ateneo 2007 commercial law (corporation)

7/28/2019 Ateneo 2007 Commercial Law (Corporation)

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Commercial Law Summer Reviewer

ATENEOCENTRALBAROPERATIONS2007

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be a personal ormovable property

be real or immovableproperty

Affidavit of Good Faith

Required

Not Required

Mortgagor cannotalienate the thingmortgaged without thewritten consent of themortgagee

Mortgagor can alienatethe thing mortgagedwithout the consent ofthe mortgagee and anysuch prohibition is void

No right of redemption There can be right ofredemption inextrajudicial foreclosureand in judicialforeclosure by banks

Cannot secure futureobligations

Can secure futureobligations

CORPORATION CODE

Sec. 2. Corporation defined. - A corporation is anartificial being created by operation of law, having theright of succession and the powers, attributes andproperties expressly authorized by law or incident toits existence.

A corporation is an artificial being that is, by suchnature, subject to certain limitations.

Generally, it cannot commit felonies punishableunder the Revised Penal Code for corporations areincapable of the requisite intent to commit thesecrimes. It cannot commit crimes that are punishableunder special laws because crimes are personal innature requiring personal performance of overt acts.Also, the penalty of imprisonment cannot beimposed.

Further, a corporation cannot be awarded moraldamages.

ABS-CBN v. Court of Appeals, 301 SCRA 572(1999)

The award of moral damages cannot be grantedin favor of a corporation because, being an artificialperson and having existence only in legalcontemplation, it has no feelings, no emotions, nosenses, It cannot, therefore, experience physical

suffering and mental anguish, which call beexperienced only by one having a nervous system.The statement in People v. Manero and Mambulao

Lumber Co. v. PNB that a corporation may recovermoral damages if it "has a good reputation that isdebased, resulting in social humiliation" is an obiterdictum.

However the Supreme Court ruled in FilipinasBroadcasting Network v. Ago Medical andEducational Center that a corporation can recovermoral damages under Article 2219(7) of the CivilCode if it was the victim of defamation.

Filipinas Broadcasting Network, Inc. v. AgoMedical and Educational Center, 448 SCRA 413

(2005)[Article 2219(7)] expressly authorizes therecovery of moral damages in cases of libel, slanderor any other form of defamation. [It] does not qualifywhether the plaintiff is a natural or juridical person.Therefore, a juridical person such as a corporationcan validly complain for libel or any other form ofdefamation and claim for moral damages.

Although generally the corporation is in and by itself aseparate being from its stockholders and directors,this legal fiction is in certain instances disregarded.

Piercing the Veil of Corporate Fiction Piercing theveil of corporate fiction means that while thecorporation cannot be generally held liable foracts or liabilities of its stockholders or members,and vice versa because a corporation has apersonality separate and distinct from itsmembers or stockholders, however, thecorporate existence is disregarded under thisdoctrine when the corporation is formed or usedfor illegitimate purposes, particularly, as a shieldto perpetuate fraud, defeat public convenience,

justify wrong, evade a just and valid obligation ordefend a crime.

Circumstances that may indicate that the piercingdoctrine should be applied:

1. The parent corporation owns all or most ofthe capital of the subsidiary.

2. The parent and subsidiary corporations havecommon directors or officers.

3. The parent company finances the subsidiary.


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4. The parent company subscribed to all thecapital stock of the subsidiary or otherwisecauses its incorporation.

5. The subsidiary has grossly inadequatecapital.6. The subsidiary has substantially no business

except with the parent corporation or noassets except those conveyed to or by theparent corporation.

7. The papers of the parent corporation or in thestatements of its officers, the subsidiary isdescribed as a department or division of theparent corporation, or its business orfinancial responsibility is referred to as theparent corporations own.

8. The parent corporation uses the property ofthe subsidiary as its own.

9. The directors or executives of the subsidiarydo no act independently in the interest of thesubsidiary but take their orders from theparent corporation.

10. The formal legal requirements of thesubsidiary are not observed.

(Phil. National Bank v. Ritratto Group, Inc., 362SCRA 216 [2001]

Francisco v. Mejia, G.R. No. 141617, August 14,2001

Mere ownership by a single stockholder or byanother corporation of all or substantially all of the

capital stock of the corporation does not justify theapplication of the doctrine. There must be othercircumstances that must be present.

Elements that must be present to justify piercingon the ground that the corporation is a mere alterego:

1. Control not mere stock control butcomplete domination not only of finances,but of policy and business practice in respectto the transaction attacked and must havebeen such that the corporate entity as to thistransaction had at the time no separate mind,

will or existence of its own.2. Such control must have been used by the

defendant to commit a fraud or wrong toperpetuate the violation of a statutory orother positive legal breach of duty, or adishonest and an unjust act in contraventionof the plaintiffs legal right, and,

3. The said control and breach of duty musthave proximately caused the injury or unjustloss complained of.

(PNB v. Andrada Electric & EngineeringCompany, 381 SCRA 244 [2002])

A corporation may also own its own property. Notethat the property it owns does not by any meansbelong to the stockholders. The stockholders thushave no interest in such corporate properties.Conversely, the corporation also has no interest inthe properties of the stockholders.

Wise v. Man Sung Lung, 69 Phil 309[The Corporation] is entitled to own properties in

its own name and its properties are not the propertiesof its stockholders, directors and officers.

Saw v. Court of Appeals, 195 SCRA 740 (1991)

The interest of the stockholder over theproperties of the corporation is merely inchoate.

As a consequence of this delineation betweenproperties of the corporation and its stockholders,liquidating dividends may be made subject totaxation.

F. Guanzon and Sons, Inc. v. Register of Deeds ofManila, G.R. No. L-18216 (1962)

FACTS:A corporation was dissolved and its properties

conveyed to the stockholders as liquidatingdividends. The government is claiming that they areliable for tax on the gain on the dividends. Thestockholders said refused on the ground that therewas no conveyance of property, rather it was merelya case of partitioning what they own.

ISSUE:Whether or not there is a taxable transaction?

HELD:The properties do not belong to the stockholders,

they belong to the corporation. Hence, upondistribution via liquidating dividends, there was aconveyance and consequently, a taxable transaction.

GRANDFATHER RULE The grandfather rule isapplied in determining the nationality of acorporation. It traces the nationality of thestockholders of investor corporations so as toascertain the nationality of the corporation wherethe investment is made.

Ex: MV Corporation and AC Corporation have equalinterest in XYZ Company. MV Corporation is 60%


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owned by Filipinos, while AC Corporation is 50%owned by Filipinos. By the grandfather rule, MVCorporation would have a 30% Filipino interest in

XYZ Company (60% of 50%), while ACCorporation would have a 25% Filipino interest inXYZ Company (50% of 50%). Hence, the totalFilipino interest is only 55%.

