CORPO REVIEWER MIDTERMS

MEETINGSSEC. 49 Kinds of meetings - meetings of directors. Trustees , stockholders or members may be REGULAR OR SPECIAL.SEC. 50 REGULAR AND SPECIAL meeting of STOCKHOLDERS or MEMBERS

1. REGULAR MEETINGS of Stockholders and Members - held annually on a date fixed in the by-laws- if not so fixed, on any date in April of every year as determined by the Board of Directors or Trustees- written notice of regular meetings shall be sent AT LEAST 2 WEEKS prior to the meeting, unless a different period is required by the by laws Regular meeting is principally for the purpose of electing another set of directors or trustees

2. SPECIAL MEETINGS OF STOCKHOLDERS OR MEMBERS Held at any time deemed necessary as provided in the bylaws Provided, that AT LEAST 1WEEK written notice shall be sent prior, unless otherwise provided in the by laws Notice of any meeting MAY BE WAIVED, expressly or impliedly, by any stockholder or member For any cause, SEC, upon petition of a stockholder or member on showing of good cause, may issue an order directing him to call for a meeting.

MEETINGS OF DIRECTORS OR TRUSTEES

1. REGULAR those held by the board MONTHLY, unless the by laws provide otherwise2. SPECIAL those held by the board AT ANY TIME UPON THE CALL OF THE PRESIDENT or as provided in the by-laws

NECESSITY OF MEETINGS The corporate powers are vested in the board of directors or stockholders AS A BODY AND NOT AS INDIVIDUALS. They can act only in meetings properly convened or assembled.

GR: Where the law expressly requires a meeting for a particular transaction, any action taken by the corporation WITHOUT A MEETING PROPERLY HELD FOR SUCH PURPOSE IS VOID.

EXCEPTIONS:

1. Amendment of Articles of Incorporation by majority vote of the BD and the vote or writtem assent of the 2/3 of the stockholders representing at least 2/3 of the outstanding capital stock2. Unanimous act or agreement of its stockholders3. In any cases mentioned in Art. 101, any action taken by the directors of a close corporation without a meeting SHALL BE DEEMED VALID, unless otherwise provided in the by laws

REQUISITES FOR A VALID MEETING OF STOCKHOLDERS/ MEMBERS

1. It must be held in a proper place2. It must be held at the stated date and appointed time or reasonable time3. It must be called by the proper person4. There must be previous notice5. There must be a quorum

Pres. Decree 902-A, SEC. 6 The SEC has the power to COMPEL THE OFFICERS OR ANY CORPORATION OR ASSOCIATION REGISTERED BY IT TO CALL MEETINGS OF STOCKHOLDERS OR MEMBERS THEREOF, under its supervision

If the meeting is held at an unauthorized place or without proper notice and not all stockholders are present, THOSE WHO HAVE RIGHT TO COMPLAIN MAY TAKE STEPS to set aside any action taken at such meetings, even though a majority of the stockholders or members are present, IN THE ABSENCE OF WAIVER, ESTOPPEL OR RATIFICATION

SEC. 51 PLACE & TIME OF MEETINGS

STOCKHOLDERS OR MEMBERS shall be held in the CITY OR MUNICIPALITY where the principal office is located or if practicable in the principal office of the corporation.

Notice of meetings shall be in WRITING and the TIME AND PLACE thereof shall be stated therein. All proceedings had and any business transacted, if within the authority of the corporation, SHALL BE VALID EVEN IF THE MEETING BE IMPROPERLY HELD OR CALLED, PROVIDED, all the stockholders are present or duly represented at the meeting. The proper place for the holding of stockholders meeting as provided in Sec. 51 IS MANDATORY. The by-laws CANNOT PROVIDE OTHERWISE, EXCEPT by SEC. 93 with respect to meetings of members of non-stock corporation (at any place even outside the place where the principal office of the corp, with date and time and within the Phils.)

DIRECTORS OR TRUSTEES MEETINGS May be held at ant pace fixed in the by-laws EVEN BEYOND THE BOUNDS OF THE STATE where the corporation exist. The directors and Trustees ARE NOT A CORPORATE BODY; they are, when acting as a board, BUT AGENTS OF THE CORPORATION.

Sec. 51 Metro Manila shall, for purposes of this section, be considered A CITY OR MUNICIPALITY

EX.) X Corporation City or Municipality Principal Office is at MAKATI, METRO MANILA Principal Office is located at 1234 Ayala Avenue, Makati Metro Manila

Stockholders meeting may be held ANYWHERE IN METRO MANILA But if PRACTICABLE, AT 1234 Ayala Avenue, Makati metro manila. Failure to comply or observe the proper place for holding stockholders meeting WILL NOT RENDER THE MEETING ILLEGAL, IF ALL THE STOCKHOLDERS OR MEMBERS ARE PRESENT OR DULY REPRESENTED AT THE MEETING. Regular meetings should be held at the APPOINTED TIME, or if not then held, AT A REASONABLE TIME thereafter Special Meetings may be held at REASONABLE TIME.

PROPER PERSON TO CALL MEETING Exercised by the person who has the power to call the meeting.1. Person designated by the by-laws have authority to call stockholders or members meeting2. In the absence of such provision in by-laws, the meeting may be called by a director or trustee or by an officer entrusted with the management of corporation3. Under Sec. 50, a stockholder or member may make the call on order of the SEC, wherever for any cause, there is no person authorized to call a meeting. This applies only where there is no person authorized to call or the officers authorized fail or refuse to call a meeting.4. The special meeting for the removal of directors or trustees may be called by the secretary of the corporation or by a stockholder as provided by Sec. 28.

