Corporation LawAn OutlineBy: Atty. Alfred Gaccion

Historical BackgroundEthnological Theory manifestation of the gregarious instinct in man, existing inchoate from earliest times and before law itself became an effective social Force.

Imitative Theory Imitative theory of Jural Development.- Laws Fathered by the Hellenic jurist permitted the formation of private corporation for certain purposes, upon condition that they do not operate in violation of the laws of the state.

Philippine Corporation LawsSociedad en comandita - Limited partnershipSociedad regular colectiva General Partnership- Governed by Art. 116 to 150 and 160 to 174 of the code of commerceSociedad anonima present day concept of corporate entity- Governed by Art. 151 to 159 of the Code of CommerceAct No. 1459 The Old Corporation LawB.P. 68 The Corporation Code of the Philippines

Corporation Definitions

Corporation An artificial being created by operation of law, having the right of succession and the powers, attributes and properties espressly authorized by law or incident to its existence. (Sec. 2 Corporation Code) (applies only to private corporations)

- 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. It is an artificial being invested by law with a personality separate and distinct from those of the persons composing it as well as from that of any other legal entity to which it may be related. It was evolved to make possible the aggregation and assembling of huge amounts of capital upon which big business depends. It also has the advantage of non-dependence on the lives of those who compose it even as it enjoys certain rights and conducts activities of natural persons. (Reynoso Vs. CA 345 SCRA 335)

Attributes of a Corporation

Artificial BeingCreated by Operation of LawRight of SuccessionPowers, Attributes and Properties expressly authorized by law or incident to its existence.

As an Artificial BeingJuridical Person possess personality separate and distinct from its individual stockholders or members.- possess a corporate veil as against its stockholders and members.Liability for Acts and contracts May be liable for obligations incurred by the corporation through its authorized agents.- Any suit against a Stockholder, Director, or officer cannot be a suit against the corporation without impleading the corporation itselfRight to Bring Actions - May incur obligations and bring civil and criminal actions in the corporations name.

Limitations of bringing Actions:

A suit for and in behalf of of its stockholders or members for purposes of recovering its property which belong to the said stockholder (Sulo ng Bayan vs. G. Araneta, Inc. 72 SCRA 347)

Actions for moral damages arising from wounded feelings, serious anxiety, moral shock, mental anguish, sleepless nights (Rural Bank of Makati Inc. Vs. Municipality of Makati, 433 SCRA 362)Exception: Moral Damages resulting from besmirched reputation. (Mambulao Lumber Co. Vs. Philippine National Bank, 22 SCRA 359)

Venue The place of business of the suing Corporation is considered as its place of residence

Right to Acquire Properties - Possesses and owns properties as separate and distinct from its stockholders, officers or members.

Rights Guaranteed Under the Constitution a corporation is entitled to the rights provided for by the constitution being recognized as a juridical person

Exceptions:Right of LibertyRight against Self Incrimination (Bataan Shipyard and Engineering Co., vs. PCGG 150 SCRA 181)

Citizenship as may be defined in the statutes- No Absolute rule; may be inter change with domicile or residency.

Doctrine of Piercing the Veil- The legal fiction of a corporation being a judicial entity with a distinct and separate personality was envisaged for convenience and to serve justice. Therefore, it should not be used as a subterfuge to commit injustice and circumvent the law. (Tomas Lao Construction Vs. NLRC)

- When the fiction is urged as a means of perpetrating a fraud or an illegal act or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, the achievement or perfection of a monopoly or generally the perpetration of knavery or crime, the veil with which the law covers and isolates the corporation from the members or stockholders who compose it will be lifted to allow for its consideration merely as an aggregation of individuals. (Reynoso Vs. CA)

- Court has pierced the veil of corporate fiction in numerous cases where it was used, among others, to avoid a judgment credit; to avoid inclusion of corporate assets as part of the estate of a decedent; to avoid liability arising from debt; when made use of as a shield to perpetrate fraud and/or confuse legitimate issues; or to promote unfair objectives or otherwise to shield them.