The application of the test is limited however toresolving issues on investments. By the ForeignInvestments Act, the grandfather rule is merely anancillary rule to the main method of determiningnationality, wherein corporations that are 60% ownedby Filipinos are automatically considered as 100%Filipino-owned. Only when a corporation is less than60% owned shall the grandfather rule be applied.Ex: Using the same facts as the example supra,

since MV Corporation is 60% Filipino owned then it isconsidered as 100% Filipino. Hence, the total Filipinointerest in XYZ Company would now by 75% (100%of 50% from the MV Corporation plus 50% of 50%from the AC Corporation).

SEC. 3. Classes of Corporations. Corporationsformed or organized under this Code may be stock ornon-stock corporations. Corporations which havecapital stock divided into shares and are authorizedto distribute to the holders of such shares dividendsor allotments of the surplus profits on the basis of theshares held are stock corporations. All other

corporations are non-stock corporations.

Classes of Corporations :1. As to organ izers:

a. Public by State only; andb. Private by private persons alone or

with the State.2. As to functions:

a. Public government of a portion ofthe State; and

b. Private usually for profit-makingfunctions.

3. As to governing law:

a. Public Special Laws and LocalGovernment Code; and

b. Private Law on PrivateCorporations.

4. As to legal status:a. De jure corporation Corporation

organized in accordance withrequirements of law;

b. De facto corporation Corporationwhere there exists a flaw in itsincorporation.

NOTE: See Table 2.5. As to existence of stocks:

a. Stock corporation Corporation in

which capital stock is divided intoshares and is authorized to distributeto holders thereof of such sharesdividends or allotments of the surplusprofits on the basis of the sharesheld.

b. Non-stock corporation Corporation which does not issuestocks and does not distributedividends to their members.

Distinguish a Corporation from a PartnershipTable 1

Corporation Partnership

As tomanner ofcreation

Commences onlyfrom the issuanceof a Certificate ofIncorporation bythe SEC, or, inproper cases,passage of aspecial law

By mereagreement

As to thenumber oforganizers

At least 5 persons At least 2

As topowers

Restricted due tolimited personality

Subject to theagreement of

partnersAuthor ity ofthose whocompose

Stockholders arenot agents of thecorporation in theabsence ofexpress authority

Mutual agencybetweenpartners

Transfer ofinterest

Freelytransferablewithout theconsent of otherstockholders(unless there is astipulation to the

contrary)

Cannot betransferredwithout theconsent of theother partners

Succession Existencecontinues even aspersons whocompose itchange

Death a partnerends thepartnership

May a corporation be a partner in a partnership?In Aurbach v. Sanitary Wares ManufacturingCorporation(180 SCRA 130 [1989]), the Court ruledagainst corporations as being partners in


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partnerships but clarified that they may enter into jointventures. In that same case, a distinction was madebetween partnerships and joint ventures.

Aurbach v. Sani tary Wares Manufacturing, 180SCRA 130 (1989)

The main distinction cited by most opinions incommon law jurisdiction is that the partnershipcontemplates a general business with some degreeof continuity, while the joint adventure is formed forthe execution of a single transaction, and is thus of atemporary nature. This observation is not entirelyaccurate in this jurisdiction, since under the CivilCode, a partnership may be particular or universal,and a particular partnership may have for its object aspecific undertaking. It would seem therefore thatunder Philippine law, a joint adventure is a form ofpartnership and should thus be governed by the lawof partnerships. The Supreme Court has howeverrecognized a distinction between these two businessforms, and has held that although a corporationcannot enter into a partnership contract, it mayhowever engage in a joint adventure with others.

The SEC has maintained this stand on the groundsthat the management of a partnership is vested in thepartners and that will run counter to the idea that anyexposure of the corporation should be within thecontrol of the directors. However, the SEC hasdetermined at one time that an exception can be

made when it is satisfied that the main objections toallowing a corporation to enter into a contract ofpartnership were adequately met by the propersafeguards and conditions imposed by theCommission (e.g. Articles of incorporation authorizethe corporation).

Table 2

De Jure De Facto

Created in strict orsubstantial conformitywith the statutoryrequirements for

incorporation

Actually exists for allpractical purposes as acorporation but which has nolegal right to corporate

existence as against theState

Right to exist cannot besuccessfully attackedeven in a directproceeding by theState

Right to exercise powerscannot be inquired intocollaterally in any privatesuit. But such inquiry may bemade by the State in aproper court proceeding.

Components of a Corporation:

1. Incorporators those mentioned in thearticles of incorporation as originally formingand composing the corporation, having

signed the articles and acknowledged thesame before the notary public.a. They must be natural persons;b. At least five (5) but not more than

fifteen (15);c. They must be of Legal Age;d. Majority must be residents of the

Philippines; ande. Each must own or subscribe to at

leat one share.2. Corporators All the stockholders and

members of a corporation including theincorporators who are still stockholders.

3. Stockholders Corporators in a stock

corporation4. Members Corporators in a non-stock

corporation5. Directors and Trustees The Board of

Directors is the governing body in a stockcorporation while the Board of Trustees is thegoverning body in a non-stock corporation.

6. Corporate Officers They are the officerswho are identified as such in the CorporationCode, the Articles of Incorporation or the By-laws of the corporation.

7. Promoter A self-constituted organizer whofinds an enterprise or venture and helps to

attract investors, forms a corporation andlaunches it in business, all with a view topromotion profits.

TYPES OF SHARES:1. Common Shares A basic class of stock

ordinarily and usually issued withoutextraordinary rights or privileges and entitlesthe shareholder to a pro rata division ofprofits.

2. Founders Shares Given rights andprivileges not enjoyed by owners of otherstocks; exclusive right to vote/be voted in the

election of directors shall not exceed 5 years(note: within this period, common shares aredeprived of their voting rights)

3. Preferred Shares Issued only with parvalue; given preference in distribution ofassets in liquidation and in payment ofdividends and other preferences stated in thearticles of incorporation; may be deprived ofvoting rights.

4. Redeemable Shares Expressly provided inarticles; have to be purchased/taken up upon


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expiration of period of said shares purchasedwhether or not there is unrestricted retainedearnings; may be deprived of voting rights.

5. Treasury Stocks stocks previously issuedand fully paid for and reacquired by thecorporation through lawful means (purchase,donation, etc.); not entitled to vote and nodividends could be declared thereon ascorporations cannot declare dividends toitself.

INSTANCES WHEN HOLDERS OF NON-VOTINGSHARES CAN VOTE:

1. Amendments of articles of incorporation2. Adoption/amendment of by-laws3. Increase/decrease of bonded indebtedness4. Increase/decrease of capital stock

5. Sale/disposition of all/substantially allcorporate property

6. Merger/consolidation of corporation7. Investment of funds in another

corporation/another business purpose8. Corporate dissolution

PREFERRED CUMULATIVE PARTICIPATINGSHARE OF STOCK Share entitling its holder topreference in the payment of dividends ahead ofcommon stockholders and to be paid the dividendsahead of common stockholders and to be paid thedividends due for prior years and to participate further

with common stockholders in dividend declarations.