As to regular meetings, NO NOTICE NEED BE GIVEN OTHER THAN THAT CONTAINED IN THE BY LAWS when the time and place of such meeting is specially designated therein. But if the meeting is a special one, NOTICE MUST BE GIVEN. Whether regular or special, notice must be given when required by the by laws The corporate by-laws GOVERN THE PROCEDURE OF SENDING NOTICES OF MEETINGS. If the by-laws is silent, the manner prescribed in sec. 50 shall be followed.

STATEMENT AND PURPOSE OF MEETING (READ P. 485) The objection that NO NOTICE WAS GIVEN or that the notice given was defective, CANNOT BE RAISED BY THIRD PERSONS WHO HAVE NOT BEEN INJURED.

REQUISITES OF NOTICE OF MEETING (READ P. 486) The notice must comply with any other requriements prescribed by the law or by laws1. Sec. 77 requires that the notice of meeting for the approval of merger or consolidation, SHALL STATE THE PURPOSE OF THE MEETING AND SHALL INCLUDE A SUMMARY OF THE PLAN OF MERGER OR CONSOLIDATION2. SEC. 118 prescribes the the notice of meeting for VOLUNTARY DISSOLUTION, shall be made by publication, in addition to written notice, which shall be sent by registered mail or personal delivery. A substantial compliance as to notice will be sufficient A special meeting may NOT CONSIDER BUSINESS OTHER THAN THOSE LISTED in the notice of meetings, UNLESS THERE IS UNANIMOUS WAIVER.

FAILURE TO COMPLY WITH REQUISITES FOR MEETING

Under Sec. 51, all proceedings had and any business transacted at any meeting of the stockholders SHALL BE VALID, EVEN IF THE MEETING BE IMPROPERLY HELD OR CALLED provided the two requisites are present:

1. That the proceedings had and the business transacted are within the power or authority of the corporation, that is, THEY ARE NOT ULTRA VIRES ACT2. That all the stockholders or members of the corporation are present or duly represented in the meeting. Without signature of the secretery of the meeting, an alleged minute taken by a mere clerk has neither probative value nor credibility.

SEC. 52 QUORUM Consist of the stockholders representing a majority of the outstanding capital stock or a majority of the members in case of non-stock corp. In the absence of the quorum, no action can be taken except to adjourn. Only those who are actual, living members with voting rights shall be counted in determining the existence of a quorum during members meeting. DEAD MEMBERS SHALL NOT BE COUNTED

EFFECT OF DEATH OF A STOCKHOLDER Shareholders may generally transfer their shares. On the death of the shareholder, the executor or administrator duly appointed by the court is vested with the legal title to the stock and entitled to vote it. For NON-STOCK CORP membership and all rights are NOT TRANSFERRABLE since it is PERSONAL.

POSTPONEMENT OF STOCKHOLDERS OR MEMBERS ANNUAL MEETING

GR : Where the date of annual meeting is fixed in the by-laws, the board of directors/ trustees CANNOT CHANGE THE DATE, so as to lengthen their term of office.

EXCEPTION: 1. Where the annual meeting cannot be held on the date fixed for some VALID REASON. (EX. ERRONEOUS

In such case- postponement is allowed, provided proper notice of the change of date is given to the member

PAYMENT OF COMPENSATION FOR ATTENDANCE

Stockholders exercise of the right as members when he attends a corporate meeting, hence, they have no compensation Sec. 47 (5) od he Corporation code authorizes by-laws to provide compensation directors or trustees, officers and employees Stockholders DO NOT RENDER SERVICE, but exercise rights personal to themselves in the corp.

MATTERS IN WHICH THE LAW REQUIRES MINIMUM VOTE (READ P. 491)

PLACE AND TIME OF MEETINGS OF DIRECTORA OR TRUSTEES

Regular or special meetings may be held ANYWHERE IN OR OUTSIDE THE PHILS., unless the by-laws provide otherwise. Regular meetings shall be held MONTHLY Special Meetings may be held AT ANY TIME, upon the call of the President or as provided in the by-laws Notice of every meeting whether regular or special, stating the date, time and place must be sent to every director or trustee AT LEAST ONE DAY PRIOR TO THE SCHEDULED MEETING NOTICE of regular meeting NEED NOT BE GIVEN if the articles of incorporation or by-laws specify the time of the meeting (except if it is to be held at another place) A meeting held in the absence of some of the directors and without notice to them is ILLEGAL, and the action at such meeting, although by a majority of the directors, IS INVALID, unless subsequently RATIFFIED OR WAIVED, EXPRESSLY OR IMPLIEDLY by the absent directors, or unless RIGHTS HAVE BEEN ACQUIRED BY INNOCENT 3RD PERSON, as against whom the corporation must be held ESTOPPED to set up the failure to observe formalities.

RA 8792 Electronics Commerce Act allows televideo conferencing

SEC. 54 The PRESIDENT shall preside at all meetings of the directors or trustees as well as of the stockholders or members, unless the by laws provide otherwise. The by-laws may provide that the chairman, instead of the President shall preside at board meetings.

Stockholder or member in a temporary capacity in the absence of the president pending the selection of a presiding officer

Stockholder or member chosen where for any cause no person is authorized to call a meeting, the petitioning stockholder or member authorized by SEC shall preside thereat until at least the majority of stockholders have chosen.

SEC. 55 right to vote of pledgors, mortgagors, and administrators The pledgor or mortgagor shall have the right to attend and vote at meetings of stockholder, UNLESS the pledgee or mortgagee is expressly given by the pledgor or mortgagor such right in wrting which is recorded on appropriate books.

Executors, administrators, receivers and other legal representatives duly appointed by the court MAY ATTEND AND VOTE in behald of the stockholders WITHOUT NEED OF ANY WRITTEN PROXY.

Oustanding is used instead of SUBSCRIBED so as NOT TO INCLUDE TREASURY SHARES IN VOTING.

Voting is based on the number of shares of stock standing at the time fixed in the by laws.

A transferee of stock cannot vote upon it if his transfer is not registered in the books of the corporation.

