 8ualification and thenrestriction as provided for under the + 8ualifyingconditions in section :=

Cumulative voting is restricted in closecorporations if will be elected solely by a particular class

In a close corporation, the articles ofincorporation may provide for a greater 8uorum andvoting re8uirement in meetings of both stoc%holders ordirectors to increase the veto power of minoritystoc%holders, unli%e in a stoc% corporation wherein onlydirectors meetings may provide for greater 8uorumre8uirement and in stoc%holders meeting which may notbe altered or increased, as provide for in section , that is*

1. 6o meeting of stoc%holders need be called toelect directors

2. 3nless the contet clearly re8uires otherwise,the stoc%holders of the corporation shall be deemed tobe directors and

3. (he stoc%holders of the corporation shall besubject to all liabilities of directors.

!iability of stoc%holders acting as directors in aclose corporation are more etensive since they arepersonally liable for corporate torts unless thecorporation has obtained a reasonable ade8uate liabilityinsurance, unli%e a ordinary stoc% corporation, whereindirectors thereof are only liable for corporate torts only ifthey have been negligent or acted fraudulently in theperformance of their functions.

1estrictions

- In ordinary stoc% corporations, the restrictionsmust appear in the articles of incorporation as well asthe certificate of stoc%s

- In a close corporation, the restrictions mustappear in the articles of incorporation, the by-laws andthe certificate of stoc%s. Otherwise, the same shall notbe binding on any purchaser thereof in good faith

Fhat if the stoc%holders do not want toeercise their right or option to purchase may it be soldto any personK

- Des, any third person, section :? provides*Section !".4alidity of restrictions on transfer

of shares. - 1estrictions on the right to transfer sharesmust appear in the articles of incorporation and in theby-laws as well as in the certificate of stoc% otherwise,the same shall not be binding on any purchaser thereofin good faith. Said restrictions shall not be more onerousthan granting the eisting stoc%holders or thecorporation the option to purchase the shares of thetransferring stoc%holder with such reasonable terms,conditions or period stated therein. I9 6on t,ee;6i7*tion o9 *i+ 6e7io+: t,e e;itin

toc,o?+e7 o7 t,e co76o7*tion 9*i? to e;e7ciet,e o6tion to 67c,*e: t,e t7*n9e77in


70/92

toc,o?+e7 -*> e?? ,i ,*7e to *n> t,i7+6e7on.

o ordinary stoc% corporations are liable only if

acted in #ad faith, fraud or negligence in performance ofduty

Fhat if there are already @ stoc%holders andthey want to add more, may it compelK

- In ordinary stoc% corporations, they maycompel by mandamus

- In close corporations, may not be compelled toadmit because it breaches the 8ualifying conditions

Since they cannot be compelled, may theyadmitK

- Des, provided all the stoc%holders consented orinstead of consenting they decide to amend theirarticles of incorporation

- Fill have to amend the articles of incorporationto accommodate other purchasers of share

- Fill cease to be a close corporation if it amendsand becomes in ecess of @

o 3nless all the stoc%holders consent they mayJ

Fhat if the other stoc%holders object toregisterK Fhat will be the remedy of the transfereeK

- is remedy is rescission. (he effect ofrescission is mutual restitution

ow about the stoc%holder, what is hisrecourseK

- e may compel the close corporation topurchase his shares at their fair value for any reason,provided the corporation has sufficient assets in itsboo%s to cover the debts and liabilities eclusive ofcapital

- In a close corporation, there is a withdrawingstoc%holder, unli%e in an ordinary stoc%holder wherethere is none, they may only do so in the eercise ofappraisal rights

Section 1. Fithdrawal of stoc%holder ordissolution of corporation. - In addition and withoutprejudice to other rights and remedies available to astoc%holder under this (itle, *n> toc,o?+e7 o9 *c?oe co76o7*tion -*>: 9o7 *n> 7e*on: co-6e? t,e*i+ co76o7*tion to 67c,*e ,i ,*7e *t t,ei79*i7 8*?e: @,ic, ,*?? not e ?e t,*n t,ei7 6*7 o7ie+ 8*?e: @,en t,e co76o7*tion ,* 99icient*et in it oo to co8e7 it +et *n+?i*i?itie e;c?i8e o9 c*6it*? toc"rovided, (hatany stoc%holder of a close corporation may, by writtenpetition to the Securities and )change Commission,compel the dissolution of such corporation wheneverany of acts of the directors, officers or those in control ofthe corporation is illegal, or fraudulent, or dishonest, or

oppressive or unfairly prejudicial to the corporation orany stoc%holder, or whenever corporate assets are beingmisapplied or wasted.

