title v by
Post on 15-Jul-2016
4 Views
Preview:
DESCRIPTION
TRANSCRIPT
TITLE V BY – LAWS
SEC. 46. ADOPTION OF BY-LAWS BY-LAW – is a rule or law of a corporation, for its
government. These are self-imposed rules or self-made rules resulting from an agreement or contract between the corporation and its stockholders or members and directors and officers to conduct the corporate business and affairs in a particular manner.
One (1) month after receipt of certificate of incorporation from the SEC
Affirmative votet of the SH representing at least a majority of the OCS, or at least a majority of the members.
If filed with the AoI, it must be approved and signed by all the incorporators and submitted to the SEC
Effective only upon issuance by the SEC of a certification that the by-laws are not inconsistent with the Code
ELEMENTS OF VALID BY-LAWS: Must not be contrary to existing law or
inconsistent with the Code Must not be contrary to morals and public policy Must not impair contract obligations Must be general and uniform in operation Must be consistent with the charter or AoI Must be reasonable
CONTENTS OF BY-LAWS: Time, place and manner of calling and
conducting regular or special meetings of the D or T
Time and manner of calling and conducting regular or special meetings of SH or members
Required quorum in SH/members’ meetings and the manner of voting therein
Form of proxies of SH/members and the manner of voting them
Qualifications, duties and compensation of D/T/O
Time for holding the annual election of D/T and the mode or manner of giving notice thereof
Manner of election or appointment and term of office of all officers other than D/T
Penalties for violation of by-laws Manner of issuing stock certificates Such other matters as may be necessary for the
transaction of corporate business
AMENDMENTS TO BY-LAWS: Majority vote of the BoD/BoT and owners of at
least a majority of the OCS/members if non-stock corporation
At a regular or special meeting duly called for the purpose
Owners of 2/3 of the OCS/members may delegate to the BoD/BoT the power to amend/repeal any by-laws or adopt new by-laws
EFFECTIVITY OF NEW BY-LAWS: Upon issuance by the SEC that the
amendments are not inconsistent with the Code should the provisions of the amended by-laws be followed and observed.
TITLE VI MEETINGS
KINDS OF MEETINGS Regular and special meetings of SH/members Annually on a date fixed in the by-laws If no date is fixed, on any date on April of every
year Written notice 2 weeks prior if meeting is
regular; 1 week prior if meeting is special Held where the principal office of the corporation
is located Regular and special meetings of BoD/BoT
REQUISITES FOR A VALID MEETING: It must be held at the stated date and at the
appointed time or at a reasonable time thereafter
There must be previous notice It must be called by the proper person It must be held at the proper place There must be quorum In case of a special meeting, it may not consider
business other than those listed in the notice
REQUISITES OF NOTICE OF MEETING: It must be issued by one who has authority to
issue It must be in writing It must state the date, time and place of the
meeting, unless otherwise provided in the by-laws
It must state the business to be transacted thereby
It must be sent at a certain time before the scheduled meeting as fixed by law, unless a different period is required by the by-laws
MEETINGS QUORUM : number necessary to constitute a
quorum may vary from one corporation to another
Non-stock corporation: in determining quorum, the basis should be the total number of registered members
Stock corporation: the basis should be the total subscription and not the amount paid for them
MANNER OF VOTING:
Directly by the SH/member himself Indirectly, through a representative by: Proxy Trustee under a VTA Executors, administrators, receivers, or other
legal representatives duly appointed by the court
VOTING IN CASE OF JOINT OWNERSHIP
Consent of all owners necessary Unless there is a written proxy, signed by all co-
owners, authorizing one or some of them or any other person to vote such share or shares
When the shares are owned in an “and/or” capacity, any one of the joint owners can vote or appoint a proxy therefor
PROXIES The authority given by the SH or member who
has a right to vote for another to attend and/or exercise his voting rights
The person authorized by the SM or member to vote for him at a SH/member’s meeting
The instrument or document evidencing the relation between the SH and the proxyholder
PURPOSE OF PROXIES:
It is one of the devices for securing voting control or management control in a corporation
It assures the presence of a quorum in meetings of SH of large corporations
It protects the interests of SH/members who cannot attend in person to enable elections to be held and other necessary corporate business to be transacted
It enables the shares standing in the name of another corporation to be voted by such officer, agent or proxy
VOTING TRUST Voting Trust – a trust created by an agreement
between a group of stockholders of a corporation and a trustee or by a group of identical agreements between an individual SHs and a common trustee
VOTING TRUST AGREEMENT Agreement in writing whereby one or more SH
transfer their shares to a trustee or trustees Not exceeding five (5) years In writing and notarized A certified copy must be filed with the
corporation and the SEC Certificate of stocks covered by the VTA shall be
cancelled and new ones issued in the name of the trustee
Trustee executes a voting trust certificates to the transferror
PURPOSE OF VTA:
To assure continuity of policy and management especially of a new corporation desirous of attracting investors
To enable the owners of a majority of the stock of the corporation to control the corp
To vest and retain the management of the corporation for a fixed period in the persons originally promoting it
To carry out a proposed sale of the corporation’s assets and to facilitate its dissolution
To enable two companies to operate jointly a
corporation controlled by them
JUSTIFIED IN THE FOLLOWING INSTANCES: Where there is a property interest to conserve Where there is a definite policy in the interest of
the corporation to be carried out Where there is beneficial interest of the SH to be
served Where there is some purpose not unlawful of an
advantageous character to the SH to be effectuated
NULLITY OF VOTING TRUSTS: If the object is to accomplish some unlawful act; To effect the practical merger of 2 or more
corporations in defiance of law To give control of one corporation to another Formation of a monopoly To defeat competition In restraint of trade (Sec. 59) If the purpose is to give unfair advantage to a
party or parties to the agreement
TITLE VII STOCK AND STOCKHOLDER
SEC. 60. SUBSCRIPTION CONTRACT Subscription – a contract by which the
subscriber agrees to take a certain number of shares of the capital stock of a corporation, paying for the same, or expressly or impliedly promising to pay for the same.
