CORPORATION LAWCourse OutlineA. GENERAL PRINCIPLESa-1.
Definition artificial being created by operation of law, having the
right of succession and the powers, attributes and properties
expressly authorized by law or incident to its existence [Section
2]a-2. Kinds of Businesses1. As to Organization1-a. Sole
Proprietorship [Bar, 1949]1-b. Partnership [Article 1767, New Civil
Code]1-c. Corporation1-d. Joint Venture categorized as a form of
limited partnership since its period [Kohler,Dictionary for
Accountants, 1975, p. 243; seeJ.M. Tuason & Co. vs. Bolanos,
L-4935, 28 May 1954;Bar, 1987;Bar 1995]1. As to Activity2-a.
Merchandising2-b. Manufacturing2-c. Service-concerneda-3.
Attributes of a Corporation1. Artificial Being1-a. Separate entity
concept [Bar, 1996]1. Liability for Torts [PNB vs. Court of
Appeals, 83 SCRA 237]2. Liability for Damages [Bar, 1955]3.
Liability for Crimes [Sia vs. People, 121 scra 655;People vs.
Conception, 44 Phil. 126;Section 144]4. Constitutional rights -a.
Due process [Albert vs. University Publication Co., 13 SCRA 84]b.
Equal protection [Smith Bell & Co., vs. Natividad, 40 Phil.
136]c. Unreasonable search and seizures [Stonehill vs. Diokno, 20
SCRA 383]5. Theory of Concession [Tayag vs. Benguet Consolidated,
Inc., 26 SCRA 242]1-b. Piercing the Veil of Corporate Entity1.
Definition corporate fiction disregarded where the entity is formed
or used for non-legitimate purposes [Bar, 1978;Bar 1985;Bar 1991]2.
Reasons: When corporation is used toa. Defeat public convenienceb.
Justify wrongc. Protect fraudd. Defend crimee. As mere alter ego
[Umali vs. Court of Appeals, 189 SCRA 529]3. Casesa. Claparols vs.
CIR[65 SCRA 613]b. Cruz vs. Dalisay[152 SCRA 482]c. Tan Boon Bee
and Co. vs. Jarencio[163 SCRA 205]d. CIR vs. Norton & Harrison
Company[11 SCRA 714]c.Philippine Veterans Investment Development
Corporation vs. Court of Appeals[181 SCRA 669]d.Telephone
Engineering and Service Co., Inc. vs. Workmens Compensation
Commission[104 SCRA 354]4. Theory of Corporate Enterprise
[Rationale: there can be no association without
associates,Villanueva, p. 266]1. Created by Operation of Law3-a.
Creation under the Corporation Code3-b. Creation under a Special
Law1. Governed primarily by Charter creating it2. Corporation Code
applies only on a suppletory manner [Section 4]3-c. De Facto
Corporation [Section 20;Bar, 1989]1. Definition a corporation that
actually exists as a corporate body, but which, because of failure
to comply with some provisions of the law, has no legal right to
corporate existence as against the state. Certificate of
incorporation must be issued. This is distinguished with
Corporation de Jure.2. Only the state can question the personality
of the corporation. Right usurped is that of the sovereign, then it
is the sovereign alone can question it through aQuo
Warrantoproceedings represented by the Solicitor General3.
Requisites a. Law authorizing incorporationb. Bona fide attempt to
organizec. Assumption of corporate powers3-d. Corporation by
Estoppel [Section 21]1. Defined applies to persons assuming to act
as a corporation without authority to do so with respect to third
persons who were prejudiced on the basis of their
misrepresentations2. How Action Commenced Sued under the name by
which they are generally or commonly known [Section 15, Rule
3,Revised Rules of Court]3. Liability liable as general partners1.
Coveragea. Debtsa. Liabilitiesb. Damages1. Perpetual Succession3-a.
Concept not immortality, but continuity of corporate life3-b.
Corporate Term [Section 11]1. Duration not exceeding 50 years2.
Renewable for another 50 years within 5 years prior to expiration
[Alhambra Cigar vs. Securities and Exchange Com-mission, 24 SCRA
269]3-c. Extension or Shortening of Term [Section 37;Bar, 1988]3-d.
Doctrine of Relation Delay in the approval of the application for
extension of corporate term attributable to circumstances beyond
the control of corporation would make the new charter related back
to the day the corporation is entitled to have the charter issued
[Vitug, p. 379]1. Powers, Attributes and Property Rights4-a.
Express Powers 1. Section 36 of the Corporation Code and2. Purpose
of corporation as stated in the Charter4-b. Implied Powers which
are necessary in order to attain or execute the express powers4-c.
Incidental Powers which can be exercised by the mere fact of its
being a corporationa-4. Classes of Corporations [Bar, 1954]1.
Statutory1-a. Stock Corporation [Sections 3 and 63] one where the
ownership of the interest or equity is represented in the form of
shares of stock1-b. Non-Stock Corporation [Sections 87-95] one
where the interest or equity is in the form of membership1-c. Close
Corporation [Sections 76-105]1-d. Foreign Corporation [Sections
123-136]1-e. Educational Corporation [Sections 106-107]1-f.
Religious Corporation [Sections 109, 116]1. As to Number2-a.
Corporation Sole [Sections 110-115;Bar, 1954]2-b. Corporation
Aggregate1. As to Purpose3-a. Ecclesiastical3-b. Eleemosynary [Bar,
1967]3-c. Lay3-d. Public 1. Defined one formed or organized for the
government of a portion of a State for the purpose of promoting the
general good and welfare [Section 3,Act. No. 1456]2. Constitutional
Prohibition - The Congress shall not, except by general law,
provide for the formation, organization or regulation of private
corporations. Government owned or controlled corporations may be
created or established by special charters in the interest of the
common good and subject to the test of economic viability [Section
16, Article XII, 1987 Constitution]3. Corporation Code applies on a
suppletory manner [Section 4]4. Quasi-Public corporation refers to
a private corporation that is franchised or licensed by the
government to render services involving performance of public
utilities5. Public-Quasi corporation refers to a public corporation
engaged in the performance of public or governmental function but
not being the State or its political corporation1. As to
Nationality4-a. Tests of Nationality [Bar, 1957]1. Incorporation
Test2. Control Test [seeFilipinas de Seguros vs. Christern,
Huenefeld & Co., Inc. G.R. L-2294, 25 May 1951]3. Residence
Testa. Generally fixed by law creating themb. Place where legal
representation is established or where principal functions are
exercised4-b. Classes1. Domestic Corporation those organized in
accordance with B.P. 682. Foreign Corporation those organized under
a foreign law that allows Filipino citizens and corporations to do
business in their state or country [Section 123]4-c.Grandfather
Rule[SEC Opinion, 4 May 1987]1. As to Existence5-a. De Jure5-b. De
Facto [Section 20;Bar, 1955;Bar, 1959]5-c. Corporation by Estoppel
[Section 21;Bar, 1955;Bar, 1973]1. As to Membership6-a. Open
Corporation6-b. Close Corporation one whose Charter provides1. All
corporate stocks issued must be held of record by not more than 20
persons2. All corporate stocks issued are subject to certain
restrictions on transfer3. Stocks are not listed in any stock
exchange [Section 96]1. As to Relation with Other Corporations7-a.
Parent7-b. Subsidiarya-5. Four Basic Advantages of a Corporation
[Bar, 1953]1. Separate juridical personality2. Limited liability of
investors1. Free transferability of units of ownership2.
Centralized managementa-6. Components of a Corporation1.
Incorporators [Bar, 1952]1-a. Definition those stockholders or
members mentioned in the Articles of Incorporation as originally
forming the corporation [Section 5]1-b. Qualifications [Section
10]1. Majority are Philippine residents2. Natural persons3. Of
legal ages4. Not less than 5 not more than 155. Owner or subscriber
of at least 1 share of stock1. Corporators2-a. Definition those
composing the corporation, whether stock or non-stock [Section
126;Bar, 1952]2-b. Kinds 1. Stockholders corporators of stock
corpo-rations2. Members corporators of non-stock corpo-rationsa-7.
Capital Structure1. Terminologies1-a. Capital Stock amount
subscribed and paid in by the stockholders or secured to be paid in
upon which the corporation is to conduct its operations [Bar,
1957;Bar, 1964]1.b. Authorized Capital Stock total amount of the
capital stock which it can raise [Bar, 1964]1-c. Subscribed Capital
Stock amount of authorized capital which has already been
subscribed [Bar, 1964]1-d. Stated Capital1-e. Legal Capital refers
to the amount of funds received by the corporation in payment of
the shares of stocks. This shall be held in trust for the creditors
of the corporation under the Trust Fund Doctrine.1-f. Paid-up
Capital amount of subscription that has already been paid [Bar,
1964]1. Legal Requirement2-a. Pre-Incorporation [Sections 12-13]1.
25% of authorized capital stock subscribed2. 25% of subscribed
capital stock paid3. In no case less thanP5,000 [Section 13]2-b.
Post-Incorporation [Section 38]1. Applies to increases in
capitalization2. 25% of increase capital stock subscribed3. 25% of
subscribed capital stock paid4. Treasurers Affidavit1.
Classifications of Shares [Section 6]3-a. Preferred shares those
which entitles the owner certain preferences [Bar, 1949]1. As to
Dividends2. As to Liquidation3-b. Common shares those ordinary
stocks of a corporation which entitles the owner to pro rata
dividend without any priority or preference over any other
stockholders [Bar, 1949]3-c. Par Value shares those whose value is
fixed in the Articles of Incorporation [Bar, 1950]3-d. No-Par Value
shares [Bar, 1958;1970;Bar, 1984]1. Typesa. With stated valueb.
Without stated value1. Valuation of Shares of Stocks [Section 62]a.
Articles of Incorporationb. Board of directors pursuant to an
authority conferred by the Charter or by the By-Lawsa. Majority
vote of the stockholders1. Corporations Prohibited to Issue No-Par
Value Shares [Bar, 1958,Bar, 1959]a. Banksb. Insurance companiesc.
Trust companiesa. Building & trust associationsb. Public
utilities3-e. Voting shares [Bar, 1984]3-f. Non-Voting shares1.
Treasury shares [Section 9]2. Preferred shares [Section 6]3.
Redeemable shares [Ibid]3-g. Redeemable shares refer to shares that
may be purchased or taken up by the corporation upon the expiration
of a fixed period regardless of the existence of unrestricted
retained earnings [Section 8]3-h. Convertible shares those which
give the holder the option to convert the same into another class
of shares3-i. Shares in escrow shares deposited with a third person
to be delivered to the stockholder upon compliance with certain
conditions3-j. Treasury shares [Bar, 1992]1. Definition shares
issued and fully paid but subsequently reacquired by the issuing
corporation [Sections 9]2. When Necessary [Bar, 1949]a. Elimination
of fractional sharesb. Collection or compromise of unpaid
subscriptionsc. Payment to dissenting/withdrawing stockholders
[Section 41]3-k. Delinquent shares those which were declared as
such3-l. Founders shares [Section 7]1. Definition - shares of
stocks classified as such in the Articles of Incorporation given to
the founding stockholders2. They enjoy certain rights and
privileges not available to other classes of stocks3. If privilege
consists of the exclusive right to vote and be voted upon as
Director, it must be for a period not exceeding five (5) years3-m.
