Corporation Law

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Transcript of Corporation Law

CORPORATION LAWINTRODUCTION

Definition and attributes of a corporation

A corporation is an 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.

A corporation, being a creature of law, "owes its life to the state, its birth being purely dependent on its will," it is "a creature without any existence until it has received the imprimatur of the state acting according to law." A corporation will have no rights and privileges of a higher priority than that of its creator and cannot legitimately refuse to yield obedience to acts of its state organs. (Tanyag v. Benguet Corporation)

A corporation has four (4) attributes:

(1) It is an artificial being; (2) Created by operation of law; (3) With right of succession; (4) Has the powers, attributes, and properties as expressly authorized by law or incident to its existence.

CLASSIFICATION OF PRIVATE CORPORATIONS

Stock v. Non-Stock Corporations

Stock

Non-Stock

Definition

Corporations which have capital stock divided into shares and are authorized to distribute to the holders of shares dividends or allotments of the surplus profits on the basis of the shares (3)

All other private corporations (3)

One where no part of its income is distributable as dividends to its members, trustees or officers. (87)

Purpose

Primarily to make profits for its shareholders

May be formed or organized for charitable, religious, educational, professional, cultural, fraternal, literary, scientific, social, civic service, or similar purposes like trade, industry, agricultural and like chambers, or any combination thereof. (88)

Distribution of Profits

Profit is distributed to shareholders

Whatever incidental profit made is not distributed among its members but is used for furtherance of its purpose. AOI or by-laws may

provide for the distribution of its assets among its members upon its dissolution. Before then, no profit may be made by members.

Composition

Stockholders

Members

Scope of right to vote

Each stockholder votes according to the proportion of his shares in the corporation. No shares may be deprived of voting rights except those classified and issued as "preferred" or "redeemable" shares, and as otherwise provided by the Code. (Sec. 6)

Each member, regardless of class, is entitled to one (1) vote UNLESS such right to vote has been limited, broadened, or denied in the AOI or by-laws. (Sec. 89)

Voting by proxy

May be denied by the AOI or the by-laws. (Sec. 89)

Cannot be denied. (Sec. 58)

Voting by mail

May be authorized by the bylaws, with the approval of and under the conditions prescribed by the SEC. (Sec. 89)

Not possible.

Who Corporate 23

exercises Board of Directors or Powers Trustees

Members of the corporation

Governing Board

Board of Directors or Trustees, consisting of 5-15 directors / trustees.

Board of Trustees, which may consist of more than 15 trustees unless otherwise provided by the AOI or bylaws. (Sec, 92)

Term of directors or Directors / trustees shall hold

Board classified in such a

trustees

office for 1 year and until their successors are elected and qualified (Sec. 23).

way that the term of office of 1/3 of their number shall expire every year. Subsequent elections of trustees comprising 1/3 of the board shall be held annually, and trustees so elected shall have a term of 3 years. (Sec. 92)

Election of officers

Officers are elected by the Board of Directors (Sec. 25), except in close corporations where the stockholders themselves may elect the officers. (Sec. 97)

Officers may directly elected by the members UNLESS the AOI or by-laws provide otherwise. (Sec. 92)

Place of meetings

Any place within the Philippines, if provided for by the by-laws (Sec. 93)

Generally, the meetings must be held at the principal office of the corporation, if practicable. If not, then anyplace in the city or municipality where the principal office of the corporation is located. (Sec. 51)

Transferability interest membership

of Transferable. or

Generally non-transferable since membership and all rights arising therefrom are personal. However, the AOI or by-laws can provide otherwise. (Sec. 90)

Distribution of assets in case of dissolution

See Sec. 94.

CIR VS. CLUB FILIPINO (5 SCRA 321; 1962)

FACTS: Club Filipino owns and operates a club house, a sports complex, and a bar restaurant, which is incident to the operation of the club and its gold course. The club is operated mainly with funds derived from membership fees and dues. The BIR seeks to tax the said restaurant as a business.

HELD: The Club was organized to develop and cultivate sports of all class and denomination for the healthful recreation and entertainment of its stockholders and members. There was in fact, no cash dividend distribution to its stockholders and whatever was derived on retail from its bar and restaurants used were to defray its overhead expenses and to improve its golf course.

For a stock corporation to exist, 2 requisites must be complied with:

(1) a capital stock divided into shares (2) an authority to distribute to the holders of such shares, dividends or allotments of the surplus profits on the basis of shares held.

In the case at bar, nowhere in the AOI or by-laws of Club Filipino could be found an authority for the distribution of its dividends or surplus profits.

FORMATION AND ORGANIZATION OF CORPORATION

Requirements in the formation of a corporation

Who may form a corporation (See SEC. 10)

INCORPORATORS

REQUIREMENTS stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof stockholders or members mentioned in the articles of incorporation as originally forming and composing the corporation and who are signatories thereof

COMMENTS

Definition

compare with Corporators which include all stockholders or members, whether incorporators or joining the corporation after its incorporation.

Characteristic

natural persons

excludes corporations and partnerships

Number

not less than 5; not more than 15

may be more than 15 for non-stock corp. except educational corp.

does not prevent the oneman (person) corporation wherein the other incorporators may have only nominal ownership of only one share of stock; not necessarily illegal

Age

of legal age majority should be residents of the Philippines

Residence

residence a requirement; citizenship requirement only in certain areas such as

public utilities, retail trade banks, investment houses, savings and loan associations, schools

Steps in the formation of a corporation

Mutual Agreement to perform certain acts required for organizing a corporation

1- Organize and establish a corporation 2- Comply with requirements of corporation code 3- Contribute capital/resources 4- Mode of use of capital/resource and control/management of capital/resource 5- distribution/disposition of capital/resource (embodied in constitutive documents)

STEPS

COMMENTS

a. Promotional Stage (See SEC. 2. Definitions)

Promoter brings together persons who become interested in the enterprise

aids in procuring subscriptions and sets in motion the machinery which leads to the formation of the corporation itself formulates the necessary initial business and financial plans and, if necessary, buys the rights and property which the business may need, with the understanding that the corporation when formed, shall take over the same.

b. Drafting articles of

(see chart below)

incorporation (See SEC. 14)

c. Filing of articles; payment of fees.

AOI & the treasurers affidavit duly signed & acknowledged must be filed w/ the SEC & the corresponding fees paid failure to file the AOI will prevent due incorporation of the proposed corporation & will not give rise to its juridical personality. It will not even be a de facto corp. Under present SEC rules, the AOI once filed , will be published in the SEC Weekly Bulletin at the expense of the corp. (SEC Circular # 4, 1982).

d. Examination of articles; approval or rejection by SEC.

Process: a) SEC shall examine them in order to

determine whether they are in conformity w/ law. b) If not, the SEC must give the incorporators a reasonable time w/in w/c to correct or modify the objectionable portions.

Grounds for rejection or disapproval of AOI:

a) AOI /amendment not substantially in accordance w/ the form prescribed

b) purpose/s are patently unconstitutional, illegal, immoral, or contrary to government rules & regulations;

c) Treasurers Affidavit is false;

d) required percentage of ownership has not been complied with (Sec. 17)

e) corp.s establishment, organization or operation will not be consistent w/ the declared national economic policies (to be determined by the SEC, after consultation w/ BOI, NEDA or any appropriate government agency -- PD 902-A as amended by PD 1758, Sec. 6 (k))

Decisions of the SEC disapproving or rejecting AOI may be appealed to the CA by petition for review in accordance w/ the ROC.

e. Issuance of certificate of incorporation.

Certificate of Incorporation will be issued if:

a) SEC is satisfied tha