0greements may also be entered in a closecorporation Lsec.@@M

- (hey can even agree to be partners inmanagement

- "re-incorporation

- 5anner in which the business of the corporationshall be managed

#oard resolution

- Ordinary stoc% corporations- sit and act as abody at a duly constituted meeting, they may do so byvirtue of the )-Commerce 0ct through teleconference orvideo conference

)ception to the rule* other officers may bedirectly appointed and hired by the stoc%holders

Close corporations may validly act even withouta meeting provided the conditions are obtained

Section 1&1. Fhen board meeting isunnecessary or improperly held. - 3nless the by-lawsprovide otherwise, any action by the directors of a closecorporation without a meeting shall nevertheless bedeemed valid if*

. #efore or after such action is ta%en, written consentthereto is signed by all the directors or

. 0ll the stoc%holders have actual or implied %nowledgeof the action and ma%e no prompt objection thereto inwriting or

+. (he directors are accustomed to ta%e informal actionwith the epress or implied ac8uiescence of all thestoc%holders or

/. 0ll the directors have epress or implied %nowledge ofthe action in 8uestion and none of them ma%es promptobjection thereto in writing.

"re-emptive rights in a close corporation isabsolute

Section 1&2. "re-emptive right in closecorporations.- (he pre-emptive right of stoc%holders in

close corporations shall etend to all stoc% to be issued,including reissuance of treasury shares, whether formoney, property or personal services, or in payment ofcorporate debts, unless the articles of incorporationprovide otherwise.

Fhy is it said to be absoluteK

- #ecause there is no public offering in a closecorporation, otherwise it will not be considered as close

In a close corporation the pre-emptive rights isbroadened to include all issues without eception unlessdenied or limited by the articles of incorporation

Section +: is the governing provisionconcerning rights of the stoc%holder in an ordinary stoc%corporation and it may be denied. If it is not denied astoc%holder can eercise his pre-emptive rights for all

issues of shares whether money, property or previouslyincurred indebtedness.

Section 3!."ower to deny pre-emptive right.-0ll stoc%holders of a stoc% corporation shall enjoy pre-emptive right to subscribe to all issues or disposition ofshares of any class, in proportion to their respectiveshareholdings, unless such right is denied by the articlesof incorporation or an amendment thereto* "rovided,(hat such pre-emptive right shall not etend to shares tobe issued in compliance with laws re8uiring stoc%offerings or minimum stoc% ownership by the public orto shares to be issued in good faith with the approval ofthe stoc%holders representing two-thirds 7B+9 of theoutstanding capital stoc%, in echange for propertyneeded for corporate purposes or in payment of apreviously contracted debt.

0re treasury shares covered in the eercise ofpre-emptive rights in ordinary stoc% corporationsK

0s regards amendments

Section 1&3. 0mendment of articles ofincorporation. - 0ny amendment to the articles ofincorporation which see%s to delete or remove anyprovision re8uired by this (itle to be contained in thearticles of incorporation or to reduce a 8uorum or votingre8uirement stated in said articles of incorporation shallnot be valid or effective unless approved by theaffirmative vote of at least two-thirds 7B+9 of theoutstanding capital stoc%, whether with or withoutvoting rights, or of such greater proportion of shares asmay be specifically provided in the articles ofincorporation for amending, deleting or removing any of

the aforesaid provisions, at a meeting duly called for thepurpose.