PROMOTION STOCKS FOR SERVICESRENDERED PRIOR TO INCORPORATIONESCROW STOCK Stock deposited with a 3

rdperson to be delivered to

stockholder/assignor after complying with certainconditions.

OVER-ISSUED STOCK Stock issued in excess ofauthorized capital stock; null and void.

WATERED STOCK Stock issued gratuitously,

money/property less than par value, services lessthan par value, dividends where no surplus profitsexist.

CERTIFICATE OF STOCK - Writtenacknowledgment by the corporation of thestockholders interest in the corporation. It is thepersonal property and may be mortgaged or pledged.

Transfer binds the corporation when it is recorded inthe corporate books. A stockholder who does notpay his subscription is not entitled to the issue of a

stock certificate. The total par value of the stockssubscribed by him should first be paid.

METHODS OF COLLECTION OF UNPAIDSUBSCRIPTIONS:1. Call, delinquency and sale at public auction

of delinquent shares;2. Ordinary civil action;3. Collection from cash dividends and other

amounts due to stockholders if allowed byby-laws/agreed to by him.

CASES WHEN CORPORATION CAN REACQUIRESTOCK:

1. Eliminate fractional shares;2. Corporate indebtedness arising from unpaid

subscriptions;

3. Purchase delinquent shares;4. Exercise of appraisal right.

INCORPORATION AND ORGANIZATION OFPRIVATE CORPORATIONS

25-25 RULE Except for instances specificallyprovided for by special law, there is no minimumrequirement for authorized capital stock toincorporate. There is however a requirement ofsubscription of at least twenty-five (25%) percent ofthe authorized capital stock as stated in the articles ofincorporation AND at least twenty-five (25%) percent

the total subscription must be paid upon subscription.

CONTENTS OF ARTICLES OF INCORPORATION:1. Name of corporation;2. Purpose/s, indicating the primary and

secondary purposes;3. Place of principal office;4. Term which shall not be more than 50 years;5. Names, citizenship and residences of

incorporators;6. Number, names, citizenships and residences

of directors;

7. If stock corporation, amount of authorizedcapital stock, number of shares;8. In par value stock corporations, the par value

of each share;9. Number of shares and amounts of

subscription of subscribers which shall not beless than 25% of authorized capital stock;

10. Amount paid by each subscriber on theirsubscription, which shall not be less than25% of subscribed capital and shall not beless than P5000.00;


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11. Name of treasurer elected by subscribers;and

12. If the corporation engages in a nationalized

industry, a statement that no transfer of stockwill be allowed if it will reduce the stockownership of Filipinos to a percentage belowthe required legal minimum.

DOCUMENTS THAT SHOULD BE FILED TOSECURE A CERTIFICATE OF REGISTRATION OF

A STOCK CORPORATION:1. Articles of Incorporation;2. Treasurers Affidavit certifying that 25% of

the total authorized capital stocks has beensubscribed and at least 25% of such havebeen fully paid in cash or property;

3. Bank certificate covering the paid-up capital;

4. Letter authority authorizing the SEC toexamine the bank deposit and othercorporate books and records to determinethe existence of paid-up capital;

5. Undertaking to change the corporate name incase there is another person or entity withsame or similar name that was previouslyregistered;

6. Certificate of authority from propergovernment agency whenever appropriate.

REQUIREMENTS FOR AMENDING ARTICLES OFINCORPORATION:

1. A legitimate purpose for the amendment;2. Majority vote of directors or trustees and the

vote or written assent of the stockholdersrepresenting at least two-thirds (2/3) of theoutstanding capital stock, without prejudice tothe appraisal right of dissenting stockholders,or two-thirds (2/3) of the members if it be anon-stock corporation.

3. Indication in the articles, by underscoring, thechange or changes made.

4. A copy of amended articles duly certifiedunder oath by the corporate secretary and amajority of the directors or trustees stating

the fact that said amendment or amendmentshave been duly approved by the requiredvote of stockholders or members, as thecase may be.

GROUNDS FOR REJECTING INCORPORATIONOR AMENDMENT TO ARTICLES OFINCORPORATION:

1. Not in prescribed form;2. Purpose illegal, inimical;3. Treasurers affidavit false; and

4. Non-compliance with required Filipino stockownership.

WHEN A CORPORATE NAME CANNOT BE USED:1. Names which are identical, deceptively orconfusingly similar to that of any existingcorporation including internationally knownforeign corporation through not used in thePhilippines;

2. Name already protected by law;3. Name which is contrary to law, morals or

public policy.

Sec. 19. A private corporation formed or organizedunder this Code commences to have corporateexistence and juridical personality and is deemedincorporated from the date the Securities andExchange Commission issues a certificate ofincorporation under its official seal; and thereuponthe incorporators, stockholders/members and theirsuccessors shall constitute a body politic andcorporate under the name stated in the articles ofincorporation for the period of time mentionedtherein, unless said period is extended or thecorporation is sooner dissolved in accordance withlaw.

DE FACTO CORPORATIONS A de facto

corporation is one that is defectively created soas not to become a de jure corporation. It is theresult of an attempt to incorporate under anexisting law coupled with the exercise ofcorporate powers. The existence of a de factocorporation can only be attacked directly by thestate through quo warranto proceedings. A defacto corporation will incur the same obligations,have the same powers and rights as a de jurecorporation.

REQUISITES OF A DE FACTO CORPORATION:1. Valid law under which the corporation was

incorporated.2. Attempt in good faith form a corporationaccording to the requirements of the law.Here the SC requires that you must havefiled with the SEC articles of incorporationand gotten the certificate with the blue ribbonand gold seal. For instance the majority ofthe directors are not residents of thePhilippines or the statement regarding thepaid up capital stock is not true, those are


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defects that may make the corporation defacto.

3. User of corporate powers. The corporation

must have performed acts which are peculiarto a corporation like entering into asubscription agreement, adopting by-laws,electing directors.

4. It must act in good faith. So the moment, forexample, there is a decision declaring thecorporation was not validly created, it can nolonger claim good faith.

CORPORATION BY ESTOPPEL It is a corporationwhich is so defectively formed so that it is not ade jure or a de facto corporation but isconsidered as a corp with respect to those whocannot deny its existence because of someagreement or admission or conduct on their part.

The existence of corporation by estoppel requiresthat there must be dealings among the parties ona corporate basis.