Outstanding shares shares fully paid and already in the hands of
the stockholders3-n. Issued shares [Section 137]3-o. Watered shares
shares issued for no or less than their par or stated value [Bar,
1993]4. Issuance of Stock Certificates [Section 64]4-a. Ways of
issuance1. Subscription refers to any contract for the acquisition
of unissued stock in an existing corporation or corporation still
to be formed [Section 60]a. Pre-Incorporation subscription of
stocks in a corporation still to be formed irrevocable for a period
of 6 months from date of subscription [Section 61;Bar, 1979]b.
Post-Incorporation subscription of stocks in a corporation after
its formation2. Exchange or other onerous transfers3. No promissory
notes, no future services1. Issued only upon full payment [Bar,
1976;Bar, 1975;Bar 1979;Bar, 1988]2. Cannot be set-off against
unpaid salary [Apodaco vs. NLRC, 172 SCRA 442;Article 102, Labor
Code of the Philippines;Bar, 1988]4-b. Consideration for Issuance
[Section 62]1. Cash2. Property, whether tangible or intangible3.
Labor performed or services actually rendered [Bar, 1952]1.
Previously incurred indebtedness2. Amounts transferred from
unrestricted retained earnings to stated capital3. Reclassification
or conversion4-c. Collecting Subscriptions1. Determination of Due
Date [Section 67]a. Subscription contractb. In the absence, at any
time from the date specified in the call by the Board of
Directors2. Effect of Non-Payment on Due Datea. Entire balance
becomes due and payableb. After the lapse of 30 days from due date,
stocks become delinquent. As such, holder lose all rights due as a
stockholder except the right to dividends [Section 71]3. Modes of
Collection [Bar, 1988]a. Judicial remedy ordinary suit for
collection of sum of money [Section 70]b. Extrajudicial remedy -
Delinquency sale [Section 68;Bar, 1969;Bar, 1997]1. Resolution2.
Notice of Delinquency Sale3. Publication4. Public Auction5. Sale to
highest bidder or treasury sharesc. Minimum Amount Due1. Balance on
subscription2. Accrued interest, if any3. Advertisement costs4.
Expenses of saled. Application of Dividends [Section 71]1.
Interests on Unpaid Subscriptions [Section 66]a. General Rule: No
interest payableb. Exception1. By-Laws provision2. At the rate
prescribed in the By-Laws3. In the absence of the rate prescribed
therein, legal rate4-d. Right of Pre-Emption [Bar, 1982;Bar,
1983;Bar 1984]1. Definition right of the stockholder to subscribe
additional shares of stocks before the same can be offered to the
public in proportion to their respective shareholdings2. When Right
Deniable [Section 39]a. Denial by the Charterb. Shares issued to
comply with legal Filipino ownership requirementsc. Shares issued
in exchange for property needed or in payment of previously
contracted indebtedness in accordance with the approval of 2/3 of
stockholders or members3. Coveragea. Only shares originally offered
for sale to the publicb. Does not include1. Shares previously
offered but not sold2. Treasury shares4-e. Issuance of New
Certificates [Section 73]1. Coveragea. Lostb. Destroyedc. Stolen1.
Procedures [Bar, 1969]a. Affidavit of loss of stockholderb.
Verification by the corporationc. Publication of Notice of Loss1.
If no bond filed by stockholder, wait until lapse of one year from
last publication2. If bond is filed by stockholder, new
certificates may be issued even prior to the one year perioda. If
Contested 1. Case is filed without, wait for final decision2. If no
case filed, file an action for Interpleader5. Transfer of Shares of
Stocks [Bar, 1981;Bar, 1994;Bar, 1995]5-a. Synopsis1. Open
corporation2. Close corporation5-b. Manner of Transfer5-c.
Assignment5-d. Pledge1. Pledgor entitled to the rights2. If
registered in corporate books without any reservation in writing,
pledgee entitled to the rights [Section 55]5-e. Mortgage1.
Mortgagor entitled to the rights2. If registered in corporate books
without any reservation in writing, mortgagor entitled to the
rights [Ibid]B. INCORPORATION AND ORGANIZATIONb-1. Definition1.
Incorporation covers all steps and processes from the time of the
application for incorporation until the issuance of the Certificate
of Incorporation2. Organization2-a. Definition refers to the acts
of starting the operations of the corporation as a going concern
and the establishment of machineries to run its operations2-b.
Steps1. Adoption of By-Lawsa. Pre-incorporationb.
Post-incorporation one month from issuance of Certificate [Section
46]2. Election of corporate Directors3. Election of corporate
Officersb-2. Terminologies1. Promotion the initial and
pre-incorporation steps until the actual formation of the
corporation [Bar, 1949]2. Primary franchise2-a. Definition - refers
to the right to exist as a corporation2-b. Characteristics1. Vested
in the individuals who compose the corporation and not in the
corporation itself2. Incapable of being transferred1. Secondary
franchise3-a. Definition - refers to the right to conduct the
business of the corporation3-b. Characteristics1. Vested in the
corporation itself2. Capable of being transferred1. Concession
theory Registration and issuance of the Certificate of
Incorporation signals the birth of the corporations personality
[Vitug, p. 391]2. Articles of Incorporation basic document for the
registration of a corporation3. Corporation By-Laws set of rules or
guidelines for the internal operation of the corporation4.
Certificate of Incorporationb-3. Steps in Incorporation1. Promotion
1-a. Definition - the conduct of a project or feasibility study
that interests prospective investors to set-up a corporation
business.1-b. Who Undertakes - This is undertaken by a person
called the promoter for a fee or consideration1-c. Effect binding
only between the promoter and the parties and prospective investors
who signed and executed the promotion contract. This is binding
only upon the corporation if, after its creation, the promotion
contract was adopted by the corporation by virtue of a Board
Resolution2. Drafting and Execution in compliance with the
compliance with the requirements [Sections 13, 14, 15, 61,
139-141]3. Issuance of Certificate of Incorporation [Section
19]b-4. Articles of Incorporation [Bar, 1990]1. Definition charter
of the corporation1. Contents [Sections 14, 15]2-a. Name of
corporation [Section 18;Republic Planters Bank vs. Court of
Appeals,216 SCRA 738;Bar, 1976]2-b. Purpose/purposes [Bar,
1976;Bar, 1977]2-c. Principal place of business2-d. Term of
existence [Section 11]2-e. Incorporators [Section 10]2-f. Number of
Directors/Trustees2-g. Acting or Temporary Directors/Trustees2-h.
Stock Corporation data [Bar, 1984]2-i. Non-stock corporation
data2-j. Other matters3. Attachments3-a. Treasurers Affidavit3-b.
Favorable recommendation of appropriate government agency3-c.
Amendments of Articles [Section 16]1. By vote2. By written assent4.
Purpose of Charter4-a. Contract between State and the
corporation4-b. Contract between the corporation and
corporators4-c. Contract between State and the corporators
[Government of the Philippine Islands vs. Manila Railroad Co., 52
Phil. 699]5. Other Documents5-a. Verification slip contains the
corporate name duly verified and certified to by the records
section of the Securities and Exchange Commission5-b.
Letter-Undertaking contains the undertaking of the corporate
secretary or treasurer of the corporation to change the corporate
name in the event that the same has already been used or
appropriated by another corporation, person or firm5-c. Bank
Certificate shows the amount of the paid-up capital in the name of
the Treasurer in trust for the corporation which is in the process
of incorporation5-d. Letter-Authority contains the express
authority given by the treasurer of the corporation in favor of the
Central Bank and/or Securities and Exchange Commission to examine
the account involving the paid-up capital5-e. Treasurers Affidavit
5-f. Statement of Assets showing the assets of the corporation in
the form of the amount of subscription, the paid-up capital and the
balance on account of the subscription5-g. Registration Sheet
contains details concerning the names of incorporators, the kind
and nature of corporation, names and addresses of directors and
officers, as well as data of stock capitalization6. Grounds for
Disapproval5-a. Non-conformity with the prescribed form5-b.
Patently illegal or immoral purpose5-c. False Treasurers
Affidavit5-d. Non-compliance with required Filipino ownership5-e.
Non-submission of required favorable recommendation of appropriate
government agencyb-5. Corporate By-Laws1. Definition set of rules
or guidelines for the internal operation of the corporation2.
Adoption of By-Laws [Section 46]2-a. When adopted1.
Pre-incorporation2. Post incorporation within 1 month from issuance
of Certificate of Incorporation2-b. How adopted affirmative vote of
majority of the corporators1. Purposes defines the3-a. Relation
between the stockholders and the corporation3-b. Relation between
the stockholders interse3-c. Relation between the Board of
Directors/Trustees and Officers and the corporation3-d. Relation
between the Board of Directors/Trustees and Officers and the
stockholders3-e. Particulars for stockholders and Board of
Directors/Trustees meetings3-f. Other internal operations of the
corporation4. Elements of Valid By-Laws4-a. Consistent with general
laws4-b. Consistent with public policy and public welfare4-c.
Reasonable4-d. Consonance with the Charter and the nature, purposes
and objects of the corporation5. Contents [Section 47]5-a. Time,
place and manner of calling and conducting regular or special
meetings of directors and trustees5-b. Time and manner of calling
and conducting regular or special meetings of stockholders or
members5-c. Required quorum in meetings of stockholders or members
and the manner of voting therein5-d. Form for proxies of
stockholders and members and the manner of voting them5-e.
Qualifications, duties and compensation of directors or trustees,
officers and employees;5-f. Time for holding annual election of
directors or trustees and the mode or manner of giving notice
thereof5-g. Manner of election or appointment and the term of
office of all officers other than directors or trustees5-h.
Penalties for violation of by-laws5-i. Manner of issuing stock
certificates5-j. Other matters necessary for the proper or
convenient transaction of corporate business and affairs6.
Amendments [Section 48]6-a. Who can exercise1. Majority of the
board of directors or trustees and majority of the corporators2.
May be delegated to the board of directors or trustees by 2/3 votes
of the corporators. Power delegated may be revoked by majority
votes of the corporators6-b. Procedures1. Attach amended By-Laws to
original and Articles of Incorporation2. Copy of amended By-Laws
certified under oath by corporate secretary and majority of board
of directors or trustees filed with the Securities and Exchange
Commissionb-6. Effects of 1. Non-Organization [Section 22]1-a.
Coverage failure to organize within two (2) years counted from the
issuance of the Certificate of Incorporation for causes within its
control1-b. Effect corporate powers ipso facto cease to exist [Bar,
1979]1. Continuous Inoperation [Section 22]2-a. Coverage continuous
inoperation for five (5) years for causes within its control2-b.
Effect ground for the suspension or revocation of its corporate
franchiseC. CORPORATE MANAGEMENTc-1. Levels of Control in Corporate
Heirarchy [Citibank NA vs. Chua, G.R. No. 102300, 17 March 1993]1.