71/92

Fhat happens if there is a deadloc%K

- Section @/ provides for a remedySection 1&4. 2eadloc%s. - 6otwithstanding

any contrary provision in the articles of incorporation orby-laws or agreement of stoc%holders of a closecorporation, if the directors or stoc%holders are sodivided respecting the management of the corporationQs

business and affairs that the votes re8uired for anycorporate action cannot be obtained, with theconse8uence that the business and affairs of thecorporation can no longer be conducted to theadvantage of the stoc%holders generally, the Securitiesand )change Commission, upon written petition by anystoc%holder, shall have the power to arbitrate thedispute. In the eercise of such power, the Commissionshall have authority to ma%e such order as it deemsappropriate, including an order* 79 cancelling or alteringany provision contained in the articles of incorporation,by-laws, or any stoc%holderQs agreement 79 cancelling,altering or enjoining any resolution or act of thecorporation or its board of directors, stoc%holders, orofficers 7+9 directing or prohibiting any act of thecorporation or its board of directors, stoc%holders,

officers, or other persons party to the action 7/9re8uiring the purchase at their fair value of shares ofany stoc%holder, either by the corporation regardless ofthe availability of unrestricted retained earnings in itsboo%s, or by the other stoc%holders 79granting such other relief as the circumstances maywarrant.

0 provisional director shall be an impartialperson who is neither a stoc%holder nor a creditor of thecorporation or of any subsidiary or affiliate of thecorporation, and whose further 8ualifications, if any,may be determined by the Commission. 0 provisionaldirector is not a receiver of the corporation and does nothave the title and powers of a custodian or receiver. 0provisional director shall have all the rights and powers

of a duly elected director of the corporation, includingthe right to notice of and to vote at meetings ofdirectors, until such time as he shall be removed byorder of the Commission or by all the stoc%holders. iscompensation shall be determined by agreementbetween him and the corporation subject to approval ofthe Commission, which may fi his compensation in theabsence of agreement or in the event of disagreementbetween the provisional director and the corporation.

- "owers of the S)C in intra-corporate concernshas been transferred to the proper commercial courts

- "rohibit, even if acting in good faith

- "rovisional director appointed by the court

- 1e8uiring the purchase, irrespective ofunrestricted retained earnings

- (he provision of the law above-8uoted gives theS)C a very wide discretion in respect to management ofa close corporation in the event of a deadloc%. It may*

1. Cancel or alter any provision in the articles ofincorporation, by-laws or any stoc%holders agreement

2. Cancel, alter or enjoin any resolution or otheract of the corporation or its board of directors,stoc%holders or officers

3. "rohibit any act of the corporation or its boardof directors, stoc%holders or officers or other personsparty to the action

4. 1e8uiring the purchase of the par value of theshares of any stoc%holders, either by the corporationregardless of availability of unrestricted earnings, or by

the other shareholders,5. 0ppointment of a provisional director

6. 2issolving the corporation or

7. Other relief as the circumstances may warrant.

Section @.

L*+i*

0ccording to atty !adia* Fhat happens to acorporation that is already dissolved, that has not beenable to appoint a trustee with in the + year periodK

- a corporation dissolved which failed to eercise

its rights granted in section after the + year periodhas elapsed, ceases to eist for all intents and purposes,it can no longer sue or be sued

- according to of the code, the propertyshould be escheated, accordingly*

Section 122. Corporate li8uidation. - )verycorporation whose charter epires by its own limitationor is annulled by forfeiture or otherwise, or whosecorporate eistence for other purposes is terminated inany other manner, shall nevertheless be continued as abody corporate for three 7+9 years after the time when itwould have been so dissolved, for the purpose ofprosecuting and defending suits by or against it andenabling it to settle and close its affairs, to dispose ofand convey its property and to distribute its assets, butnot for the purpose of continuing the business for whichit was established.

0t any time during said three 7+9 years, thecorporation is authorized and empowered to convey allof its property to trustees for the benefit of stoc%holders,members, creditors, and other persons in interest. &romand after any such conveyance by the corporation of itsproperty in trust for the benefit of its stoc%holders,members, creditors and others in interest, all interestwhich the corporation had in the property terminates,the legal interest vests in the trustees, and thebeneficial interest in the stoc%holders, members,creditors or other persons in interest.