Table 3De Facto By Estoppel

Existence inLaw

Yes None

Dealingsamongparties on a

corporatebasis

Not required Required

Effect of lackof requisites

Could be acorporationby estoppel

Not acorporationin any shapeor form

BOARD OF DIRECTORS/ TRUSTESS/ OFFICERS

QUALIFICATIONS OF DIRECTORS:1. Must own at least one (1) share capital stock

of the corporation in his own name or mustbe a member in the case of non-stockcorporations

2. A majority of the directors/trustees must beresidents of the Philippines

3. He must not have been convicted by finaljudgment of an offense punishable byimprisonment for a period exceeding six (6)years or a violation of the Corporation Code,committed within five (5) years before thedate of his election

4. He must be of legal age

5. He must possess other qualifications as maybe prescribed in the by-laws of thecorporation.

METHODS OF VOTING IN THE ELECTION OFDIRECTORS:

1. Straight Voting Every stockholder mayvote such number of shares for as manypersons as there are directors to be elected;

2. Cumulative Voting for One Candidate astockholder is allowed to concentrate hisvotes and give one candidate as many votesas the number of directors to be electedmultiplied by the number of his shares shallequal;

3. Cumulative Voting by Distribution astockholder may cumulate his shares by

multiplying also the number of his shares bythe number of directors to be elected anddistribute the same among as manycandidates as he shall see fit

BUSINESS JUDGMENT RULE Questions of policyor management are left solely to the honestdecision of officers and directors of a corporationand the courts are without authority to substitutetheir judgment for the judgment of the board ofdirectors; the board is the business manager ofthe corporation and so long as it acts in good

faith its orders are not reviewable by the courts orthe SEC. The directors are also not liable to thestockholders in performing such acts. (PhilippineStock Exchange, Inc. v. Court of Appeals, 281SCRA 232 [1997])

INSTANCES WHEN A DIRECTOR IS LIABLE:1. Willfully and knowingly voting for and

assenting to patently unlawful acts of thecorporation;

2. Gross negligence or bad faith in directing theaffairs of the corporation;

3. Acquiring any personal or pecuniary interestin conflict of duty.

DOCTRINE OF APPARENT AUTHORITY If acorporation knowingly permits one of its officers,or any other agent, to act within the scope of anapparent authority, it holds him out to the publicpossessing the power to so do those acts; andthus, the corporation will, as against anyone who


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has in good faith dealt with it through such agent,be estopped from denying the agents authority.

Peoples Aircargo and Warehousing Co., Inc. v.Court of Appeals, 297 SCRA 170 (1998)

Apparent authority is derived not merely frompractice. Its existence may be ascertained through:(a) the general manner in which the corporation holdsout an officer or agent as having the power to act or,in other words, the apparent authority to act ingeneral, with which it clothes him; or (b) theacquiescence in his acts of a particular nature, withactual or constructive knowledge thereof, whetherwithin or beyond the scope of his ordinary powers. Itrequires presentation of evidence of similar acts

executed either in its favor or in favor of other parties.It is not the quantity of similar acts which establishesapparent authority, but the vesting of a corporateofficer with the power to bind the corporation.

Premiere Development Bank vs. CA, G.R. No.159352, Apr il 14, 2004

If a private corporation intentionally or negligentlyclothes its officers or agents with apparent power toperform acts for it, the corporation will be estopped todeny that the apparent authority is real as to innocentthird persons dealing in good faith with such officers

or agents. When the officers or agents of acorporation exceed their powers in entering intocontracts or doing other acts, the corporation, when ithas knowledge thereof, must promptly disaffirm thecontract or act and allow the other party or thirdpersons to act in the belief that it was authorized orhas been ratified. If it acquiesces, with knowledge ofthe facts, or fails to disaffirm, ratification will beimplied or else it will be estopped to deny ratification.

DOCTRINE OF CORPORATE OPPORTUNITY Ifthere is presented to a corporate officer ordirector a business opportunity which (a)

corporation is financially able to undertake; (b)from its nature, is in line with corporationsbusiness and is of practical advantage to it; and(c) one in which the corporation has an interest ora reasonable expectancy, by embracing theopportunity, the self-interest of the officer ordirector will be brought into conflict with that ofhis corporation. Hence, the law does not permithim to seize the opportunity even if he will use hisown funds in the venture. If he seizes theopportunity thereby obtaining profits to the

expense of the corporation, he must account allthe profits by refunding the same to thecorporation unless the act has been ratified by a

vote of the stockholders owning or representingat least two-thirds (2/3) of the outstanding capitalstock.

REQUISITES OF REMOVAL FROM THE BOARD:1. It must take place either at a regular meeting

or special meeting of the stockholders ormembers called for the purpose;

2. There must be previous notice to thestockholders or members of the intention toremove;

3. The removal must be by a vote of thestockholders representing 2/3 of theoutstanding capital stock or 2/3 of themembers, as the case may be;

4. The director may be removed with or withoutcause unless he was elected by the minority,in which case, it is required that there iscause for removal.

FILLING OF VACANCIES IN THE BOARD:1. By stockholders or members if vacancy

results because of:a. Removalb. Expiration of termc. The ground is other than removal or

expiration of term where the remaining

directors do not constitute a quorumd. Increase in the number of directors.

2. By board if remaining directors constitutea quorum cases not reserved tostockholders or members.

POWERS OF CORPORATIONS

GENERAL TYPES OF POWERS OF ACORPORATION:

1. Express those expressly authorized by theCorporation Code and other laws, and itsArticles of Incorporation or Charter

2. Implied Powers those that can be inferredfrom or necessary for the exercise of theexpress powers.

3. Incidental Powers those that areincidental to the existence of the corporation.

EXPRESS POWERS UNDER THE CORPORATIONCODE:

1. Generala. Sue and be sued in its corporate name;b. Succession;


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c. Adopt and use a corporate seal;d. Amend Articles of Incorporatione. To adopt, amend or repeal by-laws;

f. For stock corporations issue stocks tosubscribers and to sell treasury stocks;for non-stock corporations admitmembers;

g. Purchase, receive, take, or grant, hold,convey, sell, lease, pledge, mortgageand otherwise deal with real andpersonal property, pursuant to its lawfulbusiness;

h. Enter into merger or consolidation;i. To make reasonable donations for public

welfare, hospital, charitable, cultural,scientific, civil or similar purposes(Prohibited: for partisan political activity);

j. To establish pension, retirement andother plans for the benefit of directors,trustees, officers and employees; and

k. Other powers essential or necessary tocarry out its purposes.

2. Specifica. Power to extend or shorten corporate

term;b. Increase/Decrease Corporate Stock;c. Incur, Create Bonded Indebtedness;d. To deny pre-emptive right;e. Sell, dispose, lease, encumber all or

substantially all of corporate assets;

f. Purchase or acquire own shares;g. To invest in another corporation,

business other than the primary purpose;h. To declare dividends;i. To enter into management contract;

j. To amend the articles of incorporation.

Ultra Vires Acts An act not within the express orimplied powers of the corporation as fixed by itscharter or the statutes. The term not onlyincludes contracts: (1) Entirely without the scopeand purpose of the charter and not pertaining tothe objects for which the corporation was

chartered, but also contracts; and, (2) Beyond thelimitations conferred by the charter althoughwithin the purposes contemplated by the articlesof incorporation.