Except as otherwise provided in the articles of inc. and stated in the cert. of stock, HOLDERS OF PREFERRED SHARES HAVE THE RIGHT TO VOTE.

Common shares may not be deprived of voting rights, but preferred and redeemable shares may be deprived of the right to voye.

Delinquent shares not entitled to vote or to representation at any stockholders meeting. But they may act as PROXIES FOR STOCKHOLDERS whose shares are not delinquent.

Treasury shares they have no voting rights. Fractional shares of stock cannot also be voted, UNLESS THE CONSTUTE AT LEAST ONE FULL SHARE.

Shares not fully paid holders of subscribed shares not fully paid which are not delinquent are entitled to vote.

In stock corporation, voting is based on the number of shares owned and not on the number of stockholders or per capita.

INTRA-CORPORATE DISPUTES controversies involving the right to vote and the election or appointment of directors, etc. RTC JURISDICTION (RA 8799)

MANNER OF VOTING

A stockholder or member may vote:

1. Directly (in person) or2. Indirectly through a representative By means of a proxy By a trusteeunder a voting trust agreement By executors, admin, receivers or other legal rep duly appointed by the court This is an exception to the rule sec. 24 that only stockholders of record may vote. Because they have legal title to the stock of the deceased owner or their principal They have to show first judicial appointment

SEC. 56 VOTING IN CASE OF JOINT OWNERSHIP OF STOCK SEC. 56 requires CONSENT OF ALL THE CO-OWNERS in order to vote such stock. Such consent is NOT NECESSARY where;1. There is a written proxy executed by the joint-owners authorizing one or some of them, or any other person to vote for all.2. The shares are owned in an and/or capacity by the holders thereof, in which case any one of the joint owners can vote said shares or appoint a proxy therefpre. Where the property relation between husband and wife is governed by the system of absolute community of property, the same shall be governed by the rules on co-ownership. Consequently, as co-owners of shares of stock, they shall be considered as ONE STOCKHOLDER.

VOTING RIGHT FOR TREASURY SHARES Treasury shares shall have no voting right, as long as such stock remains in the treasury

SEC. 58 PROXIES - LIMITATION 1. Proxies shall be in writing, signed by the stockholder or member and filed before the scheduled meeting with the corporate secretary. 2. Unless otherwise provided, it shall be VALID ONLY FOR THE MEETING FOR WHICH IT IS INTENDED. The authority may be general or limited. 3. NO PROXY SHALL BE VALID and effective for a period longer thaan 5 YEARS at any one time.

Proxy is a special form of agency. The proxy holder is in the eye of law, an agent and as such a fiduciary. Purpose and Rights of Proxies1. Presence of quorum meetings2. Exercise of right to vote though absent3. Voting and management control

WHO MAY BE PROXY no limitations as to persons who may be appointed as proxy A proxy who is disqualified to vote on his own right for being delinquent, may represent and vote for another whose share is not delinquent The same person may act as proxy for one or several stockholders or member Directors and Trustees CANNOT ATTEND OR VOTE BY PROXY AT BOARD MEETINGS, but they may act as proxies in stockholders meetings. Nature of proxy is purely personal. The Code does not contain express provisions, other than that provided in SEC. 58 on the FORM OF PROXIES OF STOCKHOLDERS THERE IS A PRESUMPTION OF REGULARITY in the execution of proxies

EXTENT OF AUTHORITY OF PROXY1. GENERAL PROXY confers a general discretionary power of attorned, with ALL THE POWERS THE UNDERSIGNED WOULD POSSESS IF PERSONALLY PRESENT. It is NO AUTHORITY however to vote for a fundamental change in the corporate charter or other unusual transactions such as a merger or consolidation.

2. LIMITED PROXY limits the power conferred. It may restrict the authority to vote to specified matters.

DENIAL OF RIGHT TO VOTE BY PROXY IN THE BY LAWS1. In stock corp., the appointment of proxy is purely personal and an incident of ownership, therefore, BY LAWS PROVISION PROHIBITING THE USE OF PROXY BY STOCKHOLDERS IS CONTRARY TO LAW AND HENCE, NULL AND VOID.2. In non-stock corp, however, the right to vote by proxy, or even the right to vote itself, MAY BE DENIED TO MEMBERS IN THE ARTICLES OF INCORPORATION OR BY LAWS AS LONG AS THE DENIAL IS NOT DISCRIMINATORY.RESTRICTIONS ON THE RIGHT TO VOTE BY PROXY IN THE BY-LAWS so long as the restrictions do not conflict with the law or deprive the stockholders of the right given him and it does not operate unjustly and oppressively. Example of restriction the by laws may provide a deadline for the submission of proxies before scheduled meeting

PROXY GIVEN TO TWO OR MORE PERSON

REVOCATION OF PROXIES Generally, proxies even those with irrevocable terms, have always been considered as REVOCABLE, unless coupled with an interest, and their revocation may be by formal notice, orally or by conduct as by the appearance of the stockholder. Last proxy given revokes all previous proxies. Where proxies undated where a corp receives more than one proxy, from the same stockholders and they are all undated, the postmark dates become important. If both were mailed on same day, the latest is counted If the proxies were not mailed, then the time of their actual presentation is considered.

DURATION OF PROXY1. Limited and specific proxy it cannot be exceeded or extended if given, and a specific proxy, when required cannot be implied.2. Continuing proxy One which authorizes the holder thereof to vote for the absent stockholder for a fixed or an indefinite period of time. But it shall be valid only for 5 years from its date.

SEC. 59 VOTING TRUST Stockholders confer upon a trustee the right to vote and other rights pertaining to the shares for a period NOT EXCEEDING 5years at any time. LOAN AGREEMENT exceeding 5 yrs but automatically expires upon full payment of the loan. A voting trust agreement must be in writing, notarized and shall specify the terms and conditions thereof. A certified copy of such agreement shall be filed with corp and sec, otherwise, said agreement is ineffective and unenforceable. The trustee or trustees shall execute and deliver to the transferors voting trust certificates, which shall be transferable in the same manner and with the same effect as cert of stock. The viting trustee or trustees may vote by proxy unless the agreement provides otherwise.