3pon the winding up of the corporate affairs,*n> *et +it7it*?e to *n> c7e+ito7 o7toc,o?+e7 o7 -e-e7 @,o i nno@n o7 c*nnot

e 9on+ ,*?? e ec,e*te+ to t,e cit> o7-nici6*?it> @,e7e c, *et *7e ?oc*te+.

)cept by decrease of capital stoc% and asotherwise allowed by this Code, no corporation shalldistribute any of its assets or property ecept uponlawful dissolution and after payment of all its debts andliabilities. 7>>a, ?:a, =a9

FOREIGN CORPORATIONS

2efinition

- Section 123. 2efinition and rights of foreigncorporations. - &or the purposes of this Code, a foreigncorporation is one formed, organized or eisting underany laws other than those of the "hilippines and whoselaws allow &ilipino citizens and corporations to dobusiness in its own country or state. It shall have the

right to transact business in the "hilippines after it shallhave obtained a license to transact business in thiscountry in accordance with this Code and a certificate ofauthority from the appropriate government agency. 7n9

Fhat if the law of the state of the foreigncorporation does not allow &ilipino citizens to dobusiness in their countryK

- (he phrase and whose laws allow &ilipinocitizens and corporations to do business in its owncountry or stateJ is not, however, an accurate inclusionin the definition as ay corporation registered ororganized under the laws of another state is necessarilya foreign corporation whether or not the state of itsincorporation allow &ilipino citizens or corporations to dobusiness in that forum.

- (he said phrase was inserted by the framers ofthe law only as a condition precedent to the grant of a


81/92

license of a foreign corporation to do business in the"hilippines.

Composed of @@E 0mericans organizedunder the laws other than the "hilippines

- (he test is the incorporation testJ

- 'eneral rule* the place of its incorporationirrespective of the nationality

- )ception* control test would apply indetermining the corporate nationality, i.e., thecitizenship of the controlling stoc%holders determinesthe nationality of the corporation

If a foreign corporation wants to transactbusiness in the "hilippines, what must it doK

- Obtain a license

ow may it do soK

- 0ccording to sec.


82/92


83/92

which bars a foreign corporation form access to ourcourts.J

)ception*

1. &oreign corporations can sue before the"hilippine Courts if the act or transaction involved is anisolated transactionJ or the corporation is not see%ingto enforce any legal or contractual rights arising from, or

growing out of, any business which it has transacted inthe "hilippines

2. 6either is a license re8uired before a foreigncorporation may sue before the forum if the purpose ofthe suit is to protect its trademar%, trade name,corporate name, reputation or goodwill

3. Or where it is based on a violation of the1evised "enal Code

4. Or merely defending a suit filed against it

5. Or where a party is stopped to challenge thepersonality of the corporation by entering into a contractwith it.

1ules laid down by the SC

A. 0s to whether

or not it can sue

B. 0s to whether

or not it can be sued0 foreign corporationtransacting or doingbusiness in the"hilippines with alicense can sue before"hilippine Courts

0 foreign corporationtransacting business inthe "hilippines with there8uisite license can besued in the "hilippineCourts

Subject to certaineceptions, a foreigncorporation doingbusiness in the countrywithout a license cannotsue in "hilippine Courts

0 foreign corporationtransacting business inthe "hilippines withouta license can be sued in"hilippine Courts

If it is not transactingbusiness in the

"hilippines, evenwithout a license, it cansue before the"hilippine Courts

if it is not doingbusiness in the

"hilippines, it cannot besued in "hilippineCourts for lac% ofjurisdiction

0 foreign corporation not doing business in the"hilippines, may it be suedK

- If it is not transacting business in the country itcannot be sued for lac% of jurisdiction

Is there any sanction that can be enforced toforeign corporations which are doing business withoutthe re8uired licenseK

- "enal sanctions under section //

- 0ny violation of the code is subject to such

penal sanctions Fhat would constitute doing businessK

- (he true test, however, seems to be whetherthe foreign corporation is continuing the body orsubstance of the business or enterprise for which it wasorganized or whether it has substantially retired from itand turned it over to another. (he term implies acontinuity of commercial dealings and arrangements,and contemplates, to that etent, the performance ofacts or wor%s or the eercise of some of the functionsnormally incident to, and in progressive prosecution of,the purpose and object of its organization 75entholatumCo. Inc. vs. 5angaliman9