EFFECTS OF ULTRA VIRESACT:1. Executed contract Courts will not set

aside or interfere with such contracts;2. Executory contracts No enforcement

even at the suit of either party (void andunenforceable);

3. Part executed and part executory Principle against unjust enrichment shallapply.

THOSE WHO MAY EXERCISE THE POWERS OFTHE CORPORATION: Generally, the Board ofDirectors ALONE exercises the powers of thecorporation. These are the instances when otherpersons or groups within the corporation may do sosimilarly:

1. If (1) there is a management contract and (2)powers are delegated by majority of theboard to an Executive Committee;

2. Corporate Officers (e.g. the President) viaauthority from (1) law, (2) corporate by-laws;and (3) authorization from the board, eitherexpressly or impliedly by habit, custom or

acquiescence in the general course ofbusiness;

3. A corporate of ficer or agent in transactionswith third persons to the extent of theauthority to do so has been conferred uponhim;

4. Those with apparent authority.

POWERS THAT CANNOT BE DELEGATED TOTHE EXECUTIVE COMMITTEE:

1. Approval of action requiring concurrence ofstockholders;

2. Filling of vacancies in the board;

3. Adoption, amendment or repeal of by-laws;4. Amendment or repeal of board resolution

which by its terms cannot be amended orrepealed;

5. Distribution of cash dividends.

INSTANCES WHEN THE CONCURRENCE OFSTOCKHOLDERS IS NECESSARY FOR THEEXERCISE OF CORPORATE POWERS:

1. Concurrence of 2/3 of the outstanding capitalstocka. Power to extend or shorten corporate

term;

b. Increase/Decrease Corporate Stock;c. Incur, Create Bonded Indebtedness;d. To deny pre-emptive right;e. Sell, dispose, lease, encumber all or

substantially all of corporate assets;f. To invest in another corporation,

business other than the primary purpose;g. To declare stock dividendsh. To enter into management contract if (1)

a stockholder or stockholdersrepresenting the same interest of both


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the managing and the managedcorporations own or control more than1/3 of the total outstanding capital

entitled to vote of the managingcorporation; or (2) a majority of themembers of the board of directors of themanaging corporation also constitute amajority of the members of the board ofthe managed corporation;

i. To amend the articles of incorporation.2. Concurrence of majority of the outstanding

capital stocka. To enter into management contract if any

of the two instances stated above areabsent;

b. To adopt, amend or repeal the by-laws.3. Without board resolution

a. 2/3 of outstanding capital stock Delegate to the board the power toamend the by-laws;

b. Majority of outstanding capital stock Reovke the power of the board to amendthe by-laws which was previouslydelegated.

BY-LAWS

BY-LAWS Relatively permanent and continuing rulesof action adopted by the corporation for its owngovernment and that of the individuals

composing it and those having direction,management and control of its affairs, in whole orin part, in the management and control of itsaffairs and activities.

REQUISITES OF VALID BY-LAWS:1. It must be consistent with the Corporation

Code, other pertinent laws and regulations.2. It must be consistent with the Articles of

Incorporation. In case of conflict, the Articlesof Incorporation prevails.

3. It must be reasonable and not arbitrary oroppressive.

4. It must not disturb vested rights, impaircontract or property rights of stockholders ormembers or create obligations unknown tolaw.

BINDING EFFECT OF PROVISIONS OF BY-LAWS:1. As to the Corporat ion and its components

Binding not only upon the corporation butalso on its stockholder, members and thosehaving direction, management and control ofits affairs.

2. As to Third Persons Not binding unlessthere is actual knowledge. Third persons arenot even bound to investigate the content

because they are not bound to investigatethe content because they are not bound toknow the by-laws which are merelyprovisions for the government of acorporation and notice to them will not bepresumed. (China Banking Corp. v. Court of

Appeals, 270 SCRA 503 [1997])

Note: Title on Meetings shall govern unlessotherwise provided by by-laws.

STOCKS AND STOCKHOLDERS

SEC. 60. Subscription contract Any contract for theacquisition of unissued stock in an existingcorporation or a corporation still to be formed shall bedeemed a subscription within the meaning of this

Title, notwithstanding the fact that the parties refer toit as a purchase or some other contract.

KINDS OS SUBSCRIPTION CONTRACTS:1. Pre-incorporation subscription entered into

before the incorporation and irrevocable for aperiod of six (6) months from the date ofsubscription unless all other subscribersconsent or it the corporation failed tomaterialize. It cannot also be revoked afterfiling the Articles of Incorporation with theSEC.

2. Post-incorporation subscription entered intoafter incorporation.

VALID CONSIDERATIONS FOR SUBSCRIPTIONAGREEMENTS:

1. Cash;2. Property;3. Labor or services actually rendered to the

corporation;4. Prior corporate obligations;

5. Amounts transferred from unrestrictedretained earning to stated capital (in case ofdeclaration of stock dividends);

6. Outstanding shares in exchange for stocks inthe event of reclassification or conversion.

UNDERWRITING AGREEMENT An agreementbetween a corporation and a third person, termed theunderwriter, by which the latter agrees, for a certaincompensation, to take a stipulated amount of stocksor bonds, specified in the underwriting agreement, if


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such securities are not taken by those to whom theyare first offered.

SHARES OF STOCK This is the interest or rightwhich an owner has in the management of thecorporation, and its surplus profits, and, ondissolution, in all of its assets remaining after thepayment of its debt. The stockholder may ownthe share even if he is not holding a certificate ofstock.

Table 4Shares of Stock Certificate of Stock

Unit of interest in acorporation

Evidence of the holdersownership of the stockand of his right as ashareholder and up to theextend specified therein

It is an incorporeal orintangible property

It is concrete and tangible

It may be issued by thecorporation even if thesubscription is not fullypaid

May be issued only if thesubscription is fully paid

SEC. 64. Issuance of stock certificates No

certificate of stock shall be issued to a subscriberuntil the full amount of his subscription together withinterest and expense (in case of delinquent shares), ifany is due, has been paid.

Bitong v. Court of Appeals, 292 SCRA 503 (1998)The certificate of stock must be signed by thePresident or Vice-President and countersigned by theCorporate Secretary or the Assistant Secretaryotherwise it is not deemed issued.

TRANSFER OF SHARES:1. If represented by a certificate, the following

must be strictly complied with:a. Delivery of the certificate;b. Indorsement by the owner or his

agent;c. To be valid to third parties, the

transfer must be recorded in thebooks of the corporation.

2. If NOT represented by the certificate (suchas when the certificate has not yet beenissued or where for some reason is not in thepossession of the stockholder):

a. By means of deed of assignment,and

b. Such is duly recorded in the books of

the corporation.TRUST FUND DOCTRINE the subscribed capitalstock of the corporation is a trust fund for thepayment of debts of the corporation which thecreditors have the right to look up to satisfy theircredits. Corporations may not dissipate this andthe creditors may sue the stockholders directlyfor their unpaid subscriptions.