Stock subscription – contract between a corporation to sell a certain number of shares and the subscriber to purchase the stock from the corporation
Refers only to original, unissued shares or to the increase of capital stock after incorporation
Need not be in writing
SUBSCRIPTION VS. PURCHASE OF STOCKSubscription Purchase
May be made before or after incorporation
Made only after incorporation
A subscriber becomes a SH even if he has not fully paid the subscription
Purchaser does not become a SH until he has fully paid the purchase price
A subscriber may exercise his voting rights and other rights even if he has not paid his subscription as long as the same is not declared delinquent
Purchaser cannot exercise the rights of a SH until he has fully paid the price and the purchase is recorded in the corporate books
KINDS OF SUBSCRIPTIONS: Pre-incorporation subscription (PISA) – one
entered into before a corporation’s incorporation, constituting a binding contract among the subscribers
Post-incorporation subscription – one entered
into after the incorporation for the acquisition of unissued stock of the corporation
ILLEGAL SUBSCRIPTIONS: A subscription is void where it provides for the
issuance of fully paid stocks upon payment of less than its par value
When a corporation receives subscription in excess of its authorized capital stock
When subscriptions are without consideration When subscriber had no capacity to contract
SEC. 61. PRE-INCORPORATION SUBSCRIPTION Irrevocable for a period of at least six (6) months
from the date of subscription; unless all of the other subscribers consent to the revocation, or unless the incorporation of said corporation fails to materialize within said period
No PISA may be revoked after the submission of the AoI to the SEC
SEC. 62. CONSIDERATION FOR STOCKS Actual cash paid to the corporation Tangible or intangible property Labor performed or services rendered Issue of stock in payment of debt Stock dividend as consideration Exchange for outstanding stocks
SEC. 63. CERTIFICATE OF STOCK AND TRANSFER OF SHARES
Stock certificates must be signed by the president or vice-president, counter-signed by the secretary, and sealed with the seal of the corporation
Considered as personal property and may be transferred by delivery of the certificate plus endorsement
Valid only as far as the corporation is concerned if the transfer is recorded in the books of the corporation
MODES OF TRANSFER OF STOCKS: By endorsement coupled with delivery By deed of assignment in case no certificate of
stock has been issued; provided that there is no unpaid claim against the stock
RESTRICTIONS ON TRANSFER OF SHARES Consent restriction – absolutely prohibits the
sale of stock without the consent of the directors or other stockholders before any transfer of stock can be effected (see Sec. 98)
First option restriction – it requires stockholders desiring to sell their stocks to first offer them to the corporation or to existing shareholders, giving the latter the first opportunity to buy the same at a reasonable period before disposing it to third parties.
WHY REQUIRE THE REGISTRATION OF TRANSFER OF STOCKS?
To enable the officers of the corporation to know at all times who its SHs are, which is essential in conducting election of officers, in calling meetings of SHs, and for other purposes
To afford to the corporation the opportunity to object or refuse its consent to the transfer should it have a valid claim against the stock sought to be registered or for any valid reason
To avoid fictitious or fraudulent transfers To protect persons who may deal with the
corporation and become its creditors
REMEDY IN CASE CORPORATION REFUSES TO REGISTER THE TRANSFER
Specific performance and Mandamus with the following requisites:
Application has been made and denied There are no unpaid claims against the stock by
the corporation An ordinary action against the corporation for
damages would be inadequate An action in the nature of a suit in equity to
secure a decree ordering the transfer would be inadequate
Receipt of payment of the tax herein imposed if filed with and recorded by the stock transfer agent or corporate secretary
DOCTRINE OF INDIVISIBILITY OF SUBSCRIPTION CONTRACT
A subscription is one, entire and indivisible whole contract. It cannot be divided into portions, so that the stockholder shall not be entitled to a certificate of stock until he has paid the full amount of his subscription together with interest and expenses.
The principle is absolute as Sec. 64 speaks of no exception
REMEDIES IN CASE OF NON-ISSUANCE OF STOCK CERTIFICATE
File a suit for specific performance of an implied contract
File for damages where specific performance cannot be granted
File a petition for mandamus to compel the issuance of a certificate where the conditions, facts and circumstances of the case bring it within the legal rule which govern the granting of the writ
Rescind the contract of subscription if the corporation wrongfully refuses to deliver a certificate and sue to recover back what he has paid
SEC. 65 LIABILITY FOR WATERED STOCK WATERED STOCK – stock which is issued as
fully paid up, when in fact the whole amount of the par value thereof has not been paid in. Hence, the “water” in the stock represents the difference between the fair market value at the time of the issuance of the stock and the par or
issued value of said stock Both par and no par stocks can be watered
stocks
VARIOUS WAYS OF ISSUING WATERED STOCKS: Issued gratuitously or under an agreement that
nothing at all should be paid to the corporation Issued upon payment of, or under an agreement
to pay, less than its par value in money, or for cash at a discount
Issued in payment for property, labor or services, the par value of the property, labor or services being shown to be less than the par value of the shares
Issued in the guise of stock dividend, where there are no sufficient profits to justify it
LIABILITY FOR WATERED STOCK Corporate creditors can set up the inadequacy
of the consideration for the issuance of stocks and thus claim the difference
Consenting director/officer - joint and several with the SH concerned
Subscriber – liable for the “water” in the stock and must pay the difference between the amount paid and the par or issued value of the shares.