5entholatum vs. 5angaliman

- (he true test, however, seems to be whetherthe foreign corporation is continuing the body orsubstance of the business or enterprise for which it wasorganized or whether it has substantially retired from it

and turned it over to another. (he term implies acontinuity of commercial dealings and arrangements,and contemplates, to that etent, the performance ofacts or wor%s or the eercise of some of the functionsnormally incident to, and in progressive prosecution of,the purpose and object of its organization

- Fhatever transaction the "hilippine-0merican

2rug Co. had eecuted in view of the law, the5entholatum Co. did it itself. 0nd the 5entholatum Co.being a foreign corporation doing business in the"hilippines without the license re8uired by section =? ofthe Corporation !aw, it may not prosecute this action forviolation of trade mar% and unfair competition

Fhy is foreign corporations barred access fromour courts if they do business without a licenseK

- 5arshall-Fells Co. vs. enry F. )lser and Co.

5arshall-Fells Co. vs. enry F. )lser and Co.

- (he object of the statute was to subject theforeign corporation doing business in the "hilippines tothe jurisdiction of its courts. (he object of the statutewas not to prevent the foreign corporation fromperforming single acts, but to prevent it from ac8uiring a

domicile for the purpose of business without ta%ing thesteps necessary to render it amenable to suit in localcourts.

#ula%hidas vs. 6avarro

- It is settled that if a foreign corporation is notengaged in business in the "hilippines, it may not bedenied the right to file an action in "hilippine courts forisolated transactions

- (he object of section =? and =: of theCorporation law was not to prevent the foreigncorporation from performing single acts, but to preventit from ac8uiring a domicile for the purpose of businesswithout ta%ing the steps necessary to render itamenable to suit in the local courts. It was never thepurpose of the !egislature to eclude a foreign

corporation which happens to obtain an isolated orderfor business from the "hilippines, from securing redressin the "hilippine courts

(he Swedish )ast 0sia Co., !td. 4s. 5anila "ortService

- It must stated that the section is not applicableto a foreign corporation performing single acts orisolated transactions.J (here is nothing to show thatthe petitioner has been in the "hilippines engaged incontinuing business or enterprise for which it wasorganized, when the siteen bundles were erroneouslydischarged in manila, for it to be considered astransacting business in the "hilippines. (he fact is thatthe bundles, the value of which is sought to berecovered, were landed not as a result of a business

transaction, isolated or otherwise, but due to a mista%enbelief that they were part of the shipment of forty similarbundles consigned to persons or entities in the"hilippines, there is no justification therefore, forinvo%ing the section

(here were + contracts entered into, how comethey were still not considered as doing businessK 70ntamConsolidted, Inc. vs. C09

- )very case shall be judged in the light of itspeculiar circumstances, where a single act or transactionhowever, is not merely incidental or casual but indicatesthe foreign corporations intention to do other businessin the "hilippines, said single act or transactionconstitutes doingJ or engaging inJ or transactingJbusiness in the "hilippines

- In the case at bar, the transaction entered intoby the respondent with the petitioners are not a series ofcommercial dealings which signify an intent on the part


84/92


85/92

to our own citizens. Fe are obliged to assure tonationals of countries of the 3nion an effectiveprotection against unfair competition on the same waythat they are obligated to similarly protect &ilipinoCitizen and firms

- (he ruling in the aforecited case is inconsonance with the Convention of the 3nion of "aris for

the protection of Industrial "roperty to which the"hilippines became a party. 0rticle ? thereof providesthat a trade name shall be protected in all the countriesof the 3nion without the obligation of filing orregistration, whether or not it forms part of thetrademar%

!e Chemiste !acoste vs. &ernandez

- (he &rench company may gain access to ourcourts, in the first place it was not doing business in the"hilippines

- (he mar%eting of its products in the "hilippinesis done through an eclusive distributor, 1ustanCommercial Corporation. (he latter is an independententity which buys and then mar%ets not only products of

the petitioner but also many other products bearinge8ually well-%nown and established trademar%s andtrade-names