Status of voting trustee A voting trust agreements transfers only voting or other rights pertaining to the shares subject of the agreement or control over the stock, not the properties or assets of the corp. Status of transferring stockholder a voting trust agreement results in the separation of the voting rights of a stockholder from his other rights. He retains the equitable or beneficial ownership of the stock.

POWERS OR RIGHTS OF VOTING TRUSTEES1. Right to vote and other rights pertaining to the shares so transferred and registered in his or their names2. The trustee may vote in person or by proxy unless the agreement provides otherwise3. They may exercise like the transferor, the rights of inspection of all corporate books and records4. The trustee is the legal title holder or owner of the shares so transferred under the agreement.He is therefore qualified to be a director

PURPOSE OF VOTING TRUST AGREEMENT Makes possible a unified control of the affairs of the coporation and a consistent policy by binding stockholders to vote as a unit. It also makes possible for a majority group of stockholders to dispose of their share and still retain control of the corporation through the voting trustee who shall then have the power to vote as a unit the shares thus pooled. To prevent a rival concern from acquiring control of the corp To aid a financially embarrassed corp to obtain a loan and protect its creditors.

LIMITATIONS ON VOTING TRUST AGREEMENT 1. No voting trust shall be entered into:a. For a period exceeding 5years at any one time (except loan agreement)b. For the purpose of circumventing the law against monopolies and illegal combinations in restraint of trade

2. The agreement must not be used for purposes of fraud3. The agreement must be in writing and notarized4. A certified copy of said agreement must be filed with the Corp and with SEC, otherwise, it is INEFFECTIVE and UNENFORCEABLE5. The agreement shall be subject to examination by any stockholder of the corp in the same manner as any other corp book or record6. Unless expressly renewed, all rights granted shall automatically expired at the end of the agreed period.

PD 902-A empowers the SEC to pass upon the validity of the issuance and use of proxies and voting trust agreements for absent stockholders or members.

PROXY VS VOTING TRUST

1. A Proxy has no legal title to the shares of the stockholder giving the agency-A trustee acquires legal titles to the shares of the transferring stockholder(The proxy votes as a mere agent while the trustee as owner)

2. A proxy, unless coupled with interest, IS REVOCABLE ANYTIME-While a voting trust agreement, if validly executed, is intended to be irrevocable for a definite and limited period of time.

3. A proxy can only act at a specified stockholders meeting (if the proxy is not in continuing nature) WHILE A trustee is not limited to a particular meeting

4. A proxy votes in the absence of the owner of the stock While a trustee can vote and exercise all the rights of the transferring stockholder even when the latter is present

5. A proxy is usually of shorter duration than a voting trust agreement although under the law the maximum duration of both cannot exceed 5yrs6. A proxy need not be notarized nor a copy filed with CHED, while it is a must for VOTING TRUSTEE7. A proxy does not have a right of inspection of corporate books, while a trustee has such a right.

SEC. 36 POWERS OF CORPORATON

1. To sue and be sued in its corp name2. Power of succession3. To adopt and use corporate seal4. To amend its articles of incorporation in accordance with the provisions of this code5. To adopt by laws not contrary to law, morals, or to amend or repeal the same in accordance with this code.6. In case of stock corp., to issue or sell stocks to subscribers and to sell treasury stocks in accordance with provisions of the code7. To purchase, sell, receive, take , grant, hold, convey, deal with such personal or real property, including securities and bonds of other corp8. To enter into merger or consolidation 9. To make reasonable donations to charitable inst. but NOT TO POLITICAL PARTIES10. To establish pension, retirement for the benefit of its directors, trustees, officers and employees11. To exercise such other powers as may be essential

DOCTRINE OF LIMITED CAPACITY the enumeration of corporate powers implies the exclusion of all other powers. A corporation owes its existence to the State, and therefore, it has only such powers as are expressly and impliedly granted by law.

CLASSIFICATION OF CORP POWERS

1. EXPRESS POWERS expressly granted by law2. IMPLIED POWERS Those that are necessary to the exercise of the express or incidental powers3. Those incidental to its existence

IMPLIED POWERS

1. Acts in the usual course of business2. Acts to protect debts owing to a corporation3. Embarking in different business4. Acts in part or wholly to protect or aid employees5. Acts to increase business

INCIDENTAL POWERS which can be exercised without the express grant1. Power of succession2. Power to sue and be sued3. To have corporate name4. To purchase and hold real and personal property5. To adopt and use a corporate seal6. To make by-laws

CONSTRUCTION OF POWERS GRANTED- construed STRICTLY; any ambiguity in the terms of the corporate charter must operate against the corporation and in favor of the public.

RATIFICATION OF CORP ACTS

1. By stockholders or members they may ratify and render valid acts done or authorized by the BD2. By board of Directors Donations for political purposes are beyond the power of a corp and cannot be ratified, as they are expressly prohibited by law.

EFFECT OF RATIFICATION retroactive

POWER TO SUE OR BE SUED

1. Dissolved Corp after the expiration of 3 year winding up period CEASES TO EXIST DE JURE OR DE FACTO. It cannot sue or be sued.Corporations de facto may sue or be sued.