NOTE: the existence of the “water” in the stock must be determined at the time of issuance of stock so that any subsequent increase in the value of the property will not eliminate the “water” on the stock nor relieve the consenting director/officer and the subscriber himself
INTEREST ON UNPAID SUBSCRIPTIONS Gen. rule: Subscribers are not liable to pay
interest on their unpaid subscriptions Exception: If by-laws provide for the payment of
interest (Sec. 66) Interest must be paid from the date of
subscription until the date of payment Rate to be imposed as fixed in the by-laws If by-laws are silent, rate to be imposed is the
legal rate of 12% per annum
PAYMENT OF BALANCE OF SUBSCRIPTION When is it payable? On the date specified in the contract of
subscription, without need of call (Sec. 13) On the date stated in the call by the board, if the
subscription contract is silent (Sec. 67) Effect of failure to pay Renders the entire balance due and payable After 30 days, the stocks are considered
delinquent
POWER OF THE BOARD The BoD has the power to make a “call” when
the subscription contract is silent as to when payment for the subscription should be made
The BoD has no power to refuse payment made on the subscription in the date fixed in the
subscription contract The BoD cannot make a “call” earlier that the
date fixed in the subscription contract The BoD has the power to determine the
amount or percentage of the unpaid subscription to be subject to the “call”
CALL An official declaration that the sum subscribed or
any specified installment or amount, is required to be paid
Usually embodied in the resolution of the board of directors relative to the notice, demand for payment and time when payment should be made
Generally applicable to unpaid subscriptions only
WHEN DOES A STOCK BECOME DELINQUENT? If the contract of subscription fixes the date
when payment should be made on the subscription, the stock becomes delinquent in case of failure to pay on that date, without need of a call
If no date is fixed in the subscription contract, the BoF can make a call for payment, and the time is specified as to when payment on the balance of the subscription should be made. Failure to make the payment 30 days from that date renders the stock delinquent.
REQUISITES FOR A VALID CALL: The call must be made in the manner prescribed
by law The call must be made by the board of directors The call must be uniform in application
DOCTRINE OF INDIVISIBILITY OF SUBSCRIPTION CONTRACT is likewise applicable to delinquent stocks
Partial payments shall be deemed forfeited and the whole subscription declared delinquent upon failure to pay on the date fixed in the contract or on the date fixed by the board on call of the directors
SEC. 68 DELINQUENCY SALE HIGHEST BIDDER – one who offers to pay the
whole amount of the balance on the subscription together with accrued interest, costs of advertisement and expenses of sale, for the smallest number of fraction of a share
The corporation is not bound to accept the highest bid, as it is not the one making the offer. It is the bidder who is making the offer to purchase, which the corporation may or may not accept.
PROCEDURE FOR SALE OF DELINQUENT STOCK1. The BoD adopts a formal resolution declaring
due and payable the whole or a certain percentage of the unpaid subscriptions and specifying the date for payment thereof
2. The SH is given notice of the board resolution by the corporate secretary either personally or by registered mail
3. If SH does not pay within 30 days from the date specified, the stocks covered by his subscription shall become delinquent and shall be subject to sale under Sec. 68
4. The BoD, may, by resolution, order the sale of delinquent stocks, stating the amount due on each subscription, the date, time and place of the same which shall not be less than 30 days nor more than 60 days from the date the stock become delinquent
5. The delinquent stockholder is given notice of the sale with copy of the board resolution by the corporate secretary either personally or by registered mail.
6. The notice of sale shall be published once a week for 2 consecutive weeks in a newspaper of general circulation.
7. On the date of the sale, the delinquent stock shall be sold at public auction to the highest bidder
SEC. 69 GROUNDS FOR RECOVERY OF STOCK UNLAWFULLY SOLD
Irregularity or defect in the notice of sale Irregularity or defect in the sale itself Conditions: Party seeking to maintain such action must first
pay or tender to the party holding the stock the sum for which the same was sold with interest from the date of sale at the legal rate
The action must be commenced within 6 months from the date of sale
SEC. 70 COURT ACTION TO RECOVER UNPAID SUBSCRIPTION
Ordinary court action under Sec. 78 Extrajudicial sale at public auction of delinquent
stocks following the procedure on call for payment, delinquency and sale at public auction (Sec. 67 & 68)
Collection from cash dividends (Sec. 43)
SEC. 71 EFFECT OF DELINQUENCY SH loses the right to vote SH loses the right to be voted upon SH loses the right to inspect corporate books SH loses the right to continue sitting on the
board if he is currently a member of the board SH does not lose his right to receive dividends
SEC. 72 RIGHTS OF UNPAID SHARES Rights regarding control and management of the
corporation Right to attend and vote personally or by proxy Right to elect and remove directors Right to enter into a VTA Proprietary or economic right Right to receive dividends Right to preemption
Remedial rights Right to inspect corporate books & records Right to financial statement Right to bring individual action or representative
or derivative suit
SUITS BY STOCKHOLDERS/MEMBERS INDIVIDUAL SUIT – where the wrong done or
the injury is one to the plaintiff as a stockholder personally and to him only individually, and not to the corporation
CLASS or REPRESENTATIVE SUIT – where the wrong done is to a group of stockholders or members of a corporation, a class or representative suit may be instituted for the protection of all stockholders or members belonging to the same group
DERIVATIVE SUIT – where the wrong done is to the corporation itself
DERIVATIVE SUIT Individual stockholder or member is allowed to
institute a derivative action on behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights whenever the officers or directors of the corporation refuse to sue or are the ones who are to be sued
REQUISITES OF DERIVATIVE SUIT The party bringing the suit should be a SH as of
the time of the act or transaction complained of, number of shares is immaterial
He has exhausted intra-corporate remedies The cause of action actually devolves on the
corporation, the wrongdoing or harm having been caused to the corporation and not to the particular SH bringing the suit
If the suit is successful, the plaintiff is entitled to reimbursement from the corporation for the reasonable expenses of litigation, including attorney’s fees
SEC. 73 LOST OR DESTROYED CERTIFICATES Affidavit by the registered owner of the
certificate of stock or his legal representative showing the circumstances of loss, theft or destruction must be executed and filed with the corporation
Verification of the affidavit and supporting evidence by the corporation and publication of notice in a newspaper of general circulation once a week for three consecutive weeks at the expense of the registered owner of the lost, stolen, or destroyed certificate
After the expiration of one year from the date of last publication, a new certificate shall be issued by the corporation if no contest has been presented to the corporation regarding said stock certificate
If a contest had been presented or there is a pending action on the ownership of the shares, the issuance of a new certificate shall be
suspended until the final decision on the rightful ownership of the shares has been made by the court.