0ssuming 1ustans had no independent statuswould the SC grant !acoste access to our courtsK

- )ven if !acoste did business in the "hilippines itcan bring action because the case involves a violation ofour penal code

- Such was a violation of article ?: of the 1"C, ifprosecution follows after the completion of thepreliminary investigation being conducted by the Special"rosecutor the information shall be in the name of the"eople of the "hilippines and no longer the petitionerwhich is only an aggrieved party since a criminal offenseis essentially an act against the State. It is the latter

which is principally the injured party although there is aprivate right violated

- (he records show that the goodwill andreputation of the petitioners products bearing thetrademar% !acoste date bac% even before :=/ when!acoste clothing apparels were forst mar%eted in the"hilippines. (o allow emandas to continue using thetrademar% !acoste for the simple reason that he was thefirst registrant in the Supplemental 1egister of atrademar% used in international commerce and notbelonging to him is to render nugatory the very essenceof the law on trademar%s and trade names

0tlantic 5utual Insurance Co. vs. Cebu

Stevedoring Co.

- (he law denies to a foreign corporation theright to maintain suit unless it has previously compliedwith a certain re8uirement, then such compliance, or thefact that the suing corporation is eempt there from,becomes a necessary averment in the complaint

- (hese are matters peculiarly within the%nowledge of appellants alone, and it would be unfair toimpose upon appellee the burden of asserting andproving the contrary. It is enough that foreigncorporations are allowed by law to see% redress in ourcourts under certain conditions* the interpretation of thelaw should not go so far as to include, in effect, aninference than those conditions have been met from themere fact that the party suing is a foreign corporation

Olympia #usiness 5achines Co. vs. ). 1azon

- ow do you distinguish this case with 0tlanticK

- In 0tlantic it dismissed the case, while inOlympia it did not

(ime Inc. vs. 1eyes

- Fe fail to see how these doctrines can be apropos in the case at bar, since the petitioner is notmaintaining any suitJ but is merely defending one

against itself it did not file any complaint but only acorollary defensive petition to prohibit the lower courtfrom further proceeding with a suit that it had nojurisdiction to entertain

Fhat law govern foreign corporation doing andtransacting business in the "hilippines with a license

- !aws of the 1epublic of the "hilippines save andecept that would normally be those matters whichconcern its formation, organization or dissolution, orthose fiing the relationship, liabilities, responsibilities,or duties of the stoc%holders, members or officers of theforeign corporation or their relations to each other.

- In effect, intra-corporate or internal matters notaffecting creditors or the public in general are governed

not by "hilippine laws but the law under which theforeign corporation was formed or organized

Section 12!. !aw applicable. - 0ny foreigncorporation lawfully doing business in the "hilippinesshall be bound by all laws, rules and regulationsapplicable to domestic corporations of the same class,ecept such only as provide for the creation, formation,organization or dissolution of corporations or thosewhich fi the relations, liabilities, responsibilities, orduties of stoc%holders, members, or officers ofcorporations to each other or to the corporation. 7>+a9

Fill the pre-emptive rights of a foreigncorporation be governed by the same section of thecodeK Is the pre-emptive rights of a stoc%holder in adomestic corporation same as the pre-emptive of astoc%holder of a foreign corporation.

- 6o

5.). 'rey vs. Insular !umber Company

- "6# vs. 'onzales, will this apply to a foreigncorporationK ow do you distinguish this case from a"hilippine lawK

- Since it concerns the rights of stoc%holders it isthe law of 6ew Dor% that should govern

Is the license to do business of a foreigncorporation subject to suspension or revocationK Fhatare the groundsK

- Section +/ provides*Section 134.1evocation of license. - Fithout

prejudice to other grounds provided by special laws, thelicense of a foreign corporation to transact business inthe "hilippines may be revo%ed or suspended by theSecurities and )change Commission upon any of thefollowing grounds*

. &ailure to file its annual report or pay any fees asre8uired by this Code

. &ailure to appoint and maintain a resident agent in the"hilippines as re8uired by this (itle

+. &ailure, after change of its resident agent or of hisaddress, to submit to the Securities and )changeCommission a statement of such change as re8uired bythis (itle