2. Unregistered corp has no legal capacity to sue3. Foreign Corp If without necessary license from the SEC, they cannot sue in the Phil Courts4. Right to Claim Moral Damages Art. 2217 of Civil Code & Mambulao vs PNB5. Real party in Interest Right to sue must be brought by the BD that exercises its corporate powers on behalf of the corp or by any of its duly authorized officer or agent.6. A GOCC can act only through its duly authorized representative

RIGHTS OF SHAREHOLDERS TO INTERVENE their interest being inchoate or beneficial in nature, not direct and immediate in character, hence, THEY HAVE NO RIGHT TO INTERVENE IN AN ACTION FOR OR AGAINST A CORP. (SAW VS CA)

The use of corporate seal in certificates of stock must be deemed merely directory rather than mandatory. A corporation may exist even without a seal. While a corporation may appoint agents to negotiate for the purchase of real property needed by the corp., the final say will have to be with the BD whose approval will finalize the transaction. Property obtained by a corporation which is foreign to the purposes for which is was organized is an UNLAWFUL ACQUISITION. Under the Constitution, no private corporation or association may hold alienable lands of the public domain except by lease for a period for a period not exceeding 25yrs, renewable for not more than 25yrs and not to exceed 1000 hectares in area. The corporation may purchase its own stocks, however, only when it has unrestricted retained earnings to cover the shares to be purchased. The corporation may become a member of another corporation.

POWER TO ACT AS GUARANTOR gr: No corporation has the power, by any form of contract or endorsement to become a guarantor or surety or otherwise lend its credit to another person.EXCEPTION: 1. Where Corporate Business will advance2. Where risk considerable and benefit remote or disproportionate.

POWER TO EXTEND OR SHORTEN CORPORATE TERM when approved by a MAJORITY VOTE of the BD and ratified at a meeting by the stockholders representing at least 2/3 of the outstanding capital stock or 2/3 of the members for non-stock. Written notice and of the time and place shall be addressed to each stockholder AT HIS PLACE OF RESIDENCE as shown on the books of inc. and deposited to the addresse in the post office, with postage prepaid, or served personally. PROVIDED, that in the case of EXTENSION of corporate term, any dissenting stockholder may exercise his appraisal right under the conditions provided in this code. A voluntary dissolution of a corporation may be effected BY AMENDING THE ARTICLES OF INCORPORATION to SHORTEN THE CORP. TERM.

APPRAISAL RIGHT OF DISSENTING STOCKHOLDERS right of a stockholder in the cases provided by law to demand payment of the fair value of his shares IN CASE OF EXTENSION OR SHORTENING OF THE CORPORATE TERM.

POWER TO INCREASE OR DECREASE CAPITAL STOCK must be EXPRESSLY conferred. The notice requirement is mandatory The corp code contains no prohibition for a corporation to increase its authorized capital stock, even of the same has not yet fully subscribed. GR : a corporation cannot lawfully DECREASE its capital stock, if such decrease will have the effect of relieving existing subscribers from the obligation of paying for their unpaid subscription without a valuable consideration. The corporation must submit proof to the SEC that such decrease will NOT PREJUDICE the rights of creditors. A corporation cannot issue stock in excess of the amount limited by its articles of inc., such is T.ULTRA VIRES ACT

NECESSITY FOR INCREASING CAPITAL STOCK1. Increase of corporate assets2. Issuance of stock dividends

An increase in the authorized capital stock CANNOT BE LAWFULLY ACCOMPLISHED without an increase in the assets of the corporation and additional subscriptions EXCEPT WHEN SUCH INCREASE IS FOR THE PURPOSE OF EFFECTING A STOCK DIVIDEND.

EFFECTIVITY OF INCREASE OR DECREASE only FROM AND AFTER approval and issuance by the SEC of its certificate of filing of increase or decrease of capital stock.

OVER-ISSUE OF SHARES it is ULTRA VIRES, and the stock so issued IS VOID even in the hands of the bonafide purchaser for value. IT IS ALSO KNOWN AS SPURIOUS STOCK.

UNAUTHORIZED INCREASE OF CAPITAL STOCK An attempted unauthorized increase of capital stock amounts to an OVER-ISSUE and such stock is therefore ABSOLUTELY VOID AND CANNOT BE VALIDATED by application of the doctrine of estoppel.It necessarily follows that:1. Subscriptions for such stock are likewise void 2. Subscribers acquire none of the rights of stockholders3. Subscribers for or purchases of such shares do not become liable to creditors of the corp

That the SEC shall not accept for filing any certificate of increase of capital stock unless accompanied by the sworn statement of the treasurer of the corporation SHOWING AT LEAST 25% OF such increased capital stock has been subscribed and that AT LEAST 25% OF THE AMOUNT SUBSCRIBED HAS BEEN PAID EITHER in actual cash NO treasurers affidavit is required to be attached in case of DECREASE OF CAPITAL STOCK.

Ways of INCREASING (DECREASNG) AUTHORIZED CAPITAL STOCKS

1. By increasing (decreasing) the number of shares authorized to be issued without increasing the par value thereof2. By increasing (decreasing) the par value of each share without increasing the number thereof3. By increasing both the number of shares authorized to be issued and the par value thereof.

Under the prohibitions in Sec. 62, the unissued shares cannot be sold for less than the par value Stock dividends are ordinarily declared out of the authorized but unissued shares of corp.

EFFECT OF REDUCTION ON LIABILITY FOR UNPAID SUBSCRIPTION1. As against corporate creditors if prejudicial, shall be wholly ineffective2. As between the corp and the stockholders failure to give the prescribed notice will not invalidate the reduction

GR: Where capital stock is impaired and a reduction is made merely to meet that impairment, there will be no distribution of assets among the shareholders Distribution NOT MANDATORY The distribution to stockholders of surplus remaining after a reduction of capital stock is authorized by the code

PERSONS ENTITLED TO QUESTION INCREASE OR DECREASE OF CAPITAL STOCK

1. By the corporation, by dissenting stockholders in the absence of estoppel, or by creditors or by assignee or receiver in so far as the transaction affects their rights

POWER TO INCUR, CREATE OR INCREASE BONDED INDEBTEDNESS a business corp may borrow money

CORPORATE BOND an obligation to pay a definite sum of money at a future time at fixed rate of interest