TITLE VIII CORPORATE BOOKS AND RECORDS
Proper Corporate Books & Records Records of all business transactions Minutes book for meetings of stockholders or
members Minutes book for meetings of the BoD/BoT Minutes book for meetings of the ExeCom Stock and transfer book Optional and subsidiary books Other required by law to keep
Sec. 75. Right to financial statements Balance sheet as of the end of the last taxable
year Profit or loss statement for the said year,
showing in detail its assets and liabilities and the results of its operation
TITLE IX MERGER and CONSOLIDATION
TYPES OF RE-ORGANIZATIONStatutory merger or consolidation
Acquisition by one corporation, in exchange solely for all or a portion of its voting stock for stock in another corporation, if immediately after the acquisition the acquiring corporation is in control of the other corporation
Acquisition by one corporation of substantially all of the properties of another corporation in exchange for the acquiring corporation’s voting stock;
The transfer by a corporation of all or a part of its assets to another corporation, if immediately after the transfer the transferror or its shareholders are in control of the transferee
The transfer by a corporation of all or a part of its assets to another corporation, if immediately after the transfer the transferror or its shareholders are in control of the transferee
A recapitalization A mere change in identity, form or place of
organization
MERGER The absorption of one or more corporations by
another existing corporation, which retains its identity and takes over the rights, privileges, franchises and properties of the absorbed corporations(s). The absorbing corporation continues its existence while the life or lives of the other corporation(s) is/are terminated.
The absorption of one or more corporations by another existing corporation, which retains its identity and takes over the rights, privileges, franchises and properties of the absorbed corporations(s). The absorbing corporation continues its existence while the life or lives of
the other corporation(s) is/are terminated. Example: Corp A acquires the shares of Corp B.
Corp A distributes the said shares to its SH in exchange for its own shares. Corp A will have no more assets and no SH. Corp A becomes a corporate shell and can be dissolved. Corp A is the merged or absorbed corporation while Corp B is the surviving or absorbing corporation.
MERGER SEC REQUIREMENTS Articles of merger setting forth the a) plan of
merger; b) number of shares outstanding/number of members; c) number of outstanding shares/name of members voting for and against the plan
Articles of merger setting forth the a) plan of merger; b) number of shares outstanding/number of members; c) number of outstanding shares/name of members voting for and against the plan
Copies of the minutes of the board meeting and SH/member’s meeting
List of creditors of the absorbed corporation Audited Financial Statements Amended Articles of Incorporation/By-laws of
the surviving corporation, whenever necessary
CONSOLIDATION The union of two or more corporations to form a
new corporation, having the combined rights, privileges, franchises and properties of the constituent companies, all combining to lose their corporate existence (Amalgamation)
The union of two or more corporations to form a new corporation, having the combined rights, privileges, franchises and properties of the constituent companies, all combining to lose their corporate existence (Amalgamation)
Example: Corp A and Corp B agree to sell all of its assets to Corp C (still to be formed) in exchange for the shares of stock of C. After both A and B have transferred all of their assets to C and they distribute the shares received by them from C to their own shareholders in exchange for their own shares, then a consolidation results.