/. &ailure to submit to the Securities and )changeCommission an authenticated copy of any amendment

to its articles of incorporation or by-laws or of anyarticles of merger or consolidation within the timeprescribed by this (itle


86/92


87/92


88/92

- Des, it may still be revived

ow can a corporation with more liabilities than

assets continue its operations profitablyK

- )ven if the distressed company has nosufficient assets and liabilities it can go for suspension

- It as%ed for a management committee withouta receiver plan 74ictorius 5illing case9

Convert their claims into e8uity

- (heir liability was almost wiped out theybecame stoc%holders instead of creditors

- 0fter < years those who converted sold it bac%to the corporation, thereby ma%ing profits

0mendment is for the economic development

of the country

Fhat if walang amendment, e mas maraming

liabilities %esa assets

Suspension order- all actions for claims against

the corporation are accordingly suspended at whatever

stage the proceedings maybe

)ffect of suspension- you cannot foreclose

Fhat are claimsK

- 2ebts or demands of pecuniary nature.0ssertion of a right to have money paid

- Claims against the corporation shall besuspended, assertion of a right to have money paid it

must present a monetary claim, li8uidated or

unli8uidated

6ullification of corporations does not present a

monetary claim of pecuniary nature

3nion vs. C0

- It does not allow a mere individual to file thepetition which is limited to corporations partnership or

associations.

- Fhere no authority is granted to hear petitionsof individuals for suspension of payments, such petition

are beyond the competence of the S)C

Fhat happens if there is a suspension orderK

)plain the %ey phrase 8uality is e8uityJ

- 0ll creditors stand on e8ual footing, secure orunsecure, holding or lien or without a lien, no creditor

may enforce his lien while rehabilitation is going 70lemar

case9

- 6o preference shall be given

1C#C vs. I0C

- 2ecided on motion for reconsideration

- It court > years to decide authentication

1ule of the thumb

- 0utomatic suspension even if not decreed inthe decision itself

- Once lifted the preferred creditors will regaintheir preference

0ppointment of a management committee

- (a%e over the management committee of thedistressed corporation

- )traordinary and drastic remedy

- Fithout any remedy

Fhat is an intra-corporate controversyK

- Section


89/92

- Save and ecept in the case of a closecorporation in case of deadloc% management committee

is allowed to ta%e over right away

$acinto case

- ndpar of page =>=

- re8uisites where present

- Fala ng mapautang, there was a paralyzation

Sy Chim

- 2id not appoint a management committee

- In the absence of a strong showing of animminent danger of dissipation, loss wastage or

destruction of assets or other properties of a corporationand paralysis of its business operations, the mere

apprehension of future misconduct based upon prior

mismanagement will not authorize the appointment of a

management committee

Section < and =729 governed by separate rules

interim rules and intra-corporate controversy

4enue of actions

- 1ules of court- where the parties are residing

- Intra-corporate- no matter where the partiesare residing it will be in the city or municipality where

the principal office is located

1ehabilitation proceedings venue

- In rem

- 0c8uired upon publication without furnishingthe creditors a copy of the petition and attachments

thereof

- 0 creditor may now file the suspensionproceedings provides that creditors owns at least - immunity from suit

1ehabilitation receiver shall not subject to any

action, claim or demand in connection with any act done

omitted by him in good faith in the eercise of his

functions and powers herein conferred

Claim

- 1ight to payment, whether or not it is reducedto judgment, li8uidated or unli8uidated, fied or

contingent, matured or unmatured, disputed or

undisputed, legal or e8uitable and secured or unsecured

Investment contracts

- 0 contract, transaction or scheme whereby aperson invests his money in a common enterprise and is

led to epect profits primarily from the effects of others

(he management committee and rehabilitation

receiver are empowered to*

. (a%e custody and control of all assets of thecorporation

. )valuate assets and liabilities, earningsoperations of the corporation

+. 2etermine the best way to protect the investorsand creditors

/.Study, review evaluate the feasibility of

continuing operation and structures


90/92


91/92

the security surrendered in such echange shall bedeemed the price at which the securities issued anddelivered in such echange are sold.

h9 #ro%ers transactions, eecuted uponcustomers orders, on any registered )change or othertrading mar%et.