Grounds Corporate Veil is used to:- Defeat Public Convenience when the corporate fiction is used a vehicle for the evasion of existing obligation.- Fraud Cases when corporate entity is used to justify wrong, protect fraud or defend crime- Alter Ego corporation is so organized and controlled and its affairs are so conducted as to make it merely an instrumentality, agency conduit or andjuct of another person or corporation.ElementsA. Control - complete dominionB. Used to Commit Fraud or wrongC. Proximate cause of the loss complained of

Effects:- Corporation may be treated as an association of individuals.- In cases of two Corporation, it may be merged into one.- Legitimate purpose of the corporation may still be allowed.

Cases

As Creation of LawModes of creating a CorporationA. Special Law or charter Direct act of Legislature.B. General Corporation law BP 68Right of succession- independent from its members- not more than 50 years

Powers Attribute and PropertiesThose that may be granted by law of its creationImplied powersIncidental or essential to the corporates existence. Test: Whether the act is in direct and immediate furtherance of its Business, fairly incidental to the express powers and reasonably necessarry.

Distinction as of partnership from corporationPartnershipCreated by agreement of partiesMay be Organized by only 2 persons.Juridical personality commences upon the execution of the contract.May exercise powers authorized by partners as long as not contrary to law, morals, etc.May be established for a period of time stipulated by the partners.May be dissolve by the will of the partners.CorporationCreated by operation of lawMinimum of 5 except corporation sole.Juridical personality commences upon issuance of certificate by SECPower is defined by the Corporation CodeEstablished for a period not in excess of 50 years extendible for another period of 50 yrs in one instance.May only be dissolve upon consent of the state

Corporation as Partner:

General Rule Cannot ordinarily enter into a contract of partnership.

Reason:- The identity of the corporation will be lost or merged.- Against public policy. Corporation will be bound by the act of persons not its authorized agents.- Permit corporate assets be subjected to risk

Exceptions:a. Joint Ventures in line with the business provided by its chartersb. Other Partnerships provided the ff conditions presents:1. All Corporation Partners must be managing partners and must be solidarily liable2. The respective charters or articles of incorporation expressly allow the corporation to enter into partnership agreement and the nature of the busniess venture is in line with the business authorized by law or its articles.3. When one partner is a foreign corporation it must obtain a license to transact business in the country.

Can a Corporation be a Partner?

General Rule:

A Corporation cannot ordinarily enter into partnership

Reason:

A. A Corporation can only act through its authorized officers and will not be bound by the act of anyone else, while in partnership each act of the partner binds the other partner.B. Contrary to Public Policy C. Subjects Corporate assets to risk and liabilities not contemplated by stock holders.

Exception:

General Professional PartnershipJoint Venture where the nature of the venture is in line with the business authorized by its charter.Partnership agreement wherein all partners will manage the partnership

Conditions under the exceptions:

All partners must be managing partners and all partners must be solidarily liableArticles or charters must allow partnership and nature of business must be inline with the business authorized in the articles or chartersFor Foreign Corporations, it must have a license to transact business in accordance with existing law (Corporation Code and Foreign Investment Act)

WHAT ARE THE ADVANTAGES OF A CORPORATION?

Has a legal capacity to act and contract as a distinct unit in its own name.Continuity of existenceStrengthened credit by such continuity of existenceCentralized managementCreation, organization, management and dissolution are standardizedShareholders have limited liability

WHAT ARE THE DISADVANTAGES OF A CORPORATION

Relatively complicated in formationGovernmental controlStockholders have little voice in the conduct of business

SEC 3. Classes of Corporation

What is a stock Corporation?Corporations which have capital stock divided into shares and are authorized to distribute to the holders of such shares dividends or allotments of the surplus profits on the basis of the shares held are stock corporations.

Distinguish Stock Corporation From Non-stock Corporation:Created and operated for profitMust have capital stock divided into sharesAuthorized to distribute shares or allotments out of the surplus profitsStock CorporationNon-Stock CorporationCreated not for profit but for public good and welfareDo not have capital stock divided into sharesDoes not distribute dividends or allotmentsTrust Fund Doctrine The Capital stock of a corporation is trust fund to be kept intact during the life of the corporation for the benifit of the creditors of the Corporation. Hence dividends or allotments may only be declared upon the presence of unrestricted retained earnings.