CONSOLIDATION SEC REQUIREMENTS Articles of consolidation setting forth the a) plan
of consolidation; b) number of shares outstanding/number of members; c) number of outstanding shares/name of members voting for and against the plan
Articles of consolidation setting forth the a) plan of consolidation; b) number of shares outstanding/number of members; c) number of outstanding shares/name of members voting for and against the plan
Copies of the minutes of the board meeting and SH/member’s meeting of the constituent corp/s
List of creditors of the constituent corporation/s Audited Financial Statements (long form audit)
Amended Articles of Incorporation/By-laws of the surviving corporation, whenever necessary
LEGAL EFFECT OF MERGER/CONSOLIDATION There will only be a single corporation. The
surviving corporation (merger) and the consolidated corporation (consolidation)
There will only be a single corporation. The surviving corporation (merger) and the consolidated corporation (consolidation)
Termination of the separate existence of the constituent corporations, except that of the surviving corporation (merger) or the consolidated corporation (consolidation)
The surviving corporation (merger) or the consolidated corporation (consolidation) will have all the powers, attributes, rights, privileges, immunities and shall be subject to all the duties and liabilities of a corporation organized under the Corporation Code
The surviving corporation (merger) or the consolidated corporation (consolidation), will possess all the franchises, rights, privileges, immunities and all of the properties of the constituent corporations without further act of deed (only the issuance by the SEC of the Certificate of Filing of Articles of Merger/Consolidation
The surviving corporation (merger) or the consolidated corporation (consolidation), will possess all the franchises, rights, privileges, immunities and all of the properties of the constituent corporations without further act of deed (only the issuance by the SEC of the Certificate of Filing of Articles of Merger/Consolidation
The liabilities of the constituent corporations will have to be assumed by the surviving corporation or the consolidated corporation
TITLE X APPRAISAL RIGHT
APPRAISAL RIGHT The right to demand payment of the fair value of
his shares after dissenting from certain corporate acts involving substantial and fundamental changes in the corporate structure or organization, not contemplated by him during the time he made his investment in the corporation
The right to demand payment of the fair value of his shares after dissenting from certain corporate acts involving substantial and fundamental changes in the corporate structure or organization, not contemplated by him during the time he made his investment in the corporation
RIGHT to WITHDRAW
WHEN IS APPRAISAL RIGHT AVAILABLE In case any amendment of the articles of
incorporation has the effect of changing or
restricting the rights of any stockholders or class of shares
In case any amendment of the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares
In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition or all or substantially all of the corporate property and assets
In case of merger or consolidation In case the corporation decides to invest its
funds in another corporation (under Sec. 42) In case of a stockholder in a close corporation
(under Sec. 105)
WHO MAY EXERCISE THE RIGHT? The right is granted only to a SH who says “I
vote against” or “I disagree” with the proposed corporate act
The right is granted only to a SH who says “I vote against” or “I disagree” with the proposed corporate act
It does not include a SH who was absent at the meeting called for the approval of the proposed act or who was present thereat but abstained from voting on it or one who simply kept quiet during the meeting.
A written demand within 30 days after the date on which the vote was taken. Failure to make the required written demand is deemed a waiver
DETERMINATION OF FAIR VALUE The appraisal shall be at fair value as of the day
prior to the date of the meeting when the action objected to was adopted by the corporation
The appraisal shall be at fair value as of the day prior to the date of the meeting when the action objected to was adopted by the corporation
Elements in Valuation of Corporate Stocks:◦ Market value◦ Net asset value◦ Investment value
Market Value – means the price at which the stock was selling on the market on the day prior to the action which is objected to
Market Value – means the price at which the stock was selling on the market on the day prior to the action which is objected to
Net asset value – share which the stock represents in the value of the net assets of the corporation, based on a hypothetical dissolution and distribution of the corporate assets
Investment value – takes into account factors such as capitalization, earnings and dividend record, position in the industry, prospects of the business (future course of the stock in the market), goodwill and earning capacity
OTHER CONDITIONS FOR THE VALID EXERCISE OF THE RIGHT TO APPRAISAL:
Submission by the withdrawing stockholder of his shares to the corporation for notation of being a dissenting stockholder within ten (10) days from written demand
Submission by the withdrawing stockholder of his shares to the corporation for notation of being a dissenting stockholder within ten (10) days from written demand
Constitution of independent appraisers when the SH and the corporation cannot agree on the fair value of the shares
Payment of the shares only when the corporation has unrestricted retained earnings to cover such payment
Upon payment, the SH must transfer his shares to the corporation
EFFECT OF DEMAND AND TERMINATION OF RIGHT From the time of demand for payment by the
dissenting SH until either the abandonment of the corporate action involved or the purchase of said shares by the corporation, the dissenting SH looses all rights as a SH including voting and dividend rights
From the time of demand for payment by the dissenting SH until either the abandonment of the corporate action involved or the purchase of said shares by the corporation, the dissenting SH looses all rights as a SH including voting and dividend rights
If the SH however is not paid his shares within 30 days after the award, whatever be the reason, his rights shall be immediately restored
WHEN RIGHT TO PAYMENT CEASES When he withdraws his demand for payment
with the consent of the corporation When he withdraws his demand for payment
with the consent of the corporation When the proposed corporate action is
abandoned When the proposed corporate action is
disapproved by the SEC where such approval is necessary
When the SEC determines that such SH is not entitled to the appraisal right
WHO BEARS COSTS AND EXPENSES OF APPRAISAL?