PROCEDURE AND FORMALITIES same as increasing or decreasing the capital stock except that the certificate NEED NOT STATE THE MATTERS SET FORTH AND IS NOT REQUIRED TO BE ACCOMPANIED BY SWORN STATEMENTS OF THE TREASURER OF THE CORP Prior approval of and registration of bonds with SEC

TYPES OF BONDS1. THEY may be SECURED OR UNSECURED2. Major type of secures bonds are:1. Mortgage bonds2. Collateral trust bonds3. Equipment obligations3 . Examples of UNSECURED BONDS

A. Straight debentiture bonds or general credit bondsB. Guaranteed BondsC. Subordinated debentiture bonds

SEC. 39 POWER TO DENY PRE-EMPTIVE RIGHT

PRE-EMPTIVE RIGHT whenever the capital stock of the corporation is increased and new shares of stocks are issued, the new issue must be offered first to the stockholders who are as such at the time the increase was made in proportion to their EXISTING SHAREHOLDINGS This right extends only to new issues of shares It extends to the unsubscribed portion of the capital stock and even to the treasury shares This right is not absolute as it admits of certain excemption The purpose of the right is to protect from impairment and dilution the basic rights of the existing stockholders in the corporation.

POWER TO DENY PRE-EMPTIVE RIGHT may be denied by the articles of incorporation A stockholder whose pre-emptive right is violated may maintain an action to compel the corp to give him that right If denial is by an amendment to the artices of incorporation, he may exercise his APPRAISAL RIGHT Time within which the right may be exercised is generally fixed in the resolution authorizing the increase of capital stock

SEC. 40 POWER TO SELL, LEASE, ETC ALL OR SUBSTANTIALLY ALL CORPORATE ASSETS INCLUDING ITS GOODWILL By the action of majority vote of board of directors or trustees supported by tast 2/3 of the outstanding capital stock

REQUISITES FOR THE VALIDITY OF SALE:

1. The sale etc., must be approved by the BD2. The action of the board must be authorized by the vote of stockholders representing 2/3 of the outstanding capital stock including holders of non-voting shares3. The authorization must be done at stockholders or members meeting duly called for the purpose after WRITTEN NOTICE.

As a safeguard against abuse of power, SEC 40 provides that the sale, etc. SHALL BE SUBJECT TO THE PROVISIONS OF EXISTING LAAWS ON ILLEGAL COMBINATION AND MONOPOLIES. SALE OF ALL ASSETS WITHOUT DISSOLUTION if such sale is made to another corporation and there is no intent to combine, the selling corp may continue in a SUSPENDED ANIMATION, subject to the effect of NON-USE OF CORP POWERS AND continued inoperation of the corporation

SEC. 41 POWER TO ACQUIRE OWN SHARES- a stock corporation shall have the power to purchase or acquire its own shares for a legitimate corporate purpose, PROVIDED, THAT the corporation has UNRESTRICTED RETAINED EARNINGS IN ITS BOOKS TO COVER THE SHAREs to be purchased :

1. To eliminate fractional shares arising out of stock dividends2. To collect or to compromise an indebtedness to the corporation, arising out of unpaid subscription3. To pay dissenting or withdrawing stockholders

UNRESTRICTED RETAINED EARNINGS - not appropriated for a particular purpose.

CONDITIONS FOR THE EXERCISE OF THE POWER1. That its capital is not thereby impaired2. That it be for a legitimate and proper corporate purpose3. That there shall be unrestricted retained earnings4. That the corporation acts on good faith and w/o prejudice to the rights of creditors5. That the conditions of corporate affairs warrant it.

TRUST FUND DOCTRINE Holds that the assets of the corporation as represented by its capital stock are trust funds to be maintained unimpaired and to be used to pay corporate creditors There can be no distribution of such assets among stockholders without provison being first made for the payment of corporate debts. Corporation generally without power to purchase its own shares, as repayment to stockholders constitute a fraud on corporate creditors A corporation has UNRESTRICTED RETAINED EARNINGS BEFORE ITS MAY ACQUIRE its own sharesEFFECTS OF PURCHASE ON CORPORATE CREDITORS it will impair capital, hence, prejudice the creditors who are preferred over stockholders in the distribution of corporate assetsEFFECTS OF PURCHASE ON REMAINING STOCKHOLDERS - it injures remaining shareholders rights, although it may be advantageous to those who do not sell.

SEC. 42 POWERS TO INVEST CORP FUNDS IN ANOTHER CORPORATION OR BUSINESS FOR ANY OTHER PURPOSE OTHER THAN THE PRIMARY PURPOSE When approved by a majority of the board of directors or trustees Ratified by the stockholders representing at least 2/3 At a stockholders or members meeting duly called for the purpose Written notice with date and place shall be addressed to each stockholder as shown on the books of corporation Provided that any dissenting stockholder shall have the appraisal right That where the investment by the corporation is reasonably necessary to accomplish its primary purpose, THE APPROVAL OF THE STOCKHOLDERS SHALL NOT BE NECESSARY

PURPOSE OTHER THAN THE PRIMARY PURPOSE1. SECONDARY PURPOSE Funds may be invested without amending the articles of incorporation must be among those enumerated in the articles of incorporation2. NOT AMONG THE SECONDARY PURPOSES a corporation is not allowed to engage in a business distinct from those enumerated in the articles of incorporation without amending the purpose clause.CORPORATE FUNDS MAY BE TEMPORARILY LOANED EVEN TO STOCKHOLDERS, PROVIDED:

1. The funds are not presently used by the corp and the loaning is not made on regular basis2. By lending the funds, the corp will make them productive instead of allowing them to remain idle3. There is NO EXPRESS RESTRICTION IN THE articles of inc or by laws4. There must be a collateral or assurance that the borrower is capable of paying5. The lending is not used as a scheme to prejudice corp creditors or result in the infringement of Trust Fund doctrine