Other Classifications of corporations

Corporation aggregate composed more than one incorporatorCorporation sole consist of one member or corporator only and his successorEcclesiastical corporation organized for religious purposesLay corporation organized for purposes other than religionEleemosynary organized charitable purposesCivil Corporation established for business or profitDomestic Corporation incorporated under the laws of the philippinesForeign Corporation existing under any laws other than PhilippinesDe Jure Corporation a corporation existing in fact and in law.De facto a corporation existing in fact but not in law.Close Corporation - one which is limited to selected person or members of the familyOpen Corporation membership is open to all personParent Corporation possess the power to elect directly or indirectly majority of the directors of another corporationSubsidiary Corporation majority of its directors can be elected by other corporationAffiliated Corporation related to another corporation by owning or being owned by common management or long term lease of its properties or other control device

Public Corporation Vs. Private Corporation

Public Corporation Organized for the government of a portion of the State for the general good and welfare

Private Corporation Formed for some private purpose benefit or end. May either be government owned or controlled corporation.

Test: If creation done by the State as its own agency or instrumentality for political or public purpose connected with administration of the government.

Can a corporation exist without formal Legislative grant?

Quasi- CorporationsCorporation by prescriptionCorporation by estoppel

SEC 4. Corporations Created by Special Laws or CharterModes where a corporation is created:1. General Incorporation2. Special Act of the Legislature- must be owned or controlled by the government- Governed by Civil Service Law not labor code- Sec has no jurisdiction except as it may determined the status of the corporationQ. Can the Government organize a corporation under the Corporation Code?

Sec. 5 Corporators and incorporators, stockholders and Members

Corporators Those who Compose the corporation.Incorporators Corporators mentioned in the Articles of Incorporation as originally forming and composing the corporation. Must be a natural Person.Stockholders owners of shares of stock in a stock corporationMembers Corporators of a corporation with no capital stocks.

Promoters a person who undertake the formation of a corporation without their being incorporators.Subscriber person who have agreed to take and pay for original, unissued shares of a corporation formed or to be formedUnderwriter - a person who (a) has agreed to buy at stated terms an entire issue of securities or substantial part thereof (b) has guaranteed the sale of an issue

Sec. 6 Classifications of shareA corporation may classify shares of stock which may have rights, privileges or restrictions as provided in the articles of incorporation and subject to the provision or limitations under section Sec. 6 Limitations:No shares May be Deprived of a voting rights except those preferred and redeemable shares.There Shall always be a clas or series with complete voting rights.Banks, Trust Companies, insurance companies, public utilities, and Building and loan association shall not issue a no par value share.Preferred shares of stocks may be issued only with a stated par value.Shares without par value shall not be issued for a consideration less than 5 pesos per share and considerations receive thereof by the corporation shall be treated as the capital and shall not be available for distribution as dividend.Each share shall be equal in all respects to every other share except as provided in the articles and stated in the certificate of stock (doctrine of Equality of shares)Non-voting shares may nevertheless be allowed to vote for:A. Amendment of the articles of incorporationB. Adoption and amendment of by laws;C. Sale, Lease, exchange, mortgage, pledge or other disposition of all or substantially all of the propertiesD. Incurring, creating or increasing bonded indebtednessE. Increase or decrease of capital stock

F. Merger or consolidation with other corporationG. Investment of corporate funds in another corporation or business in accordance with this codeH. Dissolution of the corporationI. Classification must not be restricted by the articles or by law.

A Corporation may issue only one class of share common share.

Who may cause the classification of shares?IncorporatorsBoard of Directors and stockholders by amending the articles Subject to Sec. 16 and Section 81.

Purpose of classifying shares:Compliance with constitutional requirementReason of expediency primarily for monitoring purposes.

May the Board of Directors Classify shares?

Doctrine of equality of Shares in the absence of any provision in the articles and certificate of stock, all stock are presumto enjoy same rights and privileges and subject to same liabilities.