Board of Directors/Trustees2. Corporate Officers3. Stockholdersc-2.
Board of Directors/Trustees [Section 23;Bar, 1975]1. Definition
repository of corporate powers [Ramirez vs. Orientalist Company, 38
Phil. 634;Bar, 1975]2. Number [Section 14]3. Qualifications
[Section 23;Bar, 1946;Bar, 1965]3-a. Natural persons3-b. Legal
age3-c. Not disqualified by law3-d. Owner of at least one share of
stock [Bar, 1984;Bar, 1987]3-e. Majority are residents1.
Disqualifications [Section 27]4-a. Convicted by final judgment of
an offense punishable by an imprisonment for a period exceeding six
(6) years4-b. Convicted by final judgment of an offense for
violation of the Corporation Code committed within five (5) years
prior to his election or appointment1. Elections [Section 24]5-a.
Manner1. Viva voce2. By ballot when requested by any voting
shareholder3. In person or by proxy5-b. Requirements1. Proper
notice2. Attended by majority of stockholders5-c. Voting1.
Cumulative [Bar, 1951]a. Purpose to secure representation of
minority stockholders in the Board of Directors/Trusteesb. How Made
Number of votes is to be determined by multiplying the number of
directors to be voted upon and the number of shares2. Individual1.
Removal [Section 28]6-a. Instances1. For cause2. Without cause6-b.
Requirements1. Vote of stockholders representing 2/3 of the
outstanding capital stock or 2/3 votes of the members entitled to
vote2. Removal without cause should not deprive minority
stockholders or members of the right of representation [Bar,
1983;Bar, 1991]1. Vacancies7-a. Causes1. Removal [Section 28]2.
Expiration of term3. Increase in number4. Other causes such as
death, resignation, retirement7-b. How Filled Up [Section 29]1. By
Board if still constituting quorum in vacancies resulting from
causes other than removal, expiration of term or increase in
number2. By stockholders in an election called for such purpose if
vacancy is due to:a. Removalb. Expiration of termc. Increase in
numbera. Remaining members of the Board no longer constitute
quorum1. Meetings8-a. Requisites of Valid Board Meetings1. Proper
Notice [Bar, 1990]2. Meeting of Board duly assembled3. Existence of
a quorum4. Decision of the majority of the quorum8-b. Quorum [Bar,
1970]1. By Laws provision2. Majority of the number of directors or
trustees as fixed by the Articles of Incorporation8-c. Particulars
[Section 53]1. General Rules By-Laws provision2. Regular Meetingsa.
Frequency monthlyb. Place in or outside the Philippines [Bar,
1987]c. Notice at least one day prior to the schedule3. Special
Meetingsa. Frequency as the need arisesb. Place in or outside the
Philippinesc. Notice at least one day prior to the schedule8-d.
Cases1. Calica vs. Labatique, 55 OG 6472. Ingersoll vs. Malabon
Sugar Company,53 Phil. 7451. Compensation [Section 30;Bar,
1987]9-a. General Rule : Only reasonable per diems9-b. Exception1.
By-Laws2. Vote of stockholders representing at least a majority of
the outstanding capital stock or a majority of the members9-c.
Limitation not to exceed ten percent (10%) of the net income before
income tax of the corporation during the preceding year [Bar,
1991]c-3. Corporate Officers [Bar, 1995]1. Types1-a. Statutory1.
President [Bar, 1948;Bar, 1950;Bar, 1960;Bar, 1971;Bar, 1993]a.
Must be a directorb. Not a secretary nor treasurer at the same
time2. Secretarya. Must be a citizenb. Must be a resident of the
Philippines3. Treasurer1-b. Non-Statutory1. Rule other officers may
be provided in the By-Laws2. Casesa. General Manager function is
only to supervise and conduct the ordinary business of the
corporation [seeLiboro vs. Rogers, L-11046, 30 October 1959]b.Board
of Liquidators vs. Kalaw, 20 SCRA 989]1. How Elected majority of
all the members of the Board of Directors or Trustees2.
Compensation3-a. Directors [Section 30]3-b. Officer-Directorc-4.
Executive Committee [Section 35]1. Creation by virtue of By-Laws
provision2. Composition not less than 3 members of the Board of
Directors/Trustees3. Delegable Acts all acts or matters within the
competence of the Board of Directors/Trustees except when
explicitly prohibited by the Corporation Code or the By-Laws1.
Non-delegable Acts4-a. Approval of any action requiring
stockholders approval4-b. Filling-up of vacancies in the Board of
Directors or Trustees4-c. Amendment or repeal of any resolution of
the board which by its express terms is not so amendable or
repealable4-c. Distribution of cash dividends to stockholdersc-5.
Management Contracts [Section 44]1. Creation1-a. Resolution signed
by majority of the Board1-b. Majority vote of stockholders or
members1. Requirements2-a. Votes representing 2/3 of the
outstanding capital stock or 2/3 of the members2-b. In case of1.
Interlocking stockholders owns 1/3 interest of the managing
corporation2. Interlocking directors -1. Limitationsc-6. Ultra
Vires Corporate Acts [Section 45]1. Definition2. Kinds of Ultra
Vires Acts3. Effectsc-7. Corporate ReportsD. CORPORATE POWERSd-1.
Classification1. Express -2. Implied3. Incidentald-2. Voting
Requirements1. 2/3 of Stockholders and Majority of Board of
Directors1-a. Extension or shortening of corporate term [Section
37;Bar, 1953]1-b. Increase or decrease of capital stock [Section
38;Bar, 1947;Bar, 1982;Bar, 1987]1-c. Increase, incur or create
bonded indebtedness [Section 38;Bar, 1956]1-d. Sale, barter,
exchange or other disposition of all or substantially all corporate
assets [Section 40]1-e. Investment of corporate funds to another
corporation [Section 42;Bar, 1947]1-f. Investment of corporate
funds to other ventures [Section 42;Bar, 1982;Bar, 1996]1-g.
Declaration of stock dividends [Section 43;Bar, 1982;Bar, 1990]1-h.
Enter into management contracts [Section 44;Bar, 1974]1-i.
Ratification of contracts with self-dealing directors [Section
32]1-j. Ratification of contracts with inter-locking directors
[Section 33]1-k. Merger or consolidation [Section 77]1-l. Voluntary
dissolution of corporations [Section 118]1. Majority of the
Stockholders2-a. Fixing value of no-par shares [Section 62]2-b.
Adoption, amendment and repeal of by-laws [Section 46]2-c. Fixing
compensation of the board of directors [Section 30;Bar, 1987;Bar,
1991]d-3. Instances where Non-Voting Shares can Vote1. Amendment of
Articles [Section 16]2. Adoption and amendment of By-Laws [Bar,
1981]3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all corporate assets [Section
40;Bar, 1980;Bar, 1988]4. Incurring, creating or increasing bonded
indebtedness [Section 38]5. Increase or decrease of capital stock
[Section 38]6. Merger or consolidation [Sections 76-80]7.
Investment of corporate funds [Section 42]d-4. Appraisal Right1.
Definition2. When Exercisable3. Manner of ExerciseE. CORPORATE
LIABILITYe-1. Kinds of Liability1. Corporate liability2. Officers
liability [Bar, 1989;Bar, 1995]3. Directors liabilitye-2. Corporate
Liability1. Usual and normal transactions2. Torts3. Crimese-3.
Liability of Director/Trustee1. Personal Liability [Section 21;Bar,
1996]1-a. Business opportunity theory [Section 34;Bar, 1985;Bar,
1991]1. When Applicable a director or trustee acquires for himself
a business opportunity belonging to the corporation whereby he
obtained profits to the prejudice of the corporation2. Effectsa.
Account for the profits to the corporationb. Personally bear the
losses3. Exception: Act is ratified by 2/3 of the stockholders or
members1-b. Inter-locking Directors [Section 33]1. Where applicable
contracts entered into between two corporations having the same
director/s or trustee/s2.1-c. Self-Dealing Director [Section
32;Bar, 1995]1. Coverage2. When Contract is Valida. Presence of
director or trustee not necessary to constitute quorumb. Vote of
the director or trustee not necessary to approve the contractc.
Contract is fair and reasonabled. If he is an officer at the same
time, the contract has been previously authorized by the Board of
Directors or Trustees3. Effects on Contractsa. As a rule, voidable
at the option of the corporationb. If presence of director or
trustee helped in constituting quorum or his vote helped in the
approval of the contract, the same is voidable subject to
ratification by 2/3 of stockholders or members1. Solidary
Liability2-a. Coverage [Section 31]1. Patently unlawful acts of the
corporation2. Gross negligence or bad faith in directing affairs of
the corporation [Bar, 1968]3. Acquisition of personal or pecuniary
interest in conflict with duty as director4. Watered stocks
[Section 65]2-b. To Whom Liable1. Corporation2. Stockholders or
members3. Other persons2-c. Persons Liable Directors/Trustees1. Who
willfully and knowingly voted or assented2. Who committed gross
negligence3. Who were guilty of bad faith1. Inter-locking Directors
[Section 33;Bar, 1950]3-a. Definition directors of one corporation
who are at the same time directors of another corporation3-b.
Coverage3-c. Effect on Contracts3-d. When Contract Valid [Bar,
1995]1. Corporation where Inter-locking Director has Substantial
Interesta. No fraud involvedb. Fair and reasonablec. Quorum and
required votes; otherwise there is a need for ratification2.
Corporation where Inter-locking Director has Nominal Interesta.
Presence in BOD meeting is not necessary to constitute quorumb.
Vote unnecessary for approval of the corporate actc. Fair and
reasonable1. Doctrines4-a. Doctrine of Limited Liability shields
the corporators from corporate liability beyond their agreed
contribution to the capital or shareholding4-b. Doctrine of
Immunity protects a person acting for and in behalf of the
corporation from being personally liable for his authorized acts
[Bar, 1988], This is otherwise known as the business judgment rule
[Bar, 1986].F. RIGHTS OF STOCKHOLDERSf-1. Classification of Rights
[Bar, 1995]1. Managerial rights2. Proprietary rights3. Remedial
rights4. Appraisal rightsf-2. Managerial Rights1. Definition2.
Stockholders Meeting [Section 50]2-a. Kinds of Meeting [Section
49]2-b. Time of Meeting [Section 51]2-c. Place of Meeting [Sections
51, 93]2-d. Notice of Meeting2-e. Quorum [Sections 25, 52]1. Kinds
of Voting2-a. Personal2-b. Representative or Proxy Voting [Section
58]1. Definition voting through an agent2. Revocable at will of the
grantor [seeAlejandrino vs. De Leon, L-49043, 29 December 1943]2-c.
Special Rules1. Voting Trust Agreement [Section 59;Bar, 1976;Bar,
1985;Bar, 1992]a. Definition an arrangement whereby the
stockholders transfer their shares to a trustee who acquires the
right to vote said sharesb. Limitations1. Not exceeding 5 years2.