INCIDENT TO PRIMARY PURPOSE a corporation may invest its fund in another business which is incident or auxiliary to its primary purpose. In such case, A DISSENTING STOCKHOLDER HAS NO APPRAISAL RIGHT. It does not need the approval of stockholders

RATIFICATION OF DEFECTIVE INVESTMENT

Sec. 43 POWER TO DECLARE DIVIDENDS out of UNRESTRICTED RETAINED EARNINGS which shall be payable IN CASH, PROPERTY, OR in STOCKS to all stockholders on the basis of outstanding stock held by them Provided, that any cash dividends due on DELINQUENT STOCK shall FIRST BE APPLIED TO THE UNPAID BALANCE WHILE STOCK DIVIDENDS shall be withheld from the delinquent stockholders representing not less than 2/3 of the outstanding capital stock at a REGULAR OR SPECIAL MEETING CALLED FOR THE PURPOSE. STOCK CORP are PROHIBITED from retaining SURPLUS PROFITS in excess of 100% of their paid in capital stock, EXCEPT:1. When justified by definite corp expansion projects 2. When the corp is prohibited under any loan agreement with any financial inst or creditor3. When it can be clearly shown that such retention is necessary under special circumstances obtaining in the corp

DIVIDEND that part or portion of the profits of a corporation set aside, declared and ordered by the directors to be paid RATABLY to the stockholders ON DEMAND OR AT A FIXED TIME

PROFIT means RETURN TO CAPITAL

DIVIDENDS VS PROFITS OR EARNINGS

1. Dividend that portion of the profits which the corp has set aside for ratable distribution among stockholders. Dividends come from profits, while profits are the source of dividends2. Profits are not dividends until so decared or set aside by the corp.3. All profits are a part of the assets of the corp and do not belong to the stockholders individually.

Dividends cannot be declared and paid on the basis of the paid up stock. The basis is the number of shares held by the stockholders, not the amount paid.

RULE AS TO NO PAR VALUE STOCK the entire consideration (including paid in surplus) received from the sale shall be treated AS CAPITAL and shall not be available for distribution as dividends.

WASTING BUSINESS even W/O RETAINED EARNINGS, you can already declare dividendsWASTING ASSETS DOCTRINE the capital of which is necessarily exhausted in the carrying on of its operations EX. ) MINING OR TIMBER CUTTING.

UNRESTRICTED RETAINED EARNINGS the difference between the total present value of its assets after deducting losses and liabilities and the amount of its capital stock.

RETAINED ASSETS = ASSETS liabilities and legal capital

A corp cannot declare dividend when it has zero or negative retained earnings

DECLARATION OF DIVIDENDS requires concurrence of two things:

a.) The existence of unrestricted retained earnings b.) A corporate resolution of the board of directors

Cash dividends require ONLY APPROVAL of the BD Stock dividends are issued by resolution of the BD and approval of resolution by stockholder

DISCRETION OF THE BD TO DECLARE DIVIDENDS- and determine the timing as well as their amount, so long as they ACT IN GOOD FAITH.

JUSTIFICATION FOR NON-DISTRIBUTION OF DIVIDENDS1. The corp has definite expansion plans approved by the proper govt authority2. The corp is prohibited under any loan agreement with any financial inst or creditor, from declaring dividend w/o his consent.

Under NIRC, sec 29 of Tax Code imposes a 10% surtax on corp impropery accumulating profits or surpluse ACTION TO ENFORCE DECLARATION OF DIVIDENDS a stockholder cannot maintain an action at law to recover his share of the accumulated profits. Mandamus IS NOT A PROPER REMEDY.

TIME FOR DECLARATION OF DIVIDENDS At the END OF THE YEAR If the company earned profits during the past year, it may deckare the same as dividends, BUT IT DOES NOT, THE PROFITS ARE CARRIED OVER TO THE NEXT FISCAL YEAR.

PAYMENT OF SUBSCRIPTION FROM DIVIDENDS It has been held that a stipulation to the effect that the subscription is payable from 1st dividends declared on any and all shares is ILLEGAL for it obligates the subscriber to pay nothing A stockholders indebtedness to a corp under a subscription agreement CANNOT BE COMPENSATED with the amount of his shares in the same corp, THERE BEING NI RELATION OF CREDITO AND DEBTOR with regard to such shares. IT IS NOT ALLOWED to apply stock dividends to unpaid subscription

LIABILITY OF STOCKHOLDERS AND DIRECTORS FOR ILLEGALLY RECEIVED DIVIDENDS

LIABILITY OF STOCKHOLDERS TO REFUND THEM TO CORP OR ITS CREDITORS If the directors acted in good faith, they are not liable to the corp or to creditors for declaring and paying dividends

REMEDIES OF COPORATE CREDITORS P418

If dividends are improperly declared and paid when there are no net earnings, THEY MAY BE RECLAIMED BY THE CORPORATE CREDITORS or by a receiver or assignee If the capital stock is wrongfully paid away by the directors, it may be pursued by the creditors into the hands of any one WHO IS NOT AN INNOCENT PURCHASER If such a wrong is threatened, a CREDITOR MAY MAINTAIN A SUIT FOR INJUNCTION.

PERSON ENTITLED TO DIVIDENDS The stockholder of record as of the date of the declaration of dividends or holders of record on a certain future date. Dependent on the Creator of the trust The transferor The pledgee Stockholders of record ONLY at the time of the approval of said increase by the SEC Not yet recorded on book, NOT ENTITLED

RIGHT OF STOCKHOLDERS AFTER DECLARATION OF DIVIDENDS CASH DIVIDENDS -As soon as the cash dividend are declared, they have the right to the PRO RATA SHARES STOCK DIVIDENDS Since the declaration of stock dividend gives the stock holder nothing until all the formalities necessary to a valid increase of stock are complied with, ITS REVOCATION therefore, TAKES AWAY NOTHING. Unless rescinded, the shareholders have absolute right to their respective shares. SUBSCRIBERS are considered stockholders NOT FROM THE TIME they are issued certificates of stock, but from the time their subscriptions are accepted by the corporation.