By the corporation◦ Where the price which he corporation
offered to pay to the dissenting SH is lower than the fair value determined by the appraisers
◦ Where an action is filed by the dissenting SH and the refusal of the SH to receive payment is found to be justified by the court
By the dissenting SH◦ Where the price offered by the corporation is
approximately equal to the fair value as determined by the appraisers
◦ Where the court founds unjustifiable reasons
for the SH to refuse payment
NOTATION ON CERTIFICATE Dissenting SH must present his certificate within
10 days after written demand Dissenting SH must present his certificate within
10 days after written demand Corporate secretary makes notation that these
certificates are dissenting shares, thus withdrawal of all SH’s rights
Title XI NON-STOCK CORPORATIONS
NON-STOCK CORPORATION There is no capital stock divided into shares No part of its income may be distributed as
dividends to its members, trustees or officers Considered as non-profit corporation even if it
derives income from the operation of its facilities It does not have the power to venture primarily
in business activities
RIGHT TO VOTE Regardless of class, Members are entitled to
one vote unless broadened, or denied in the articles of incorporation or by-laws
May cast as many votes as there are trustees to be elected, but may not cast more than one vote for one candidate, unless provided in the AoI or by-laws
How members vote? In person By proxy By mail or other means (if so provided in the AoI
or by-laws)
NON-TRANSFERABILITY OF MEMBERSHIP Membership in a non-stock corporation is a
personal right and non-transferable unless otherwise provided in the AoI or by-laws
Admission, maintenance and limitation of membership in a non-stock corporation must be governed by the by-laws
Issued a “Membership Certificate” Best evidence is the “membership book”
TERMINATION OF MEMBERSHIP Only in the manner and for the causes provided
in the articles of incorporation or by-laws It extinguishes all rights of a member in the
corporation or in its property SEC guided by the general rule in corporate
jurisprudence provides that the power to expel a member may be exercised under certain situations:
TERMINATION OF MEMBERSHIP when an offense is committed which, although it
has no immediate relation to a member’s duty as such is of so infamous a nature as to render him unfit for the society of honest man, and which is indictable at common law
when the offense is a violation of his duty as a
member of the corporation when the offense is of a mixed nature, being
both against his duty as a member of the corporation and also indictable at common law
ELECTION AND TERM OF TRUSTEES Qualifications of trustees Trustees of non-stock corporations must be
members thereof Majority of the trustees must be residents of the
Philippines By-laws may provide for other qualifications Term of trustees One year/staggered term in the absence of any
provision in the AoI or by-laws As long as the term of 1/3 of its trustees expire
every year Not to exceed 5 years (Sec. 7)
NUMBER OF TRUSTEES May have more than 15 trustees There appears to be no limit Powers of board of trustee Much broader than the powers of the board of
directors where approval of SH is mandatory in several corporate actions
Limited only in certain corporate acts:◦ Sell. Lease or mortgage real property
without the approval of the members (Sec. 40)
◦ Amend its corporate charter or by-laws (Sec. 16, 48 respectively)
◦ Decrease bonded indebtedness (Sec. 38)
PLACE OF MEETINGS Regular or special meetings may be held even
outside the place where the principal office of the corporation is located
Proper notice must be sent to all members Within the Philippines However, meetings of the board of trustees may
be held outside of the Philippines since Sec. 51 and 93 only refers to meetings of members of the association
RULES FOR DISTRIBUTION Payment of all liabilities and obligations of the
corporation Return of all assets held by the corporation
(where there exists a condition requiring its return by reason of dissolution)
Assets not subject to return shall be transferred to corporations/organizations engaged in activities substantially similar to that of the dissolving corporation
Assets other than those mentioned in the 2 preceding paragraphs shall be distributed in accordance with the provisions of the AoI or by-laws
Assets may be distributed to such persons, societies, organizations or corporations as may be specified in the plan of distribution
PLAN FOR DISTRIBUTION: Shall be distributed in accordance with the rules
laid down in Sec. 94; In accordance with the plan adopted by a
majority vote of the board of trustees and approved by at least 2/3 vote of the members, provided written notice of the proposed plan of distribution together with the date, time and place of such meeting be given to each member entitled to vote
TITLE XII CLOSE CORPORATIONS
CLOSE CORPORATIONS: All its stock, exclusive of treasury shares, shall
be held of record by not more than a specified number of persons, not exceeding twenty (20)
All its stock shall be subject to one or more specified restrictions on transfer permitted by the Code
There should be no listing of the shares in any stock exchange and no public offering of its shares of stock
ALLOWABLE PROVISIONS IN THE AOI A classification of shares or rights and the
qualifications for owning or holding the same as well as the restrictions on their transfers as may be stated therein
Classification of directors into one or more classes, each of which may be voted for and elected solely by a particular class of stock
A quorum or voting requirements in meetings of stockholders or directors greater than those provided in this Code
Management of corporate affairs and business of the corporation by the stockholders rather than by the board of directors
All officers or employees as such may be specified by the AoI shall be elected or appointed by the SH instead by the BoD
VALIDITY OF RESTRICTIONS Such restrictions must appear in the articles of
incorporation and in the by-laws as well as in the certificate of stock, otherwise they shall not be binding on any purchaser thereof in good faith;
Such restrictions shall not be more than onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein.
RIGHT OF FIRST REFUSAL – SH must first offer it to either the corporation or to the other existing SHs upon such terms, conditions and period previously agreed upon
Such restrictions must appear in the articles of incorporation and in the by-laws as well as in the certificate of stock, otherwise they shall not be binding on any purchaser thereof in good faith;
Such restrictions shall not be more than onerous than granting the existing stockholders or the corporation the option to purchase the shares of the transferring stockholder with such reasonable terms, conditions or period stated therein.