RIGHTS OF STOCKHOLDERS:1. Direct or indirect participation in

management;2. Voting rights;

3. Right to remove directors;4. Proprietary rights;a. Right to dividends;b. Appraisal right;c. Right to issuance of stock certificate

for fully paid shares;d. Proportionate participation in the

distribution of assets in liquidation;e. Right to transfer of stocks in

corporate books;f. Pre-emptive right.

5. Right to inspect books and records;6. Right to be furnished with the most recent

financial statement/financial report;7. Right to recover stocks unlawfully sold for

delinquent payment of subscription;8. Right to file individual suit, representative suit

and derivative suits.

OBLIGATIONS OF STOCKHOLDERS:1. Liability to the corporation for unpaid

subscription;2. Liability to the corporation for interest on

unpaid subscription if so required by the by-laws;

3. Liability to the creditors o the corporation forunpaid subscription;

4. Liability for watered stock;5. Liability for dividends unlawfully paid;6. Liability for failure to create corporation.

SUITS BY STOCKHOLDERS/MEMBERS:1. Derivative Suits those brought by one or

more stockholders/members in the name andon behalf of the corporation to redresswrongs committed against it, orprotect/vindicate corporate rights whenever


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the officials of the corporation refuse to sue,or the ones to be sued, or has control of thecorporation.

2. Individual Actions those brought by theshareholder in his own name against thecorporation when a wrong is directly inflictedagainst him.

3. Representative Actions those brought bythe stockholder in behalf of himself and allother stockholders similarly situated when awrong is committed against a group ofstockholders.

REQUISITES OF DERIVATIVE ACTIONS:1. The party bringing the suit should be a

shareholder as of the time of the act ortransaction complained of;

2. He has exhausted intra-corporate remedies;and

3. The cause of action actually devolved on thecorporation, the wrongdoings or harm havingbeen caused to the corporation and not tothe particular stockholder bringing the suit.

PRE-EMPTIVE RIGHT A pre-emptive right is theshareholders right to subscribe to all issues ordispositions of shares of any class in proportionto his present stockholdings, the purpose being

to enable the shareholder to retain hisproportionate control in the corporation and toretain his equity in the surplus.

INSTANCES WHEN PRE-EMPTIVE RIGHT IS NOTAVAILABLE:

1. Shares to be issued to comply with lawsrequiring stock offering or minimum stockownership by the public;

2. Shares issued in good faith in exchange forproperty needed for corporate purposes;

3. Shares issued in payment of previouslycontracted debts;

4. In case the right is denied in the Articles ofIncorporation;

5. It does not apply to shares that are beingreoffered by the corporation after they wereinitially offered together with all the shares.

VOTING TRUST One or more stockholder of astock corporation may create a voting trust for thepurpose of conferring upon a trustee or trustees theright to vote and other rights pertaining to the sharesfor a period not exceeding 5 years at any one time.

However, if the voting trust was a requirement for aloan agreement, period may exceed 5 years but shallautomatically expire upon full payment of the loan.

LIMITATIONS ON THE RIGHT TO VOTE;1. Where the Articles of Incorporation provides

for classification of shares pursuant to Sec.6, non-voting shares are not entitled to voteexcept as other provided in the said section.

2. Preferred or redeemable shares may bedeprived of the right to vote unless otherwiseprovided.

3. Fractional shares of stock cannot be votedunless they constitute at least one full share.

4. Treasury shares have no voting rights aslong as they remain in treasury.

5. Holders of stock declared delinquent by the

board for unpaid subscription.6. A transferee of stock if his stock transfer is

not registered in the stock and transfer bookof the corporation.

7. A stockholder who mortgages or pledges hisshares and gives authority for creditor tovote.

BOOKS

BOOKS REQUIRED TO BE MAINTAINED:1. Book of minutes of stockholders meetings;2. Book of minutes of board meetings;

3. Record or Book of all business transactions;4. Stock and transfer book.

STOCK AND TRANSFER BOOK Record of (1) Allstocks in the names of the stockholdersalphabetically arranged; (2) The installment paidand unpaid on all stock for which subscriptionhas been made, and the date of payment of anyinstallment; (3) A statement of every alienation,sale or transfer of stock made; and, (4) suchother entries as the by-laws may prescribe.

Gokongwei v. SEC, 278 SCRA 793 (1997)

The corporate secretary is the officer who is dulyauthorized to make entries on the stock and transferbook.

Garcia v. Jomouad, 323 SCRA 424 (2000)The Supreme Court directly resolved the

issue Whether a bona fide transferof the shares ofa corporation, not registered or noted in the books ofthe corporation, is valid as against a subsequentlawful attachment of said shares, regardless of


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whether the attaching creditor had actual notice ofsaid transfer or not. The Court quoted from Uson v.Diosomito, which held that all transfers of shares not

entered in the stock and transfer book of thecorporation are invalid as to attaching or executioncreditors of the assignors, as well as to thecorporation and to subsequent purchasers in goodfaith and to all persons interested, except the partiesto such transfers: All transfers not so entered on thebooks of the corporation are absolutely void; notbecause they are without notice or fraudulent in lawor fact, but because they are made so void bystatute. The Supreme Court held that the transfer ofthe subject certificate made by Dico to petitioner wasnot valid as to the spouses Atinon, the judgmentcreditors, as the same still stood in the name of Dico,the judgment debtor, at the time of the levy on

execution. In addition, as correctly ruled by the CA,the entry in the minutes of the meeting of the Clubsboard of directors noting the resignation of Dico asproprietary member does not constitute compliancewith Section 63 of the Corporation Code. Saidprovision of law strictly requires the recording of thetransfer in the books of the corporation, and notelsewhere, to be valid as against third parties.

Bitong v. Court of Appeals, 292 SCRA 503 (1998)The stock and transfer book is the best evidence ofthe transactions that must be entered or statedtherein. However, the entries are considered prima

facie evidence only and may be subject to proof tothe contrary.

Lanuza v. Court of Appeals, 454 SCRA 54 Thestock and transfer book of the corporation cannot beused as the sole basis for determining the quorum asit does not reflect the totality of shares which havebeen subscribed, and more so when the articles ofincorporation show a significantly larger amount ofshares issued and outstanding as compared to thatlisted in the stock and transfer book. To thus base thecomputation of quorum solely on the obviouslydeficient, if not inaccurate stock and transfer book,

and to completely disregard the issued andoutstanding shares as indicated in the articles ofincorporation would work injustice to the ownersand/or successors in interest of the said shares.

Gokongwei v. SEC, 97 SCRA 78 (1979) Grounds fornot allowing inspection by a stockholder: (1) if theperson demanding to examine the records hasimproperly used any information secured for prior

examination, (2) If he is not acting in good faith, (3) Itis not being exercised for a legitimate purpose.

DOCTRINAL RULINGS ON THE RIGHT TOINSPECT:1. The demand for inspection should cover only

reasonable hours on business days;2. The stockholder, member, director or

trustees demanding the exercise of the rightis one who has not improperly used anyinformation secured through any previousexamination of the records of the corporationor any other corporation;

3. The demand must be accompanied withstatement of the purpose of the inspection,which must show good faith or legitimatepurpose; and,

4. If the corporation or its officers contest suchpurpose or contend that there is evil motivebehind the inspection, the burden of proof iswith the corporation or such officer to showthe same.