If created by virtue of a loan agreement, not exceeding 5 years but
ipso facto terminated upon full payment of the loan3. Must be in
writing, notarized and filed with the SEC2. Joint Ownership
[Section 56]a. Co-ownershipb. Consent of all co-owners or joint
owners are necessary3. Pledgors, Mortgagors [Section 55]4.
Executors, Administrators, Receivers and other Legal
Representations [Section 55]a. If appointed by the court, they can
vote the sharesb. Without need of any written proxyf-3. Proprietary
Rights1. Definition right as owner of the corporation [Bar, 1995]2.
Coverage2-a. Right to dividend2-b. Right to liquidation2-c. Right
of pre-emption [Section 39]1. Definition preferential right to
subscribe additional shares of stocks proportionate to
stockholding2. When Denieda. To comply with Filipino ownership
requirementsb. To acquire property needed for corporate purposesc.
To pay previously contracted debt1. Dividends [Section 43;Bar,
1987]3-a. Definition distribution of the earnings of the
corporation to the stockholders3-b. Kinds1. Cash [Bar, 1987;Bar,
1989]2. Property3. Scrip4. Stock [Bar, 1991]5. Liquidating3-c.
Retention of Surplus Profits3-d. Entitlement to Dividends1. Unpaid
subscriptions [Sections 43, 72]2. Delinquent shares [Section 71]3.
Treasury shares3-e. Determination of Dividends1. Cumulative2.
Participating3. Cumulative and participating1. Liquidation5-a.
Steps1. Dissolution2. Winding-up3. Termination5-b. Liquidating
dividends5-c. Preferences of Preferred Stockholdersf-4. Remedial
Rights [Bar, 1993]1. Individual Suit suit instituted by a
stockholder for his own benefit against the corporation2.
Representative Suit suit filed by a stockholder in his behalf and
in behalf of other stockholders similarly situated with a common
cause of action against the corporation3. Derivative Suit suit
filed in behalf of the corporation by its stockholders upon a cause
of action belonging to the corporation [Bar, 1960;Bar, 1975]4.
Right to Inspection [Sections 74-75;Bar, 1976;Bar, 1988]4-a.
Coverage [Section 74]1. Records of business transactions2. Minutes
of Meetings3. Stock and Transfer book4-b. Requisites1. Exercised
during reasonable hours on business day2. Person demanding right
has not improperly used any information obtained through any
previous examination of the books and records3. Demand is made in
good faith or for a legitimate purpose [Africa vs. PCGG, 205 SCRA
39]1. Appraisal Right [Bar, 1976;Bar, 1983;Bar, 1987]5-a.
Definition5-b. Instances1. Sale, lease, exchange, mortgage, pledge
or other disposition of all or substantially all the corporate
property [Section 40]2. Incurring, creating or increasing bonded
indebtedness [Section 38]3. Increase or decrease of capital stock
[Section 81]4. Merger or consolidation5. Investment of corporate
funds in another corporation [Section 42]6. Extension or shortening
of corporate term [Section 37]5-c. Procedures [Sections 82]1.
Written demand within 30 days after dissenting vote, otherwise
waived2. If price is agreed upona. Corporation shall pay the value
of the interest after corporate action is implemented or effectedb.
Stockholder surrenders the shares3. If price cannot be agreed
upona. Within 60 days from approval of corporate action, appraisal
followsb. 3 Members of appraisal team whose findings/award are
finalc. Within 30 days after award, payment shall be made by the
corporation4. Payment shall be made only from the unrestricted
retained earnings5-d. When Ineffective [Section 84]1. Withdrawal of
demand2. Abandonment or rescission by the corporation of the
proposed corporate action3. Disapproval by SEC of proposed
corporate action4. Resolution by SEC on the non-entitlement of
appraisal rightG. DISSOLUTION AND WINDING-UPg-1. Terminologies1.
Dissolution [Bar, 1981]2. Winding up or Liquidation [Section 122]3.
Terminationg-2. Causes of Corporate Dissolution [Section 117]1.
Voluntary [Sections 118-120;Bar, 1963;Bar, 1968]1-a. Vote and
resolution of majority of Board of Directors/Trustees and 2/3 of
stockholders or members when no prejudice to creditors [Section
118]1-b. Judgment by the SEC after hearing on the Petition for
Voluntary Dissolution where creditors are affected [Section
119]1-c. Amendment of Articles of Incorporation shortening
corporate term [Section 120]1. Involuntary [Section 121]2-a.
Expiration of corporate term [Section 11]2-b. Legislative enactment
[Section 145]2-c. Failure to organize and commence business
operations within 2 years from incorporation [Section 22]2-d.
Judicial decree of Forfeiture [Sections 20, 134; Rule 66, Revised
Rules of Court]2-e. Order of SEC [Section 121]H. FOREIGN
CORPORATIONh-1. Definitions 1. Foreign corporation organized in a
foreign country, provided that said foreign country allows
Filipinos and domestic corporations to do business therein [Section
123]2. Doing business covers:2-a. Soliciting orders2-b. Service
contracts2-c. Opening offices, whether called liaison offices or
branches2-d. Appointing representatives or distributors domiciled
in the Philippines or who in any calendar year stay in the country
for a period totaling 180 days or more2-e. Participating in the
management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines2-f. Any other act or acts
that imply a continuity of commercial dealings or arrangements and
contemplate to that extent performance normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and
object of the business organization [Section 3(d), R.A. 7042,
Foreign Investment Act of 1991], PROVIDED, that the following shall
not be deemed doing business:1. Mere investment as a shareholder by
a foreign entity in domestic corporations duly registered to do
business and/or the exercise of rights as such investor;2. Having a
nominee director or officer to represent its interest in such
corporation;3. Appointing a representative or distributor domiciled
in the Philippines which transact business in its own name and for
its own accounth-2. Suability of Foreign Corporations1. Doing
Business in the Philippines1-a. With license may sue and be sued in
the Philippines1-b. Without license cannot sue but may be sued in
the Philippines [Section 133]2. Not Doing Business in the
Philippines only on isolated transactions2-a. May sue2-b. May be
sued [Facilities vs. de la Osa, 89SCRA 131]h-3. License1.
Requirements1-a. Appointment of Resident Agent, either a Filipino
or domestic corporation; and power of attorney to SEC to receive
processes1-b. Must prove that the foreign corporations country
grants reciprocal rights to Filipinos and Philippine
corporation;1-c. Establish an office in the Philippines;1-d. Bring
in its assets;2. In the event of insolvency, an undertaking the
Filipino creditors will be preferred;1. Notice of six months should
it desire to terminate operations;2. Franchise and patents must
remain in the Philippines if possible;3. Must file a bond of
P100,000.00, that within 6 months after each fiscal year, the SEC
shall require the deposit of additional securities equivalent to 2%
of the amount in excess of P5million of the gross incomeh-4.
Grounds for Revocation of License1. Failure to file annual reports
required by the Code2. Failure to appoint or maintain a resident
agent3. Failure to inform SEC of change of resident agent or the
latters change of address4. Failure to submit copy of amended
articles or by-laws or articles of merger or consolidation5.
Failure to pay taxes, impost or assessments6. Engaged in business
not authorized by SEC7. Acting as dummy of a foreign corporation
not licensed to do business in the PhilippinesI. NON-STOCK
CORPORATIONi-1. Definition one where no part of its income is
distributable as dividends to its members, trustees or officers,
subject to the provisions of the Corporation Code on
dissolution.i-2. Particularsa. Purposes a-1. Charitablea-2.
Educationala-3. Religiousa-4. Professionala-5. Culturala-6.
Recreationala-7. Fraternala-8. Literarya-9. Scientifica-10.
Sociala-11. Civic serviceb. Right to Voteb-1. Right may be limited,
broadened or denied to the extent specified in the Articles of
Incorporation or by the By-Lawsb-2. Unless otherwise specified,
each member regardless of class shall be entitled to one voteb-3.
Voting by mail or other similar means by members of non-stock
corporations may be authorized by its By-Lawsi-3.
Non-Transferability of Membershipa. Membership and all rights
arising therefrom are personal and non-transferableb. Except when
authorized by the Articles of Incorporation or by the By-Lawsi-4.
Election and Term of Trusteesa. May be more than 15 in numberb.
Classified in such manner that the term of office of 1/3 of their
number shall expire every yearc. Subsequent elections of trustees
shall be held annually and trustees so elected shall have a term of
3 yearsi-5. Place of Meetingsa. May be held in a place outside the
place where the principal place of the corporation is locateda.
Must be within the Philippines [Section 93]J. CLOSE
CORPORATIONSj-1. Definition -j-2. Particularsa. Requirements a-1.
Number of stockholders not to exceed 20a-2. Restriction:
pre-emption in favor of the stockholders or corporationa-3. Stocks
cannot be listed in the stock exchange or be publicly offeredb.
Prohibitions b-1. Mining companiesb-2. Oil companiesb-3. Stock
exchangesb-4. Banksb-5. Insurance companiesb-6. Public utilityb-7.
Educational institutionb-8. Other corporations declared to be
vested with public interestj-3. Restrictions on Transfera. Must
appeara-1. In the Articles of Incorporationa-2. In the By-Lawsa-3.
On the Stock Certificatea. Pre-emptive right extends not only to
unissued shares but also to treasury stocks [Section 102]PREPARED
BY:ATTY. HENRY C. FILOTEO, CPAProfessorCORPORATION LAWCourse
OutlineA. GENERAL PRINCIPLESa-1. Definition artificial being
created by operation of law, having the right of succession and the
powers, attributes and properties expressly authorized by law or
incident to its existence [Section 2]a-2. Kinds of Businesses1. As
to Organization1-a. Sole Proprietorship [Bar, 1949]1-b. Partnership
[Article 1767, New Civil Code]1-c. Corporation1-d. Joint Venture
categorized as a form of limited partnership since its period
[Kohler,Dictionary for Accountants, 1975, p. 243; seeJ.M. Tuason
& Co. vs. Bolanos, L-4935, 28 May 1954;Bar, 1987;Bar 1995]1. As
to Activity2-a. Merchandising2-b. Manufacturing2-c.
Service-concerneda-3. Attributes of a Corporation1. Artificial
Being1-a. Separate entity concept [Bar, 1996]1. Liability for Torts
[PNB vs. Court of Appeals, 83 SCRA 237]2. Liability for Damages
[Bar, 1955]3. Liability for Crimes [Sia vs. People, 121 scra
655;People vs. Conception, 44 Phil. 126;Section 144]4.
Constitutional rights -a. Due process [Albert vs. University
Publication Co., 13 SCRA 84]b. Equal protection [Smith Bell &
Co., vs. Natividad, 40 Phil. 136]c. Unreasonable search and
seizures [Stonehill vs. Diokno, 20 SCRA 383]5. Theory of Concession
[Tayag vs. Benguet Consolidated, Inc., 26 SCRA 242]1-b. Piercing
the Veil of Corporate Entity1. Definition corporate fiction
disregarded where the entity is formed or used for non-legitimate
purposes [Bar, 1978;Bar 1985;Bar 1991]2. Reasons: When corporation
is used toa. Defeat public convenienceb. Justify wrongc. Protect
fraudd. Defend crimee. As mere alter ego [Umali vs. Court of
Appeals, 189 SCRA 529]3. Casesa. Claparols vs. CIR[65 SCRA 613]b.