RIGHT OF FIRST REFUSAL – SH must first offer it to either the corporation or to the other existing SHs upon such terms, conditions and period previously agreed upon
EFFECT OF ISSUANCE OR TRANSFER IN BREACH OF QUALIFYING CONDITIONS:
Transferee cannot be allowed to prove lack of notice even if such is the fact
Corporation cannot be compelled to register the transfer of the stock in the transferee’s name
Notwithstanding the conclusive presumption under Sec. 99 the transfer shall be binding upon the corporation if:
It has been consented to by all the SHs of the close corporation
If the close corporation has amended it AoI as provided in #5 of Sec. 103
AGREEMENTS BY STOCKHOLDERS Not exclusive SH’s pre-incorporation agreements are
considered valid when executed by SHs of a close corporation
No need for ratification in a close corporation as the SHs are the same so that corporate personality may be disregarded
WHEN ACTION TAKEN AT BOARD MEETINGS UNNECESSARY OR IMPROPERLY HELD DEEMED VALID:
If before or after such action is take, written consent thereto is signed by all the directors
All the SHs have actual or implied knowledge of the action and do not make any prompt objection thereto in writing
Directors are used to taking informal action with the express or implied acquiesence of all the SHs
All the directors have express or implied knowledge of the action and do not make any prompt objection thereto in writing
PRE-EMPTIVE RIGHT IN CLOSE CORPORATIONS Extends to all stock to be issued, including
reissuance of treasury shares, whether for money or for property or personal services, or in payment of corporate debt, unless otherwise provided for in the AoI
Pre-emptive rights in close corporations are necessary to maintain the balance of power in such a small unit
AMENDMENT OF THE AOI Approved by affirmative vote of at least 2/3 of
the OCS, with or without voting rights, at a SH’s
meeting duly called for the purpose Mere written assent allowed in Sec. 16, would
not suffice
DEADLOCKS File a petition with the SEC which shall have the
power to arbitrate the dispute The power to arbitrate given by Sec. 104 may be
exercised by the SEC notwithstanding any provision in the AoI, by-laws or agreements by the SHs to the contrary
Provisional Director – impartial person, neither a SH nor a creditor of the corporation
WITHDRAWAL OF SH OR DISSOLUTION OF CORPORATION:
For any reason, a SH of a close corporation may compel the corporation to purchase his shares at fair value, which must not be less than their par or issued value provided the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock
Written petition to the SEC to compel dissolution of such corporation wherever any of the acts of the directors, officers is illegal, fraudulent or dishonest or oppressive or unfairly prejudicial to the corporation or any stockholder, or whenever corporate assets are being misapplied or wasted (granted even to a minority SH other than a close corporation)
TITLE XIII SPECIAL CORPORATIONS
EDUCATIONAL CORPORATIONS Governed by Act No. 2076 (“An act making the
inspection and recognition of private schools and colleges obligatory for the Sec of Educ.”); R.A. No. 6055 (conversion of educational corporations from stock corporation to non-profit foundation); and B.P. Blg. 232 (Education Act of 182)
Requires favorable recommendation by the Sec. of Educ. prior to incorporation
Board of Trustees: ◦ Not be less than 5, nor more than 15◦ Must be in multiples of five◦ Term of 1/5 must expire every year◦ Term of office not more than 5 years◦ Trustees elected to fill vacancies shall hold
office only for the unexpired period◦ Majority of the trustees shall constitute a
quorum◦ Powers and authority must be defined in the
by-laws
CLASSES OF RELIGIOUS CORPORATIONS: Religious Sole – incorporated by “one” person Religious society – incorporated by “2 or more”
persons Religious Corporation Sole for the purpose of
administering and managing the affairs, property and temporalities of any religious denomination, sect or church:
Chief archbishop Bishop Priest, Minister, Rabbi
ARTICLES OF INCORPORATION OF RELIGIOUS SOLE
Sec. 111 speaks of no term of existence and hence it gives a corporation sole perpetuity;
It provides for the manner in which any vacancy may be filled;
It is not required to file by-laws, it is enough that the corporation sole is governed by the rules, regulations and discipline of its religious denomination, sect or church. Its articles of faith already contain the provisions normally embodied in the by-laws of an ordinary corporation.
COMMENCEMENT OF CORPORATE EXISTENCE Corporate existence of a corporation sole
commences from and after filing of the articles of incorporation together with the supporting documents mentioned in Sec. 112.
No need for a Certificate of Incorporation
POWER TO ACQUIRE REAL PROPERTY In the case of Republic vs. Villanueva, 114
SCRA 875, the Iglesia ni Cristo was disqualified to acquire or hold alienable lands of the public domain, except by lease, because of the prohibition in Art XII Sec.2 of the Constitution
In the case of RCAA of Davao vs. Land Registration Commission and Reg. of Deeds of Davao City, it was held that a corporation sole despite the fact that the head was a Canadian citizen, can purchase lands in the Philippines as ownership thereof logically falls and devolves upon the church or congregation acquiring the same.