MERGER AND CONSOLIDATION

MERGER A corporation absorbs the other andremains in existence while the others aredissolved.

CONSOLIDATION A new corporation is created, andconsolidating corporations are extinguished.

PNB v. Andrada Electric & Engr. Co., Inc., 381SCRA 244 (2002) Merger or consolidation does notbecome effective by mere agreement of theconstituent corporations. The approval of the SEC isrequired.

EFFECTS OF MERGER OR CONSOLIDATION:1. The constituent corporations shall become a

single corporation.2. The separate existence of the constituents

shall cease except that of the survivingcorporation (in merger) or the consolidatedcorporation (in consolidation).

3. The surviving or the consolidated corporationshall possess all the rights, privileges,immunities and powers and shall be subjectto all duties and liabilities of a corporation.

4. The surviving or the consolidated corporationshall possess all rights, privileges, immunitiesand franchises of each constituentcorporation and the properties shall be


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deemed transferred to the surviving or theconsolidated corporation.

5. All liabilities of the constituents shall pertain

to the surviving or the consolidatedcorporation.

PROCEDURE:1. The Board of each corporation shall draw up

a plan of merger or consolidation settingforth:a. Names of the corporation involved;b. Terms and mode of carrying it;c. Statement of changes, if any, in the

present articles of the survivingcorporation or the articles of the newcorporation to be formed in the case ofconsolidation.

2. Plan for merger or consolidation shall beapproved by majority vote of each of theboard of the concerned corporations atseparate meetings, and approved 2/3 of theoutstanding capital stock or members fornon-stock corporations.

3. Any amendment to the plan must beapproved by the majority vote of the boardmembers or trustees of the constituentcorporations and affirmative vote of 2/3 of theoutstanding capital stock or members.

4. Articles of Merger or Articles of Consolidationshall be executed by each of the constituent

corporations, signed by the President orVice-President and certified by secretary orassistant secretary setting forth:

a. Plan of merger or consolidation;b. For stock corporation, the number of

shares outstanding; for non-stock,the number of members;

c. As to each corporation, number ofshares or members voting for andagainst such plan respectively.

5. Four copies of the Articles of Merger orConsolidation shall be submitted to the SECfor approval.

APPRAISAL RIGHT

APPRAISAL RIGHT The right to withdraw from thecorporation and demand payment of the fairvalue of his shares after dissenting from certaincorporate acts involving fundamental changes incorporate structure.

INSTANCES WHEREIN APPRAISAL RIGHT MAYBE EXERCISED:

1. Extension or reduction of corporate term;2. Change in the rights of stockholders,

authorize preferences superior to those

stockholders, or restrict the right of anystockholder;3. Corporation authorized the board to invest

corporate funds in another business orpurpose;

4. Corporation decides to sell or dispose of allor substantially all assets of corporation;

5. Merger or consolidation.

EXERCISE OF APPRAISAL RIGHT:1. The stockholder must be a dissenting

stockholder;

2. The stockholder must made a writtendemand on the corporation within 30 daysafter the vote was taken;

3. The proposed action is any one of theinstances supra;

4. The price to be paid is the fair value of theshares on the date the vote was taken;

5. The fair value shall be agreed upon but incase there is no agreement within 60 daysfrom the date the vote was taken, the fairvalue shall be determined by a majority of the3 distinguished persons one of whom shallbe named by the stockholder another by the

corporation and the third by the two whowere chosen;

6. The right of appraisal is extinguished when:a. He withdraws the demand with the

corporations consent;b. The proposed action is abandoned;c. The SEC disapproves the action.

NON-STOCK CORPORATIONS

SEC. 87. Definition For the purposes of this Code,a non-stock corporation is one where no part of itsincome is distributable as dividends to its members,

trustees, or officers, subject to the provisions of thisCode on dissolution: Provided, That any profit whicha non-stock corporation may obtain as an incident toits operations shall, whenever necessary or proper,be used for the furtherance of the purpose orpurposes for which the corporation was organized,subject to the provisions of this Title.

The provisions governing stock corporation, whenpertinent, shall be applicable to non-stockcorporations, except as may be covered by specificprovisions of this Title.


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A non-stock corporation cannot be converted into astock corporation through mere amendment of its

Articles of Incorporation as this would be in violationof Section 87 which prohibits distribution of incomeas dividends to members. (SEC Opinion, 20 March1995) However, a non-stock corporation can beconverted into a stock corporation only if themembers dissolve it first and then organize a stockcorporation. The result is a new corporation. (SECOpinion, 13 May 1992)On the other hand, a stock corporation may beconverted into a non-stock corporation by mereamendment provided all the requirements arecomplied with. Its rights and liabilities will remain.

CLOSE CORPORATIONS

SEC. 96. Definition and applicability of Title. - A closecorporation, within the meaning of this Code, is onewhose articles of incorporation provide that: (1) Allthe corporation's issued stock of all classes,exclusive of treasury shares, shall be held of recordby not more than a specified number of persons, notexceeding twenty (20); (2) all the issued stock of allclasses shall be subject to one or more specifiedrestrictions on transfer permitted by this Title; and (3)

The corporation shall not list in any stock exchangeor make any public offering of any of its stock of anyclass. Notwithstanding the foregoing, a corporation

shall not be deemed a close corporation when atleast two-thirds (2/3) of its voting stock or votingrights is owned or controlled by another corporationwhich is not a close corporation within the meaning ofthis Code.Any corporation may be incorporated as a closecorporation, except mining or oil companies, stockexchanges, banks, insurance companies, publicutilities, educational institutions and corporationsdeclared to be vested with public interest inaccordance with the provisions of this Code.

The provisions of this Title shall primarily governclose corporations: Provided, That the provisions of

other Titles of this Code shall apply suppletorilyexcept insofar as this Title otherwise provides.

CHARACTERISTICS:1. The stockholders themselves can directly

manage the corporation and perform thefunctions of directors without need ofelection:a. When they manage, stockholders are

liable as directors;

b. There is no need to call a meeting toelect directors;

c. The stockholders are liable for tort.

2. Despite the presence of the requisites, thecorporation shall not be deemed a closecorporation if at least 2/3 of the voting stocksor voting rights belong to a corporation whichis not a close corporation.

REQUIREMENTS FOR CLOSE CORPORATIONS:1. The Articles of Incorporation must state that

the number of stockholders shall not exceed20;

2. The Articles of Incorporation must containrestriction on the transfer of issued stocks;

3. The stocks cannot be listed in the stockexchange nor be publicly offered.

COMPANIES THAT CANNOT BE CLOSECORPORATIONS:

1. Mining companies;2. Oil companies;3. Stock exchanges;4. Banks;5. Insurance companies;6. Public utilities;7. Educational institutions;8. Other corporations declared to be vested

with public interest.