Cruz vs. Dalisay[152 SCRA 482]c. Tan Boon Bee and Co. vs.
Jarencio[163 SCRA 205]d. CIR vs. Norton & Harrison Company[11
SCRA 714]c.Philippine Veterans Investment Development Corporation
vs. Court of Appeals[181 SCRA 669]d.Telephone Engineering and
Service Co., Inc. vs. Workmens Compensation Commission[104 SCRA
354]4. Theory of Corporate Enterprise [Rationale: there can be no
association without associates,Villanueva, p. 266]1. Created by
Operation of Law3-a. Creation under the Corporation Code3-b.
Creation under a Special Law1. Governed primarily by Charter
creating it2. Corporation Code applies only on a suppletory manner
[Section 4]3-c. De Facto Corporation [Section 20;Bar, 1989]1.
Definition a corporation that actually exists as a corporate body,
but which, because of failure to comply with some provisions of the
law, has no legal right to corporate existence as against the
state. Certificate of incorporation must be issued. This is
distinguished with Corporation de Jure.2. Only the state can
question the personality of the corporation. Right usurped is that
of the sovereign, then it is the sovereign alone can question it
through aQuo Warrantoproceedings represented by the Solicitor
General3. Requisites a. Law authorizing incorporationb. Bona fide
attempt to organizec. Assumption of corporate powers3-d.
Corporation by Estoppel [Section 21]1. Defined applies to persons
assuming to act as a corporation without authority to do so with
respect to third persons who were prejudiced on the basis of their
misrepresentations2. How Action Commenced Sued under the name by
which they are generally or commonly known [Section 15, Rule
3,Revised Rules of Court]3. Liability liable as general partners1.
Coveragea. Debtsa. Liabilitiesb. Damages1. Perpetual Succession3-a.
Concept not immortality, but continuity of corporate life3-b.
Corporate Term [Section 11]1. Duration not exceeding 50 years2.
Renewable for another 50 years within 5 years prior to expiration
[Alhambra Cigar vs. Securities and Exchange Com-mission, 24 SCRA
269]3-c. Extension or Shortening of Term [Section 37;Bar, 1988]3-d.
Doctrine of Relation Delay in the approval of the application for
extension of corporate term attributable to circumstances beyond
the control of corporation would make the new charter related back
to the day the corporation is entitled to have the charter issued
[Vitug, p. 379]1. Powers, Attributes and Property Rights4-a.
Express Powers 1. Section 36 of the Corporation Code and2. Purpose
of corporation as stated in the Charter4-b. Implied Powers which
are necessary in order to attain or execute the express powers4-c.
Incidental Powers which can be exercised by the mere fact of its
being a corporationa-4. Classes of Corporations [Bar, 1954]1.
Statutory1-a. Stock Corporation [Sections 3 and 63] one where the
ownership of the interest or equity is represented in the form of
shares of stock1-b. Non-Stock Corporation [Sections 87-95] one
where the interest or equity is in the form of membership1-c. Close
Corporation [Sections 76-105]1-d. Foreign Corporation [Sections
123-136]1-e. Educational Corporation [Sections 106-107]1-f.
Religious Corporation [Sections 109, 116]1. As to Number2-a.
Corporation Sole [Sections 110-115;Bar, 1954]2-b. Corporation
Aggregate1. As to Purpose3-a. Ecclesiastical3-b. Eleemosynary [Bar,
1967]3-c. Lay3-d. Public 1. Defined one formed or organized for the
government of a portion of a State for the purpose of promoting the
general good and welfare [Section 3,Act. No. 1456]2. Constitutional
Prohibition - The Congress shall not, except by general law,
provide for the formation, organization or regulation of private
corporations. Government owned or controlled corporations may be
created or established by special charters in the interest of the
common good and subject to the test of economic viability [Section
16, Article XII, 1987 Constitution]3. Corporation Code applies on a
suppletory manner [Section 4]4. Quasi-Public corporation refers to
a private corporation that is franchised or licensed by the
government to render services involving performance of public
utilities5. Public-Quasi corporation refers to a public corporation
engaged in the performance of public or governmental function but
not being the State or its political corporation1. As to
Nationality4-a. Tests of Nationality [Bar, 1957]1. Incorporation
Test2. Control Test [seeFilipinas de Seguros vs. Christern,
Huenefeld & Co., Inc. G.R. L-2294, 25 May 1951]3. Residence
Testa. Generally fixed by law creating themb. Place where legal
representation is established or where principal functions are
exercised4-b. Classes1. Domestic Corporation those organized in
accordance with B.P. 682. Foreign Corporation those organized under
a foreign law that allows Filipino citizens and corporations to do
business in their state or country [Section 123]4-c.Grandfather
Rule[SEC Opinion, 4 May 1987]1. As to Existence5-a. De Jure5-b. De
Facto [Section 20;Bar, 1955;Bar, 1959]5-c. Corporation by Estoppel
[Section 21;Bar, 1955;Bar, 1973]1. As to Membership6-a. Open
Corporation6-b. Close Corporation one whose Charter provides1. All
corporate stocks issued must be held of record by not more than 20
persons2. All corporate stocks issued are subject to certain
restrictions on transfer3. Stocks are not listed in any stock
exchange [Section 96]1. As to Relation with Other Corporations7-a.
Parent7-b. Subsidiarya-5. Four Basic Advantages of a Corporation
[Bar, 1953]1. Separate juridical personality2. Limited liability of
investors1. Free transferability of units of ownership2.
Centralized managementa-6. Components of a Corporation1.
Incorporators [Bar, 1952]1-a. Definition those stockholders or
members mentioned in the Articles of Incorporation as originally
forming the corporation [Section 5]1-b. Qualifications [Section
10]1. Majority are Philippine residents2. Natural persons3. Of
legal ages4. Not less than 5 not more than 155. Owner or subscriber
of at least 1 share of stock1. Corporators2-a. Definition those
composing the corporation, whether stock or non-stock [Section
126;Bar, 1952]2-b. Kinds 1. Stockholders corporators of stock
corpo-rations2. Members corporators of non-stock corpo-rationsa-7.
Capital Structure1. Terminologies1-a. Capital Stock amount
subscribed and paid in by the stockholders or secured to be paid in
upon which the corporation is to conduct its operations [Bar,
1957;Bar, 1964]1.b. Authorized Capital Stock total amount of the
capital stock which it can raise [Bar, 1964]1-c. Subscribed Capital
Stock amount of authorized capital which has already been
subscribed [Bar, 1964]1-d. Stated Capital1-e. Legal Capital refers
to the amount of funds received by the corporation in payment of
the shares of stocks. This shall be held in trust for the creditors
of the corporation under the Trust Fund Doctrine.1-f. Paid-up
Capital amount of subscription that has already been paid [Bar,
1964]1. Legal Requirement2-a. Pre-Incorporation [Sections 12-13]1.
25% of authorized capital stock subscribed2. 25% of subscribed
capital stock paid3. In no case less thanP5,000 [Section 13]2-b.
Post-Incorporation [Section 38]1. Applies to increases in
capitalization2. 25% of increase capital stock subscribed3. 25% of
subscribed capital stock paid4. Treasurers Affidavit1.
Classifications of Shares [Section 6]3-a. Preferred shares those
which entitles the owner certain preferences [Bar, 1949]1. As to
Dividends2. As to Liquidation3-b. Common shares those ordinary
stocks of a corporation which entitles the owner to pro rata
dividend without any priority or preference over any other
stockholders [Bar, 1949]3-c. Par Value shares those whose value is
fixed in the Articles of Incorporation [Bar, 1950]3-d. No-Par Value
shares [Bar, 1958;1970;Bar, 1984]1. Typesa. With stated valueb.
Without stated value1. Valuation of Shares of Stocks [Section 62]a.
Articles of Incorporationb. Board of directors pursuant to an
authority conferred by the Charter or by the By-Lawsa. Majority
vote of the stockholders1. Corporations Prohibited to Issue No-Par
Value Shares [Bar, 1958,Bar, 1959]a. Banksb. Insurance companiesc.
Trust companiesa. Building & trust associationsb. Public
utilities3-e. Voting shares [Bar, 1984]3-f. Non-Voting shares1.
Treasury shares [Section 9]2. Preferred shares [Section 6]3.
Redeemable shares [Ibid]3-g. Redeemable shares refer to shares that
may be purchased or taken up by the corporation upon the expiration
of a fixed period regardless of the existence of unrestricted
retained earnings [Section 8]3-h. Convertible shares those which
give the holder the option to convert the same into another class
of shares3-i. Shares in escrow shares deposited with a third person
to be delivered to the stockholder upon compliance with certain
conditions3-j. Treasury shares [Bar, 1992]1. Definition shares
issued and fully paid but subsequently reacquired by the issuing
corporation [Sections 9]2. When Necessary [Bar, 1949]a. Elimination
of fractional sharesb. Collection or compromise of unpaid
subscriptionsc. Payment to dissenting/withdrawing stockholders
[Section 41]3-k. Delinquent shares those which were declared as
such3-l. Founders shares [Section 7]1. Definition - shares of
stocks classified as such in the Articles of Incorporation given to
the founding stockholders2. They enjoy certain rights and
privileges not available to other classes of stocks3. If privilege
consists of the exclusive right to vote and be voted upon as
Director, it must be for a period not exceeding five (5) years3-m.
Outstanding shares shares fully paid and already in the hands of
the stockholders3-n. Issued shares [Section 137]3-o. Watered shares
shares issued for no or less than their par or stated value [Bar,
1993]4. Issuance of Stock Certificates [Section 64]4-a. Ways of
issuance1. Subscription refers to any contract for the acquisition
of unissued stock in an existing corporation or corporation still
to be formed [Section 60]a. Pre-Incorporation subscription of
stocks in a corporation still to be formed irrevocable for a period
of 6 months from date of subscription [Section 61;Bar, 1979]b.
Post-Incorporation subscription of stocks in a corporation after
its formation2. Exchange or other onerous transfers3. No promissory
notes, no future services1. Issued only upon full payment [Bar,
1976;Bar, 1975;Bar 1979;Bar, 1988]2. Cannot be set-off against
unpaid salary [Apodaco vs. NLRC, 172 SCRA 442;Article 102, Labor
Code of the Philippines;Bar, 1988]4-b. Consideration for Issuance
[Section 62]1. Cash2. Property, whether tangible or intangible3.
Labor performed or services actually rendered [Bar, 1952]1.
Previously incurred indebtedness2. Amounts transferred from
unrestricted retained earnings to stated capital3. Reclassification
or conversion4-c. Collecting Subscriptions1. Determination of Due
Date [Section 67]a. Subscription contractb. In the absence, at any
time from the date specified in the call by the Board of
Directors2. Effect of Non-Payment on Due Datea. Entire balance
becomes due and payableb. After the lapse of 30 days from due date,
stocks become delinquent. As such, holder lose all rights due as a
stockholder except the right to dividends [Section 71]3. Modes of
Collection [Bar, 1988]a. Judicial remedy ordinary suit for
collection of sum of money [Section 70]b. Extrajudicial remedy -
Delinquency sale [Section 68;Bar, 1969;Bar, 1997]1. Resolution2.