MORTGAGE OR SALE OF REAL PROPERTY A corporation sole may mortgage or sell real
property held by it only upon obtaining an order for that purpose from the RTC of the province where the property is located, provided it is shown that:
The notice of application for leave to mortgage or sell was published or in any manner and for such time as the court may have directed
It is to the interest of the corporation that leave to mortgage or sell should be granted
The application for leave to mortgage or sell must be made by petition, verified by the head of the denomination, sect or church concerned
AGGREGATE RELIGIOUS SOCIETIES The following may become aggregate religious
societies: Any religious society or order
Any diocese Synod District organization of any church Acquires legal personality upon filing with the
SEC Intended by law to exist perpetually Board of trustees of not less than 5 not more
than 15
Title XIV DISSOLUTION
Denotes the termination of the existence of a corporation, the extinguishment of its charter, the winding up of the corporate affairs and the distribution of corporate assets to the creditors and then to the stockholders
Modes: Voluntary
◦ Application for dissolution with the SEC▪ Where no creditors are affected▪ Where creditors are affected
◦ Shortening of the corporate term by amending the articles of incorporation
Involuntary◦ Expiration of the corporate term◦ Failure to organize and commence business
within 2 years from the date of issuance of the certificate of incorporation
◦ Legislative dissolution◦ Quo warranto suit against a de facto
corporation◦ Minority stockholders’ suit for dissolution on
justifiable grounds◦ SEC dissolution, upon complaint and after
notice and hearing
Effects of Dissolution: Transfer of legal title of corporate property to the
stockholders who become owners thereof Continuation of corporate business merely as an
association without juridical personality Conveyance by the stockholders of their
respective shareholdings toward the creation of a new corporation to continue the business of the old
Reincorporation of the dissolved corporation by refilling new articles of incorporation and by-laws
Corporation continues as a body corporate for 3 years for purposes of winding up
Liquidation The process by which all the assets of the
corporation are converted into liquid assets (cash) in order to facilitate the payment of obligations to creditors, and the remaining balance, if any, is to be distributed to the stockholders or members
Methods of Liquidation: By the corporation itself through its board of
directors/trustees
By a trustee to whom the corporate assets have been conveyed
By a management committee or rehabilitation receiver appointed by the SEC
TITLE XV FOREIGN CORPORATION
Foreign CorporationA corporation formed, organized or existing under
any law other than those of the Philippines, and whose law allow Filipino citizens and corporations to do business in its own country or state
Generally, not permitted to transact or do business in the Philippines, until it has secured a license for that purpose from the SEC and a certificate of authority from the appropriate government agency
Contents for Application of License Date and term of incorporation Address of the principal office in the country of
incorporation Name and address of resident agent Place in the Philippines where it intends to
operate The specific purpose or purposes Names and addresses of the present directors
and officers of the corporation Statement of its outstanding capital stock Statement of the amount actually paid in
Resident Agent An individual, who must be of good moral
character and of sound financial standing, residing in the Philippines, or 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, on whom any summons and other legal processes may be served in all actions or other legal proceedings against the foreign corporation. (Sec. 127-128)
Grounds for Revocation of License Failure to file annual reports required by the
Code Failure to appoint and maintain a resident agent Failure to inform the SEC of the change of
residence of the resident agent Failure to submit copy of the amended articles
or by-laws or articles of merger or consolidation A misrepresentation in material matters in
reports Failure to pay taxes, imposts and assessments Engage in business unauthorized by SEC Acting as dummy of a foreign corporation Not licensed to do business in the Philippines
(Sec. 134)
Effects of Lack of License On suits
◦ Foreign corporation doing business in the
Philippines:▪ May not sue or intervene in any action in
any court or administrative agency of the Philippines; but
▪ May be sued on any valid cause of action recognized in the Philippines
◦ Foreign corporation not doing business in the Philippines▪ It may not sue and be sued in any court
or administrative agency of the Philippines
▪ However, it may sue and be sued for isolated transactions, as well as those which are casual or incidental thereto
▪ Exception: To seek redress for an isolated
transaction To protect its corporate reputation,
name and goodwill To enforce a right not arising out of
a business transaction, e.g. tort that occurred in the Philippines
When the parties have contractually stipulated that Philippines is the venue of actions; and
When the party sued is barred by the principle of estoppel and/or principle of unjust enrichment from questioning the capacity of the foreign corporation
Effects of Lack of License On contracts
◦ Gen. Rule: The contracts are unenforceable. They are enforceable only upon securing a license. However, they are null and void if they are contrary to law, morals, good customs, public order and public policy
“Doing or Transacting Business in the Philippines” JURISPRUDENTIAL TEST
◦ Twin Characterization Test▪ Substance Test – whether the FC is
maintaining or continuing in the Philippines the body or substance of the business for which it was organized
▪ Continuity Test – whether there is continuity of commercial dealings and arrangement, contemplating to some extent performance of acts or works
◦ Contract Test▪ Whether the contracts entered into by
the FC are consummated in the Philippines
Statutory Tests Foreign Investment Act of 1991 or R.A. No.
7042◦ Soliciting orders, service contracts, opening
offices, whether liaison offices or branches◦ Appointing representatives or distributors
who in any calendar year stay in the country
for a period of 180 days or more◦ Participation in the management,
supervision or control of any domestic business
◦ Any acts that imply a continuity of commercial dealings or arrangements
Implementing Rules of R.A. No. 7042◦ Mere investment as a shareholder in a
domestic corporation and/or the exercise of rights as such investor
◦ Appointing a representative or distributor domiciled in the Philippines which transacts business in its own name and for its own account
◦ Publication of a general advertisement◦ Maintaining a stock of goods in the
Philippines solely for the purpose of having the same processed by another entity in the Philippines
◦ Consignment by the FC of equipment with a local company to be used in the processing of products for export
◦ Collecting information in the Philippines◦ Performing services auxiliary to an existing
isolated contract of sale which are not on a continuing basis
Jurisprudential Rules DOCTRINE of ISOLATED TRANSACTION –
FC, even unlicensed ones, can sue or be sued on a transaction or series of transactions set 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. Vs CA, 267 SCRA 567)
IN PARI DELICTO RULE – In the case of Top Weld Manufacturing vs. ECED, S.A., the court denied the relief prayed for by the petitioner when it rules that the very purpose of the law was circumvented and evaded when the petitioner entered into the said agreements despite the prohibition contained in the questioned law. The parties were considered as being in pari delicto because they equally violated R.A. No. 5455
ESTOPPEL RULE – A party is estopped from questioning the capacity of a FC to institute an action in our courts where it had obtained benefits from its dealings with such foreign corporations and thereafter committed a breach or sought to renege on its obligations (European Resources vs. Ingnieburo)
Transitory Provisions Sec. 144 – Violations of the Code Fine of not less than P1,000.00 but nor more
than P10,000.00 or Imprisonment for not less than 30 days but not
more than 5 years or both Exception: Sec. 65 on watered stocks; Sec. 74
on refusal to allow SH/member to examine
records or minutes of the corp.
top related