Capital Stock amount fixed in the articles of incorporation to be subscribed and paid in or agreed to be paid in by the stockholders of a corporation, in money, property, services or other means at the organization of the corporation.Authorized Capital Stock refers to the amount of capital stock as specified in the articles of incorporation.Subscribed Capital Stock the amount of capital stock subscribed whether fully paid or not.Outstanding Capital Stock portion of the capital stock which is issued and held by persons other than the corporation itself whether or not fully or partially paid.Paid up Capital stock is that portion of the subscribed or outstanding capital stock that is actually paid.Unissued Capital Stock portion that is not issued or subscribed.Legal Capital - amount equal to or aggregate par value and/or issued value of the outstanding capital stock.Capital broadly used the entire property or assets of the corporationStock or Share of stock one of the units into which the capital stock is divided. It represents the interest or right of the owner to the corporation. Owned by a stockholder or person in contrast with the capital which is owned by the corporation itself.

Corporation XAuthorized Capital Stock = P1,000,000.00Shares = 10,000Par value = P100.00/shareSubscribed = P250,000.00

Chart1

3.5

1

8

Legal Capital/Subscribed Capital StockP250,000.00

Paid Up 62,500

Un issued Capital StockP750,000

Sales

Corporation X

Sheet1

Sales

Subscribed3.5

Paid up1

Unissued8

To resize chart data range, drag lower right corner of range.

Distinguish Capital Stock from CapitalCapital is the actual corporate property. It is therefore a concrete thing. While Capital stock is an amount therefore something abstractCapital may fluctuate or vary depending upon losses or profit of the business of the corporation while Capital Stock is ConstantCapital belongs to the corporation while Capital stocks when issued Belongs to the stockholder.

Situs for shares of Stocks

For Purposes of execution, attachment, and garnishment Domicile or residence of the corporation which is the place where the principal office of the corporation is located ( Chua Guan vs. Samahang Magsasaka Inc. 62 Phil 472)For Purposes of registration of Chattel Mortgage Province or city which the corporation has its principal office or placce of businessFor Property Taxation At the domicile or residence of the owner.Exception:A. Inconsistent with the express provision of the statuteB. NIRC Estate of decedent includes all intagible wherever situated

Types of Shares :

Par Value Shares one with a specific money value fixed in the articles and on the certificate of stockNo Par Value without any stated value appearing on the face of the certificate of stock. But must have an issued value.Voting Share with right to voteNon Voting Share without a right to voteCommon Share one which entitles the holder thereof to a pro rata division of the profits if any and in its assets upon dissolution.Preferred Share with stated par value which entitles the holderto certain preferences over the holders of common stock. cummulative, noncumulative, participating, nonparticipating, cummulative-paticipatingPromotion share those that are issued to promoters for incorporating the company or for services rendered in launching or promoting the company.Share in escrow share in deposited by the grantor or his agent with a third person to be kept by the depository until performance of a certain condition. Subject of suspensive condition. Ownership is not transferred untill fulfillment of the conditionConvertible share Share convertible from one class to another class. Not automatic, the articles must be amended to formally convert the share.Par Value = Book Value = Market ValueRef. CE = CS/Issued S = Supply and demand

Sec. 7 Founders Share Founders share chassified as such in the articles of incorporation maybe given certain rights and privileges not enjoyed by owners of other stocks, provided that where the exclusive right to vote and be voted for in the election of director is granted, it must be for a limited period not to exceed 5 years subject to the approval of SEC. Period shall commence from the date of the aforesaid approval by the SEC.

Sec. 8 Redeemable Share Redeemable shares may be issued by the corporation when expressly so provided in the articles of incorporation. They may purchased or taken up by the corporation upon the expiration of a fixed period, regardless of the existence of unrestricted retained earnings in the books of the corporation, and upon such other terms and conditions stated in the articles of incorporation, which terms and conditions must also be stated in the certificate of stock representing the said shares.

Sec. 9 Treasury Shares Treasury shares are shares of stock which have been issued and fully paid for but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of directors.

Sec. 10 Number and Qualification of incoporators-

Who May Form a corporation? May foreigners form a corporation under the laws of the philippines? May a corporation be a stockholder? May a corporation be an incorporator?Natural Persons not less than 5 but not more thatn 15 and majority of whom are residents of the philippines may form a corporation for legitimate purpose or purposes.