Notice of Delinquency Sale3. Publication4. Public Auction5. Sale to
highest bidder or treasury sharesc. Minimum Amount Due1. Balance on
subscription2. Accrued interest, if any3. Advertisement costs4.
Expenses of saled. Application of Dividends [Section 71]1.
Interests on Unpaid Subscriptions [Section 66]a. General Rule: No
interest payableb. Exception1. By-Laws provision2. At the rate
prescribed in the By-Laws3. In the absence of the rate prescribed
therein, legal rate4-d. Right of Pre-Emption [Bar, 1982;Bar,
1983;Bar 1984]1. Definition right of the stockholder to subscribe
additional shares of stocks before the same can be offered to the
public in proportion to their respective shareholdings2. When Right
Deniable [Section 39]a. Denial by the Charterb. Shares issued to
comply with legal Filipino ownership requirementsc. Shares issued
in exchange for property needed or in payment of previously
contracted indebtedness in accordance with the approval of 2/3 of
stockholders or members3. Coveragea. Only shares originally offered
for sale to the publicb. Does not include1. Shares previously
offered but not sold2. Treasury shares4-e. Issuance of New
Certificates [Section 73]1. Coveragea. Lostb. Destroyedc. Stolen1.
Procedures [Bar, 1969]a. Affidavit of loss of stockholderb.
Verification by the corporationc. Publication of Notice of Loss1.
If no bond filed by stockholder, wait until lapse of one year from
last publication2. If bond is filed by stockholder, new
certificates may be issued even prior to the one year perioda. If
Contested 1. Case is filed without, wait for final decision2. If no
case filed, file an action for Interpleader5. Transfer of Shares of
Stocks [Bar, 1981;Bar, 1994;Bar, 1995]5-a. Synopsis1. Open
corporation2. Close corporation5-b. Manner of Transfer5-c.
Assignment5-d. Pledge1. Pledgor entitled to the rights2. If
registered in corporate books without any reservation in writing,
pledgee entitled to the rights [Section 55]5-e. Mortgage1.
Mortgagor entitled to the rights2. If registered in corporate books
without any reservation in writing, mortgagor entitled to the
rights [Ibid]B. INCORPORATION AND ORGANIZATIONb-1. Definition1.
Incorporation covers all steps and processes from the time of the
application for incorporation until the issuance of the Certificate
of Incorporation2. Organization2-a. Definition refers to the acts
of starting the operations of the corporation as a going concern
and the establishment of machineries to run its operations2-b.
Steps1. Adoption of By-Lawsa. Pre-incorporationb.
Post-incorporation one month from issuance of Certificate [Section
46]2. Election of corporate Directors3. Election of corporate
Officersb-2. Terminologies1. Promotion the initial and
pre-incorporation steps until the actual formation of the
corporation [Bar, 1949]2. Primary franchise2-a. Definition - refers
to the right to exist as a corporation2-b. Characteristics1. Vested
in the individuals who compose the corporation and not in the
corporation itself2. Incapable of being transferred1. Secondary
franchise3-a. Definition - refers to the right to conduct the
business of the corporation3-b. Characteristics1. Vested in the
corporation itself2. Capable of being transferred1. Concession
theory Registration and issuance of the Certificate of
Incorporation signals the birth of the corporations personality
[Vitug, p. 391]2. Articles of Incorporation basic document for the
registration of a corporation3. Corporation By-Laws set of rules or
guidelines for the internal operation of the corporation4.
Certificate of Incorporationb-3. Steps in Incorporation1. Promotion
1-a. Definition - the conduct of a project or feasibility study
that interests prospective investors to set-up a corporation
business.1-b. Who Undertakes - This is undertaken by a person
called the promoter for a fee or consideration1-c. Effect binding
only between the promoter and the parties and prospective investors
who signed and executed the promotion contract. This is binding
only upon the corporation if, after its creation, the promotion
contract was adopted by the corporation by virtue of a Board
Resolution2. Drafting and Execution in compliance with the
compliance with the requirements [Sections 13, 14, 15, 61,
139-141]3. Issuance of Certificate of Incorporation [Section
19]b-4. Articles of Incorporation [Bar, 1990]1. Definition charter
of the corporation1. Contents [Sections 14, 15]2-a. Name of
corporation [Section 18;Republic Planters Bank vs. Court of
Appeals,216 SCRA 738;Bar, 1976]2-b. Purpose/purposes [Bar,
1976;Bar, 1977]2-c. Principal place of business2-d. Term of
existence [Section 11]2-e. Incorporators [Section 10]2-f. Number of
Directors/Trustees2-g. Acting or Temporary Directors/Trustees2-h.
Stock Corporation data [Bar, 1984]2-i. Non-stock corporation
data2-j. Other matters3. Attachments3-a. Treasurers Affidavit3-b.
Favorable recommendation of appropriate government agency3-c.
Amendments of Articles [Section 16]1. By vote2. By written assent4.
Purpose of Charter4-a. Contract between State and the
corporation4-b. Contract between the corporation and
corporators4-c. Contract between State and the corporators
[Government of the Philippine Islands vs. Manila Railroad Co., 52
Phil. 699]5. Other Documents5-a. Verification slip contains the
corporate name duly verified and certified to by the records
section of the Securities and Exchange Commission5-b.
Letter-Undertaking contains the undertaking of the corporate
secretary or treasurer of the corporation to change the corporate
name in the event that the same has already been used or
appropriated by another corporation, person or firm5-c. Bank
Certificate shows the amount of the paid-up capital in the name of
the Treasurer in trust for the corporation which is in the process
of incorporation5-d. Letter-Authority contains the express
authority given by the treasurer of the corporation in favor of the
Central Bank and/or Securities and Exchange Commission to examine
the account involving the paid-up capital5-e. Treasurers Affidavit
5-f. Statement of Assets showing the assets of the corporation in
the form of the amount of subscription, the paid-up capital and the
balance on account of the subscription5-g. Registration Sheet
contains details concerning the names of incorporators, the kind
and nature of corporation, names and addresses of directors and
officers, as well as data of stock capitalization6. Grounds for
Disapproval5-a. Non-conformity with the prescribed form5-b.
Patently illegal or immoral purpose5-c. False Treasurers
Affidavit5-d. Non-compliance with required Filipino ownership5-e.
Non-submission of required favorable recommendation of appropriate
government agencyb-5. Corporate By-Laws1. Definition set of rules
or guidelines for the internal operation of the corporation2.
Adoption of By-Laws [Section 46]2-a. When adopted1.
Pre-incorporation2. Post incorporation within 1 month from issuance
of Certificate of Incorporation2-b. How adopted affirmative vote of
majority of the corporators1. Purposes defines the3-a. Relation
between the stockholders and the corporation3-b. Relation between
the stockholders interse3-c. Relation between the Board of
Directors/Trustees and Officers and the corporation3-d. Relation
between the Board of Directors/Trustees and Officers and the
stockholders3-e. Particulars for stockholders and Board of
Directors/Trustees meetings3-f. Other internal operations of the
corporation4. Elements of Valid By-Laws4-a. Consistent with general
laws4-b. Consistent with public policy and public welfare4-c.
Reasonable4-d. Consonance with the Charter and the nature, purposes
and objects of the corporation5. Contents [Section 47]5-a. Time,
place and manner of calling and conducting regular or special
meetings of directors and trustees5-b. Time and manner of calling
and conducting regular or special meetings of stockholders or
members5-c. Required quorum in meetings of stockholders or members
and the manner of voting therein5-d. Form for proxies of
stockholders and members and the manner of voting them5-e.
Qualifications, duties and compensation of directors or trustees,
officers and employees;5-f. Time for holding annual election of
directors or trustees and the mode or manner of giving notice
thereof5-g. Manner of election or appointment and the term of
office of all officers other than directors or trustees5-h.
Penalties for violation of by-laws5-i. Manner of issuing stock
certificates5-j. Other matters necessary for the proper or
convenient transaction of corporate business and affairs6.
Amendments [Section 48]6-a. Who can exercise1. Majority of the
board of directors or trustees and majority of the corporators2.
May be delegated to the board of directors or trustees by 2/3 votes
of the corporators. Power delegated may be revoked by majority
votes of the corporators6-b. Procedures1. Attach amended By-Laws to
original and Articles of Incorporation2. Copy of amended By-Laws
certified under oath by corporate secretary and majority of board
of directors or trustees filed with the Securities and Exchange
Commissionb-6. Effects of 1. Non-Organization [Section 22]1-a.
Coverage failure to organize within two (2) years counted from the
issuance of the Certificate of Incorporation for causes within its
control1-b. Effect corporate powers ipso facto cease to exist [Bar,
1979]1. Continuous Inoperation [Section 22]2-a. Coverage continuous
inoperation for five (5) years for causes within its control2-b.
Effect ground for the suspension or revocation of its corporate
franchiseC. CORPORATE MANAGEMENTc-1. Levels of Control in Corporate
Heirarchy [Citibank NA vs. Chua, G.R. No. 102300, 17 March 1993]1.
Board of Directors/Trustees2. Corporate Officers3. Stockholdersc-2.
Board of Directors/Trustees [Section 23;Bar, 1975]1. Definition
repository of corporate powers [Ramirez vs. Orientalist Company, 38
Phil. 634;Bar, 1975]2. Number [Section 14]3. Qualifications
[Section 23;Bar, 1946;Bar, 1965]3-a. Natural persons3-b. Legal
age3-c. Not disqualified by law3-d. Owner of at least one share of
stock [Bar, 1984;Bar, 1987]3-e. Majority are residents1.
Disqualifications [Section 27]4-a. Convicted by final judgment of
an offense punishable by an imprisonment for a period exceeding six
(6) years4-b. Convicted by final judgment of an offense for
violation of the Corporation Code committed within five (5) years
prior to his election or appointment1. Elections [Section 24]5-a.
Manner1. Viva voce2. By ballot when requested by any voting
shareholder3. In person or by proxy5-b. Requirements1. Proper
notice2. Attended by majority of stockholders5-c. Voting1.
Cumulative [Bar, 1951]a. Purpose to secure representation of
minority stockholders in the Board of Directors/Trusteesb. How Made
Number of votes is to be determined by multiplying the number of
directors to be voted upon and the number of shares2. Individual1.
Removal [Section 28]6-a. Instances1. For cause2. Without cause6-b.
Requirements1. Vote of stockholders representing 2/3 of the
outstanding capital stock or 2/3 votes of the members entitled to
vote2. Removal without cause should not deprive minority
stockholders or members of the right of representation [Bar,
1983;Bar, 1991]1. Vacancies7-a. Causes1. Removal [Section 28]2.