SPECIAL CORPORATIONS

KINDS:1. Educational Corporations2. Religious Corporations

a. Corporation Soleb. Religious Societies

CORPORATION SOLE Special form of corporation,usually associated with the clergy and consists ofone person only and his successors, who areincorporated by law to give some legal capacitiesand advantages.

Roman Catholic Apostolic Church v. LandRegistration Commission, 102 Phil 596 (1957) Acorporation sole does not have any nationality but forpurposes of applying our nationalization laws,nationality is determined by the nationality of themembers.


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A registered corporation sole can acquire land if itsmembers constitute at least 60% Filipinos. (SECOpinion, 8 August 1994)

RELIGIOUS SOCIETIES Non-stock corporationformed by a religious society, group, diocese,synod or district of any religious denomination,sect or church after getting the approval 2/3 of itsmembers.

DISSOLUTION

DISSOLUTION Extinguishment of the franchise ofa corporation and the termination of its corporate

existence.

MODES OF DISSOLUTION:1. Voluntary dissolu tion where no creditors

are affecteda. A meeting must be held on the call of

directors or trustees;b. Notice of the meeting should be given to

the stockholders by personal delivery orregistered mail at least 30 days prior tothe meeting;

c. The notice of meeting should also bepublished for 3 consecutive weeks in anewspaper published in the place;

d. The resolution to dissolve must beapproved by the majority of thedirectors/trustees and approved by thestockholders representing at least 2/3 ofthe outstanding capital stock or 2/3 ofmembers;

e. A copy of the resolution shall be certifiedby the majority of the directors ortrustees and countersigned by thesecretary;

f. The signed and countersigned copy willbe filed with the SEC and the latter willissue the certificate of dissolution.

2. Voluntary dissolution where creditors areaffecteda. Approval of the stockholders

representing at least 2/3 of theoutstanding capital stock or 2/3 ofmembers in a meeting called for thatpurpose;

b. Filing a Petition with the SEC signed bymajority of directors or trustees or otherofficers having the management of itsaffairs verified by President or Secretary

or Director. Claims and demands mustbe stated in the petition;

c. If Petition is sufficient in form and

substance, the SEC shall issue an Orderfixing a hearing date for objections;d. A copy of the Order shall be published at

least once a week for 3 consecutiveweeks in a newspaper of generalcirculation or if there is no newspaper inthe municipality or city of the principaloffice, posting for 3 consecutive weeks in3 public places is sufficient;

e. Objections must be filed no less than 30days nor more than 60 days after theentry of the Order;

f. After the expiration of the time to fileobjections, a hearing shall be conducted

upon prior 5 day notice to hear theobjections;

g. J udgment shall be rendered dissolvingthe corporation and directing thedisposition of assets; the judgment mayinclude appointment of a receiver.

3. Dissolution by shortening corporate term This is done by amending the Articles ofIncorporation.

4. Involuntary dissolution By filing a verifiedcomplaint with the SEC based on any groundprovided by law or rules, including:a. Failure to organize and commence

business within 2 years fromincorporation;

b. Continuously inoperative for 5 years;c. Failure to file by-laws within 30 days from

issue of certificate of incorporation;d. Continuance of business not feasible as

found by Management Committee orRehabilitation Receiver;

e. Fraud in procuring Certificate ofRegistration;

f. Serious Misrepresentation; andg. Failure to file required reports.

EFFECTS OF DISSOLUTION:1. Transfer of Legal Title to Corporate Property2. On Continuation of Corporate Business3. Creation of a New Corporation4. Reincorporation of Dissolved Corporation5. Continuation of a Body Corporation6. Cessation of Corporate Existence for all

Purposes

LIQUIDATION Process by which all the assets ofthe corporation are converted into liquid assets in


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order to facilitate the payment of obligations tocreditors, and the remaining balance if any is to bedistributed to the stockholders.

Reburiano v. Court of Appeals, 301 SCRA 342(1999) If full liquidation can only be effected after the3-year period and there is no trustee, the directorsmay be permitted to complete the liquidation bycontinuing as trustees by legal implication

FOREIGN CORPORATION

FOREIGN CORPORATION A corporation formed,organized or existing under any law other thanthose of the Philippines, and whose laws allow

Filipino citizens and corporations to do businessin its own country or state.

DOING BUSINESS with regard to FOREIGNCORPORATIONS Continuity of commercialdealings incident to prosecution of purpose andobject of the organization. Isolated, occasional orcasual transactions do not amount to engaging inbusiness. But where the isolated act is notincidental/casual but indicates the foreigncorporations intention to do other business, saidsingle act constitutes engaging in business in thePhilippines.

DOING BUSINESS UNDER THE FOREIGNINVESTMENT ACT:

1. Doing Businessa. Soliciting orders, service contracts,

opening officesb. Appointing representatives, distributors

domiciled in the Philippines or who stayfor a period or periods totaling 180 daysor more;

c. Participating in the management,supervision or control of any domesticbusiness, firm, entity, or corporation in

the Philippines;d. Any act or acts that imply a continuity of

commercial dealings or arrangements,and contemplate to some extent theperformance of acts or works or theexercise of some functions normallyincident to and in progressiveprosecution of, the purpose and object ofits organization.

2. Not Doing Business

a. Mere investment as shareholder andexercise of rights as investor;

b. Having a nominee director or officer to

represent its interest in the corporation;c. Appointing a representative or distributorwhich transact business in its own nameand for its own account.

Lorenzo Shipping Corp. v. Chubb & Sons, Inc., etal., 431 SCRA 266 (2004) [n]o foreign corporationtransacting business in the Philippines without alicense, or its successors or assigns, shall bepermitted to maintain or intervene in any action, suitor proceeding in any court or administrative agencyof the Philippines; but such corporation may be suedor proceeded against before Philippine courts oradministrative tribunals on any valid cause of actionrecognized under Philippine laws.

INSTANCES WHEN UNLICENSED FOREIGNCORPORATIONS SUE:

1. Isolated transactions;2. Action to protect good name, goodwill, and

reputation of a foreign corporation;3. The subject contracts provide that Phil.

Courts will be venue to controversies;4. A license subsequently granted enables the

foreign corporation to sue on contractsexecuted before the grant of the license;

5. Recovery of misdelivered property;

6. Where the unlicensed foreign corporationhas a domestic corporation.

ANTI-DUMPING ACT OF 1999

ANTI-DUMPING DUTY A special duty imposed onthe importation of a product, commodity or article ofcommerce into the Philippines at less than its normal

value when destined for domestic consumption in theexporting country, which is the difference betweenthe export price and the normal value of suchproduct, commodity or article.

NORMAL VALUE refers to a comparable price at thedate of sale of the like product, commodity or articlein the ordinary course of trade when destined forconsumption in the country for export.

ateneo 2007 commercial law (corporation)

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