i9 Subscriptions for shares of the capital stoc% of acorporation prior to the incorporation thereof or inpursuance of an increase in its authorized capital stoc%under the Corporation Code, when no epense isincurred, or no commission, compensation orremuneration is paid or given in connection with the saleor disposition of such securities, and only when thepurpose for soliciting, giving or ta%ing of suchsubscriptions is to comply with the re8uirements of suchlaw as to the percentage of the capital stoc% of acorporation which should be subscribed before it can beregistered and duly incorporated, or its authorizedcapital increased.

j9 (he echange of securities by the issuer withits eisting security holders eclusively, where nocommission or other remuneration is paid or givendirectly or indirectly for soliciting such echange.

%9 (he sale of securities by an issuer to fewer thantwenty 7@9 persons in the "hilippines during any twelve-month period.

l9 (he sale of securities to any number of thefollowing 8ualified buyers* 7i9 #an% 7ii9 1egisteredinvestment house 7iii9insurance company 7iv9 "ensionfund or retirement plan maintained by the 'overnmentof the "hilippines or any political subdivision thereof ormanaged by a ban% or other persons authorized by the#ang%o Sentral to engage in trust functions 7v9investment company or 7vi9 Such other person as theCommission may by rule determine as 8ualified buyers,on the basis of such factors as financial sophistication,net worth, %nowledge, and eperience in financial andbusiness matters, or amount of assets under

management.

PROTECTION OF S(ARE(OLDERS INTEREST

. (ender Offers 7Sec :9. "roy solicitation 7Sec @9+. Internal record %eeping and accounting 7Sec 9

TENDER OFFER 0 publicly announced intention actingalone or in concert with others to ac8uire e8uitysecurities of a company. 7@@ #ar )ams9

Int*nce @,en Ten+e7 O99e7 i Rei7e+

. Fhen the person intends to ac8uire


92/92

in the echange will or is li%ely to rise or fall because ofmanipulative mar%et operations of any one or morepersons conducted for the purpose of raising ordepressing the price of the security and thus inducingthe purchase of such security.

:. M*in. F*?2e o7 Mi2?e*+in. St*te-ent2with respect to any material fact which he %new or had

reasonable ground to believe was so false or misleadingfor the purpose of inducing the purchase or sale of suchsecurity.

@. Pe..in. o7 Fi;in. O7 St*4i?iin.the price ofsecurity effected either alone or with others through anyseries of transactions for the purchase or sale thereof, ifdone for such purpose.

. S,o7t 2*?e selling of security which thevendor does not own unless done in accordance with therules and regulations of the S)C.

. In2i+e7 T7*+in. the act of an insider to buyor sell security of the issuer while in possession ofmaterial information with respect to such security that isnot generally made %nown to the public unless 7a9 (heinsider proves that the information was not gained from

such relationship or 7b9 If the other party selling to orbuying from the insider 7or his agent9 is identified, theinsider proves* 7i9 that he disclosed the information tothe other party, or 7ii9 that he had reason to believe thatthe other party otherwise is also in possession of theinformation.

NoteA W,en i2 in9o7-*tion -*te7i*? non0634?icJ0 if* 7a9 It has not been generally disclosed to the publicand would li%ely affect the mar%et price of the securityafter being disseminated to the public and the lapse of areasonable time for the mar%et to absorb theinformation or 7b9 would be considered by a reasonableperson important under the circumstances indetermining his course of action whether to buy, sell orhold a security.

NoteA W,o i2 *n in2i+e7J- InsiderJ means* 7a9 theissuer 7b9 a director or officer 7or person performingsimilar functions9 of, or a person controlling the issuer7c9 a person whose relationship or former relationship tothe issuer gives or gave him access to materialinformation about the issuer or the security that is notgenerally available to the public 7d9 a governmentemployee, or director, or officer of an echange,clearing agency andBor self-regulatory organization whohas access to material information about an issuer or asecurity that is not generally available to the public or7e9 a person who learns such information by acommunication from any of the foregoing insiders.

INDEPENDENT DIRECTOR"erson other

corporation law reviewer2-2

Documents