Expiration of term3. Increase in number4. Other causes such as
death, resignation, retirement7-b. How Filled Up [Section 29]1. By
Board if still constituting quorum in vacancies resulting from
causes other than removal, expiration of term or increase in
number2. By stockholders in an election called for such purpose if
vacancy is due to:a. Removalb. Expiration of termc. Increase in
numbera. Remaining members of the Board no longer constitute
quorum1. Meetings8-a. Requisites of Valid Board Meetings1. Proper
Notice [Bar, 1990]2. Meeting of Board duly assembled3. Existence of
a quorum4. Decision of the majority of the quorum8-b. Quorum [Bar,
1970]1. By Laws provision2. Majority of the number of directors or
trustees as fixed by the Articles of Incorporation8-c. Particulars
[Section 53]1. General Rules By-Laws provision2. Regular Meetingsa.
Frequency monthlyb. Place in or outside the Philippines [Bar,
1987]c. Notice at least one day prior to the schedule3. Special
Meetingsa. Frequency as the need arisesb. Place in or outside the
Philippinesc. Notice at least one day prior to the schedule8-d.
Cases1. Calica vs. Labatique, 55 OG 6472. Ingersoll vs. Malabon
Sugar Company,53 Phil. 7451. Compensation [Section 30;Bar,
1987]9-a. General Rule : Only reasonable per diems9-b. Exception1.
By-Laws2. Vote of stockholders representing at least a majority of
the outstanding capital stock or a majority of the members9-c.
Limitation not to exceed ten percent (10%) of the net income before
income tax of the corporation during the preceding year [Bar,
1991]c-3. Corporate Officers [Bar, 1995]1. Types1-a. Statutory1.
President [Bar, 1948;Bar, 1950;Bar, 1960;Bar, 1971;Bar, 1993]a.
Must be a directorb. Not a secretary nor treasurer at the same
time2. Secretarya. Must be a citizenb. Must be a resident of the
Philippines3. Treasurer1-b. Non-Statutory1. Rule other officers may
be provided in the By-Laws2. Casesa. General Manager function is
only to supervise and conduct the ordinary business of the
corporation [seeLiboro vs. Rogers, L-11046, 30 October 1959]b.Board
of Liquidators vs. Kalaw, 20 SCRA 989]1. How Elected majority of
all the members of the Board of Directors or Trustees2.
Compensation3-a. Directors [Section 30]3-b. Officer-Directorc-4.
Executive Committee [Section 35]1. Creation by virtue of By-Laws
provision2. Composition not less than 3 members of the Board of
Directors/Trustees3. Delegable Acts all acts or matters within the
competence of the Board of Directors/Trustees except when
explicitly prohibited by the Corporation Code or the By-Laws1.
Non-delegable Acts4-a. Approval of any action requiring
stockholders approval4-b. Filling-up of vacancies in the Board of
Directors or Trustees4-c. Amendment or repeal of any resolution of
the board which by its express terms is not so amendable or
repealable4-c. Distribution of cash dividends to stockholdersc-5.
Management Contracts [Section 44]1. Creation1-a. Resolution signed
by majority of the Board1-b. Majority vote of stockholders or
members1. Requirements2-a. Votes representing 2/3 of the
outstanding capital stock or 2/3 of the members2-b. In case of1.
Interlocking stockholders owns 1/3 interest of the managing
corporation2. Interlocking directors -1. Limitationsc-6. Ultra
Vires Corporate Acts [Section 45]1. Definition2. Kinds of Ultra
Vires Acts3. Effectsc-7. Corporate ReportsD. CORPORATE POWERSd-1.
Classification1. Express -2. Implied3. Incidentald-2. Voting
Requirements1. 2/3 of Stockholders and Majority of Board of
Directors1-a. Extension or shortening of corporate term [Section
37;Bar, 1953]1-b. Increase or decrease of capital stock [Section
38;Bar, 1947;Bar, 1982;Bar, 1987]1-c. Increase, incur or create
bonded indebtedness [Section 38;Bar, 1956]1-d. Sale, barter,
exchange or other disposition of all or substantially all corporate
assets [Section 40]1-e. Investment of corporate funds to another
corporation [Section 42;Bar, 1947]1-f. Investment of corporate
funds to other ventures [Section 42;Bar, 1982;Bar, 1996]1-g.
Declaration of stock dividends [Section 43;Bar, 1982;Bar, 1990]1-h.
Enter into management contracts [Section 44;Bar, 1974]1-i.
Ratification of contracts with self-dealing directors [Section
32]1-j. Ratification of contracts with inter-locking directors
[Section 33]1-k. Merger or consolidation [Section 77]1-l. Voluntary
dissolution of corporations [Section 118]1. Majority of the
Stockholders2-a. Fixing value of no-par shares [Section 62]2-b.
Adoption, amendment and repeal of by-laws [Section 46]2-c. Fixing
compensation of the board of directors [Section 30;Bar, 1987;Bar,
1991]d-3. Instances where Non-Voting Shares can Vote1. Amendment of
Articles [Section 16]2. Adoption and amendment of By-Laws [Bar,
1981]3. Sale, lease, exchange, mortgage, pledge or other
disposition of all or substantially all corporate assets [Section
40;Bar, 1980;Bar, 1988]4. Incurring, creating or increasing bonded
indebtedness [Section 38]5. Increase or decrease of capital stock
[Section 38]6. Merger or consolidation [Sections 76-80]7.
Investment of corporate funds [Section 42]d-4. Appraisal Right1.
Definition2. When Exercisable3. Manner of ExerciseE. CORPORATE
LIABILITYe-1. Kinds of Liability1. Corporate liability2. Officers
liability [Bar, 1989;Bar, 1995]3. Directors liabilitye-2. Corporate
Liability1. Usual and normal transactions2. Torts3. Crimese-3.
Liability of Director/Trustee1. Personal Liability [Section 21;Bar,
1996]1-a. Business opportunity theory [Section 34;Bar, 1985;Bar,
1991]1. When Applicable a director or trustee acquires for himself
a business opportunity belonging to the corporation whereby he
obtained profits to the prejudice of the corporation2. Effectsa.
Account for the profits to the corporationb. Personally bear the
losses3. Exception: Act is ratified by 2/3 of the stockholders or
members1-b. Inter-locking Directors [Section 33]1. Where applicable
contracts entered into between two corporations having the same
director/s or trustee/s2.1-c. Self-Dealing Director [Section
32;Bar, 1995]1. Coverage2. When Contract is Valida. Presence of
director or trustee not necessary to constitute quorumb. Vote of
the director or trustee not necessary to approve the contractc.
Contract is fair and reasonabled. If he is an officer at the same
time, the contract has been previously authorized by the Board of
Directors or Trustees3. Effects on Contractsa. As a rule, voidable
at the option of the corporationb. If presence of director or
trustee helped in constituting quorum or his vote helped in the
approval of the contract, the same is voidable subject to
ratification by 2/3 of stockholders or members1. Solidary
Liability2-a. Coverage [Section 31]1. Patently unlawful acts of the
corporation2. Gross negligence or bad faith in directing affairs of
the corporation [Bar, 1968]3. Acquisition of personal or pecuniary
interest in conflict with duty as director4. Watered stocks
[Section 65]2-b. To Whom Liable1. Corporation2. Stockholders or
members3. Other persons2-c. Persons Liable Directors/Trustees1. Who
willfully and knowingly voted or assented2. Who committed gross
negligence3. Who were guilty of bad faith1. Inter-locking Directors
[Section 33;Bar, 1950]3-a. Definition directors of one corporation
who are at the same time directors of another corporation3-b.
Coverage3-c. Effect on Contracts3-d. When Contract Valid [Bar,
1995]1. Corporation where Inter-locking Director has Substantial
Interesta. No fraud involvedb. Fair and reasonablec. Quorum and
required votes; otherwise there is a need for ratification2.
Corporation where Inter-locking Director has Nominal Interesta.
Presence in BOD meeting is not necessary to constitute quorumb.
Vote unnecessary for approval of the corporate actc. Fair and
reasonable1. Doctrines4-a. Doctrine of Limited Liability shields
the corporators from corporate liability beyond their agreed
contribution to the capital or shareholding4-b. Doctrine of
Immunity protects a person acting for and in behalf of the
corporation from being personally liable for his authorized acts
[Bar, 1988], This is otherwise known as the business judgment rule
[Bar, 1986].F. RIGHTS OF STOCKHOLDERSf-1. Classification of Rights
[Bar, 1995]1. Managerial rights2. Proprietary rights3. Remedial
rights4. Appraisal rightsf-2. Managerial Rights1. Definition2.
Stockholders Meeting [Section 50]2-a. Kinds of Meeting [Section
49]2-b. Time of Meeting [Section 51]2-c. Place of Meeting [Sections
51, 93]2-d. Notice of Meeting2-e. Quorum [Sections 25, 52]1. Kinds
of Voting2-a. Personal2-b. Representative or Proxy Voting [Section
58]1. Definition voting through an agent2. Revocable at will of the
grantor [seeAlejandrino vs. De Leon, L-49043, 29 December 1943]2-c.
Special Rules1. Voting Trust Agreement [Section 59;Bar, 1976;Bar,
1985;Bar, 1992]a. Definition an arrangement whereby the
stockholders transfer their shares to a trustee who acquires the
right to vote said sharesb. Limitations1. Not exceeding 5 years2.
If created by virtue of a loan agreement, not exceeding 5 years but
ipso facto terminated upon full payment of the loan3. Must be in
writing, notarized and filed with the SEC2. Joint Ownership
[Section 56]a. Co-ownershipb. Consent of all co-owners or joint
owners are necessary3. Pledgors, Mortgagors [Section 55]4.
Executors, Administrators, Receivers and other Legal
Representations [Section 55]a. If appointed by the court, they can
vote the sharesb. Without need of any written proxyf-3. Proprietary
Rights1. Definition right as owner of the corporation [Bar, 1995]2.
Coverage2-a. Right to dividend2-b. Right to liquidation2-c. Right
of pre-emption [Section 39]1. Definition preferential right to
subscribe additional shares of stocks proportionate to
stockholding2. When Denieda. To comply with Filipino ownership
requirementsb. To acquire property needed for corporate purposesc.
To pay previously contracted debt1. Dividends [Section 43;Bar,
1987]3-a. Definition distribution of the earnings of the
corporation to the stockholders3-b. Kinds1. Cash [Bar, 1987;Bar,
1989]2. Property3. Scrip4. Stock [Bar, 1991]5. Liquidating3-c.
Retention of Surplus Profits3-d. Entitlement to Dividends1. Unpaid
subscriptions [Sections 43, 72]2. Delinquent shares [Section 71]3.
Treasury shares3-e. Determination of Dividends1. Cumulative2.
Participating3. Cumulative and participating1. Liquidation5-a.
Steps1. Dissolution2. Winding-up3. Termination5-b. Liquidating
dividends5-c. Preferences of Preferred Stockholdersf-4. Remedial
Rights [Bar, 1993]1. Individual Suit suit instituted by a
stockholder for his own benefit against the corporation2.