CLASSES OF DIVIDENDS

1. CASH DIVIDENDS dividends payable in cash2. PROPERTY DIVIDEND dividend payable in property, real or personal, such as warehouse receipts, or shares of stock of another corp. It is actually a cash dividend3. STOCK DIVIDEND dividends payable in unissued or increased or additional shares of the corporation instead of in cash or property out of the unrestricted retained earnings of the corp. May be declared only to the extent of the maximum number of shares authorized in the Art. Of iNc.4. OPTIONAL DIVIDEND gives the stockholder option to receive cash or stock dividend5. COPMPOSITE DIVIDEND partly in cash and partly in stocks, no option involved.6. PREFERRED OR PREFERENTIAL DIVIDEND payable, by virtue of contract, to one class of stockholders in priority to that to be paid to another class7. CUMULATIVE DIVIDENDS contracted to be paid at a certain rate at stated times8. SCRIP DIVIDENDS dividend in a form of a writing or certificate issued to a stockholder9. BOND DIVIDEND dividend distributed in bonds of the corporation to the stockholders10. LIQUIDATING DIVIDENDS actually distributions of the assets of the corp upon dissolution or winding up

EFFECT OF DECLARATION OF CASH DIVIDEND The assets of the corp diminish and correspondingy the property of the individual stockholder increases

EFFECT OF DECLARATION OF STOCK DIVIDENDS The declaration of a stock dividend is akin to a forced purchase of stocks. The declaration adds nothing to and takes nothing from the corporation. The corp merely trasfers the surplus to a capital account and issues shares of stock to represent the same. The declaration of stock dividend is advantageous to the existing creditors to the extent that corporate earnings are capitalized.

TAX TREATMENT OF STOCK DIVIDENDS Stock dividends are NOT TAXABLE INCOME because they merely represent an unrealized gain to the stockholder who receives nothing

CASH DIVIDEND VS STOCK DIVIDEND

1. Cash involves a disbursement to the stockholder of accumulated earnings, while stock dividend does not involve any disbursement2. Cash dividend declared and paid becomes the absolute propertu of the stockholder and cannot be reached by the creditors in the absence of fraud, while stock dividend, being still part of corp property, may be reached by corporate creditors3. Cash dividends is declared only by the board of directors at its discretion, while stock dividend is declared by the board with the concurrence of the stockholder representing at least 2/3 of the outstanding capital stock.4. Cash dividend does not increase the corporate capital, while it is increased by a stock dividend.5. The declaration of cash dividend creates a debt from the corp to each of its stockholders while no debt from the corp to the stockholder is created by the declaration of stock dividend.6. Cash dividend is taxable as income to the stockholder, while stock dividend is generally not subject to income tax.

SEC. 44 POWER TO ENTER INTO MANAGEMENT CONTRACT With another corporation With parent corporation With a natural person

LIMITATIONS OF THE POWER1. Ratification of the contract the contract must be approved by a majority of the quorum of the BD and ratified by the prescribed vote of the outstanding capital stock The management contract must be approved by the stockholders of the managed corp owing at least 2/3, NOT MERELY A MAJORITY, of the total outstanding capital stock entitled to vote.

2. PERIOD OF CONTRACT must not be longer than 5years for any one term except those contracts which relate to exploration, development , exploitation or utilization of natural resources that may be entered into for such periods as may be provided by pertinent laws

3. MANAGERIAL POWER UNDER THE CONTRACT the management contract must always be subject to the superior power of the board

ULTRA VIRES ACTS- one not within the express, implied and incidental powers of the corporation conferred by the corp code or art. Of inc.

RATIFICATION OF ULTRA VIRES ACTS Where the contract or act is illegal per se it is wholly void or inexistent Where the contract or act is NOT ILLEGAL perse but merely beyond the power of corp, the same is merely VOIDABLE, and may be enforced by performance, ratification or estoppel. The doctrine of ultra vires cannot be invoked when it would defeat the ends of justice or work a legal wrong.

ACTS PRESUMED TO BE WITHIN THE CORPORATE POWERS

1. Where private rights only are involved2. Where act clearly beneficial to the corporation

ULTRA VIRES AS ACTS OF CORP

1. Conveyance or transfer of property to or by corporation, though the corp has no power to hold or transfer property2. When ultra vires contract with a corp is fully executed by both parties3. Actons quasi ex contractu4. When the ultra vires has been fully performed by one of the parties and the other has received the benefit of such performance5. Torts and crimes are always ultra vires

WHO MAY INVOKE ULTRA VIRES1. One who is invoking ultra vires acts2. STATE3. STOCKHOLDERS4. STRANGERS5. COMPETITORS IN BUSINESS6. CREDITORS

ESTOPPEL TO DENY CORPORATE POWER TO CONTRACT

1. GR: An association which assumes to exercise corp powers and enters into contract as a corp and persons are estopped, to deny its corp existence2. Where power to enter into contract in issue3. Where contract wholly executory4. Where contract apparently ultra vires5. Where contract has been performed on one side

CORPORATE LIABILITY FOR TORTS, CRIMES AND OTHER VIOLATIONS

GR: A Corporation being a juridical entity, can only act as such through its officers and agents. This being the case, it is responsible for the tortuious acts of the latter done in the scope of their authority.

Penalties Imposable while a corporation cannot be arrested, imprisoned, it may be summoned, fined or ousted by QUO WARRANTO from the unlawful exercise of its powers. For violations of any of the provisions of the Corp Code a corporation is subject to fine and/or dissolution without prejudice to the institution of appropriate action against the guilty officer.