Representative Suit suit filed by a stockholder in his behalf and
in behalf of other stockholders similarly situated with a common
cause of action against the corporation3. Derivative Suit suit
filed in behalf of the corporation by its stockholders upon a cause
of action belonging to the corporation [Bar, 1960;Bar, 1975]4.
Right to Inspection [Sections 74-75;Bar, 1976;Bar, 1988]4-a.
Coverage [Section 74]1. Records of business transactions2. Minutes
of Meetings3. Stock and Transfer book4-b. Requisites1. Exercised
during reasonable hours on business day2. Person demanding right
has not improperly used any information obtained through any
previous examination of the books and records3. Demand is made in
good faith or for a legitimate purpose [Africa vs. PCGG, 205 SCRA
39]1. Appraisal Right [Bar, 1976;Bar, 1983;Bar, 1987]5-a.
Definition5-b. Instances1. Sale, lease, exchange, mortgage, pledge
or other disposition of all or substantially all the corporate
property [Section 40]2. Incurring, creating or increasing bonded
indebtedness [Section 38]3. Increase or decrease of capital stock
[Section 81]4. Merger or consolidation5. Investment of corporate
funds in another corporation [Section 42]6. Extension or shortening
of corporate term [Section 37]5-c. Procedures [Sections 82]1.
Written demand within 30 days after dissenting vote, otherwise
waived2. If price is agreed upona. Corporation shall pay the value
of the interest after corporate action is implemented or effectedb.
Stockholder surrenders the shares3. If price cannot be agreed
upona. Within 60 days from approval of corporate action, appraisal
followsb. 3 Members of appraisal team whose findings/award are
finalc. Within 30 days after award, payment shall be made by the
corporation4. Payment shall be made only from the unrestricted
retained earnings5-d. When Ineffective [Section 84]1. Withdrawal of
demand2. Abandonment or rescission by the corporation of the
proposed corporate action3. Disapproval by SEC of proposed
corporate action4. Resolution by SEC on the non-entitlement of
appraisal rightG. DISSOLUTION AND WINDING-UPg-1. Terminologies1.
Dissolution [Bar, 1981]2. Winding up or Liquidation [Section 122]3.
Terminationg-2. Causes of Corporate Dissolution [Section 117]1.
Voluntary [Sections 118-120;Bar, 1963;Bar, 1968]1-a. Vote and
resolution of majority of Board of Directors/Trustees and 2/3 of
stockholders or members when no prejudice to creditors [Section
118]1-b. Judgment by the SEC after hearing on the Petition for
Voluntary Dissolution where creditors are affected [Section
119]1-c. Amendment of Articles of Incorporation shortening
corporate term [Section 120]1. Involuntary [Section 121]2-a.
Expiration of corporate term [Section 11]2-b. Legislative enactment
[Section 145]2-c. Failure to organize and commence business
operations within 2 years from incorporation [Section 22]2-d.
Judicial decree of Forfeiture [Sections 20, 134; Rule 66, Revised
Rules of Court]2-e. Order of SEC [Section 121]H. FOREIGN
CORPORATIONh-1. Definitions 1. Foreign corporation organized in a
foreign country, provided that said foreign country allows
Filipinos and domestic corporations to do business therein [Section
123]2. Doing business covers:2-a. Soliciting orders2-b. Service
contracts2-c. Opening offices, whether called liaison offices or
branches2-d. Appointing representatives or distributors domiciled
in the Philippines or who in any calendar year stay in the country
for a period totaling 180 days or more2-e. Participating in the
management, supervision or control of any domestic business, firm,
entity or corporation in the Philippines2-f. Any other act or acts
that imply a continuity of commercial dealings or arrangements and
contemplate to that extent performance normally incident to, and in
progressive prosecution of, commercial gain or of the purpose and
object of the business organization [Section 3(d), R.A. 7042,
Foreign Investment Act of 1991], PROVIDED, that the following shall
not be deemed doing business:1. Mere investment as a shareholder by
a foreign entity in domestic corporations duly registered to do
business and/or the exercise of rights as such investor;2. Having a
nominee director or officer to represent its interest in such
corporation;3. Appointing a representative or distributor domiciled
in the Philippines which transact business in its own name and for
its own accounth-2. Suability of Foreign Corporations1. Doing
Business in the Philippines1-a. With license may sue and be sued in
the Philippines1-b. Without license cannot sue but may be sued in
the Philippines [Section 133]2. Not Doing Business in the
Philippines only on isolated transactions2-a. May sue2-b. May be
sued [Facilities vs. de la Osa, 89SCRA 131]h-3. License1.
Requirements1-a. Appointment of Resident Agent, either a Filipino
or domestic corporation; and power of attorney to SEC to receive
processes1-b. Must prove that the foreign corporations country
grants reciprocal rights to Filipinos and Philippine
corporation;1-c. Establish an office in the Philippines;1-d. Bring
in its assets;2. In the event of insolvency, an undertaking the
Filipino creditors will be preferred;1. Notice of six months should
it desire to terminate operations;2. Franchise and patents must
remain in the Philippines if possible;3. Must file a bond of
P100,000.00, that within 6 months after each fiscal year, the SEC
shall require the deposit of additional securities equivalent to 2%
of the amount in excess of P5million of the gross incomeh-4.
Grounds for Revocation of License1. Failure to file annual reports
required by the Code2. Failure to appoint or maintain a resident
agent3. Failure to inform SEC of change of resident agent or the
latters change of address4. Failure to submit copy of amended
articles or by-laws or articles of merger or consolidation5.
Failure to pay taxes, impost or assessments6. Engaged in business
not authorized by SEC7. Acting as dummy of a foreign corporation
not licensed to do business in the PhilippinesI. NON-STOCK
CORPORATIONi-1. Definition one where no part of its income is
distributable as dividends to its members, trustees or officers,
subject to the provisions of the Corporation Code on
dissolution.i-2. Particularsa. Purposes a-1. Charitablea-2.
Educationala-3. Religiousa-4. Professionala-5. Culturala-6.
Recreationala-7. Fraternala-8. Literarya-9. Scientifica-10.
Sociala-11. Civic serviceb. Right to Voteb-1. Right may be limited,
broadened or denied to the extent specified in the Articles of
Incorporation or by the By-Lawsb-2. Unless otherwise specified,
each member regardless of class shall be entitled to one voteb-3.
Voting by mail or other similar means by members of non-stock
corporations may be authorized by its By-Lawsi-3.
Non-Transferability of Membershipa. Membership and all rights
arising therefrom are personal and non-transferableb. Except when
authorized by the Articles of Incorporation or by the By-Lawsi-4.
Election and Term of Trusteesa. May be more than 15 in numberb.
Classified in such manner that the term of office of 1/3 of their
number shall expire every yearc. Subsequent elections of trustees
shall be held annually and trustees so elected shall have a term of
3 yearsi-5. Place of Meetingsa. May be held in a place outside the
place where the principal place of the corporation is locateda.
Must be within the Philippines [Section 93]J. CLOSE
CORPORATIONSj-1. Definition -j-2. Particularsa. Requirements a-1.
Number of stockholders not to exceed 20a-2. Restriction:
pre-emption in favor of the stockholders or corporationa-3. Stocks
cannot be listed in the stock exchange or be publicly offeredb.
Prohibitions b-1. Mining companiesb-2. Oil companiesb-3. Stock
exchangesb-4. Banksb-5. Insurance companiesb-6. Public utilityb-7.
Educational institutionb-8. Other corporations declared to be
vested with public interestj-3. Restrictions on Transfera. Must
appeara-1. In the Articles of Incorporationa-2. In the By-Lawsa-3.
On the Stock Certificatea. Pre-emptive right extends not only to
unissued shares but also to treasury stocks [Section 102]PREPARED
BY:ATTY. HENRY C. FILOTEO, CPAProfessor
Corporation Law Course Syllabus (Complete)
Part I General Provisions
A. Corporation, defined (Sec. 2)
Case: a. Tayag v. Benguet Consolidated, 26 SCRA 242 b. Torres v.
Court of Appeals, 278 SCRA 793 c. Philippine Stock Exchange, Inc.
v. Court of Appeals, 281 SCRA 232
1. Art. XII Section 16, 1987 Philippine Constitution Case:a.
Feliciano v. COA, GR No. 147402, January 14, 2004
2. Attributes of a Corporation3. Similarities and Distinctions
between Contract of Partnership and Corporations4. Corporations
Created by Special Laws or Charter
Cases:a. National Coal Co. v. Collector of Internal Revenue, 46
Phil. 583b. Marilao Water Consumers Association, Inc. v. IAC, 201
SCRA 437
B. Classification of corporations
1. Under the Corporation Code (Sec. 3)2. Sole and Aggregate3.
Ecclesiastic and Lay4. Eleemosynary and Civil5. Domestic and
Foreign6. De jure and de facto corporations
6.1 Requisite of De Facto Corporation6.2 Quo Warranto
Cases:
a. Sawadjaan v. Court of Appeals, G.R. No. 141735, June 8,
2005
7. Close and Open Corporation8. Parent, Subsidiary, and
Affiliated9. Private and Public10. Corporation by Prescription and
Corporation by Estoppel
C. Nationality of corporations
1. Control test2. Grandfather rule
Case:
a. Wilson Gamboa v. Sec. Margarito Teves, GR NO. 176579, June
28, 2011
D. Corporations created by special laws (Sec. 4)
E. Corporators and incorporators, stockholders and members (Sec.
5)
F. Corporate juridical personality
1. Doctrine of separate juridical personality (or Doctrine of
Corporate Entity
Case:
a. Cease v. CA, GR NO. 33172, October 18, 1979
2. Doctrine of piercing the corporate veil
a) Grounds for application of doctrineb) Test in determining
applicability
Cases: a. CIR v. Norton and Harrison Company, G.R. No. 17618,
August 31, 1964b. McLeod v. NLRC, GR No. 146667, January 23, 2007c.
De Asis and Co. v. Court of Appeals, GR No. L-61549, May 27, 1985d.
Martinez v. Court of Appeals, GR NO. 131673, September 10, 2004e.
Solidbank Corporation v. Mindanao Ferroalloy Corporation,, GR No.
153535, July 28, 2005f. Yamamoto v. Nishino Leather Industries,
Inc., GR No. 150283, April 16, 2008g. ASJ Corporation v. Sps.
Evangelista, GR NO. 158086, February 14, 2008
3. Entitlement to constitutional rights
a) Due process
Case: a. Albert v. University Publishing, Inc. G.R. No. 10118,
June 16, 1965) b) Equal protection of the law
c) Protection against unreasonable searches and seizure
4. Entitlement to Moral Damages Case: a. ABS-CBN v. Court of
Appeals, GR NO. 128690, January 21, 1999b. Coastal Pacific Trading,
Inc. v. Sothern Rolling Mills, Co., Inc., July 28, 2006 5. Libel
Case:a. Filipinas Broadcasting v. Ago Medical Center, GR No.
141994, January 17, 2005
6. Liability for torts
Cases: a. PNB v. CA, GR NO. 27155, May 18, 1978