Incorporation under the jurisdiction of the philippines is not a matter of natural or civil right but a priveledge conferred upon group of person. It becomes a matter of right only after it is in accordance with the code.

Corporations Vs. AssociationCourts will not interfere with the internal affairs of an unincorporated associations.Corporation as a Concept of FranchiseAny special privilege or right affected with public interest, conferred by the state on corporations or persons and which does not belong to the citizens of the country generally as a matter of right.The Right to exist as a corporation is a franchise.- inviduals may not exercise by their own will and pleasure- must be under conditions set forth by government

Two Kinds of Franchise in relation to corporation

Primary franchise right or privelege granted to individuals by the state to be and act as corporationafter its incorporation. General Franchise vests in the individuals and not to the corporation-inalienable and cannot be transferred it may be conveyed except upon express legislative consent

2. Secondary Franchice Exercise powers and privileges of the corporation to the business for which it was created., including those conferred for purposes of public benefit such as the power of eminent domain and other powers and privileges enjoyed by public utilities- Conferred upon the corporation after its incorporation- May be alienated except with charged with public use

Steps in Forming Corporation:

Promotion:Business operation by which a compoany is generally brought into existence

May a Corporation Formed without promoters?Who is a promoter?- one who, alone or with others takes upon himself to organize a corporation: To procure the necessary legislation, subscribers to the articles of incorporation, and other necessarry requirements.

- Not necessarily an agent of the corporation except after formation and with assent of the corporation

- quasi trust relation with the corporation after the corporation is formed hence imposed upon the duty to act in good faith in all dealings of the corporation.

- May be an agent to the subscribers or corporators provided there is an agreement to the effect.

- In the absence of character or statutory provision, a corporation is not liable to its promoters in respect to any payment of services rendered, unless after incorporation it expressly agreess to make such payments

May a Corporation be held Liable for Contracts entered into by promoters for its behalf?What are the liability of the promoters in cases of failure to organize a corporation?To Subscribers obligation to return except contrary agreementTo Each other general laws but if business is carried on laws of partnership

Incorporation

- Substantial Compliance with the requirements and conditions imposed by the Corporation code SEC may not refuse registration of a Corporation.

- A corporation may become a stockholder of another corporation by subscribing to or purchasing the latters stock.

- Incorporators must have capacity to enter into contracts.

- Residents of incorporators must be referred to as domicile. A place of habitual residence of a corporation, where one has his true, fixed, permanent home and to which whenever he is absent has the intention of returning.

- Requirement regarding the minimum number of incorporators is mandatory which however may reduce after incorporation.

Sec. 11 Corporate Term

A corporation shall exist for a period not exceeding 50 years from date of incorporation unless dissolved, revoked, or extend. Exception: Condominium Corporation which may be up to 200 yrs.

Extension Of Corporate Term:

May a corporation provide in the articles of incorporation for an automatic extension clause?Can a Usufruct be constitute in favor of a corporation for more than 50 yrs?What is the Doctrine of Relation?

Limitation of extension:1. Term shall not exceed 50 yrs. In one instance2. The amendment is effective before the expiration of the corporate term but not earlier than 5 years prior to the expiration.

Doctrine of relation-Delay in effecting the amendment is due to the neglect of the officer with whom the application is required to be filed, or wrong his wrongful refusal to receive it the same shall be treated as having been filed before the expiry date.

Upon the Expiration of the term the corporation ceases to exist and is dissolve ipso facto.

Sec 12 Minimum Capital Stock required of a stock corporation

Sec 13 Amount of Capital Stock to be subscribed and paid for purposes of incorporation

There is no minimum capital stock required for the creation of the corporation except as that required under section 13 or that may be required under special laws such as educational corporations, Banking corporations, Financing Companies

Minimum Paid up Capital- 25 % of the subscribe capital stock but not less than 5,000 pesos.- 25 % must be based on the aggregate subscribe capital stock and not on the individual stock subscribed by the stockholder.

Sec. 14 Contents of articles of IncorporationSec. 15 Form of Articles of Incorporation

Articles of Incorporation- the document prepared by the persons establishing a corporation and filed with the SEC containing the matters required by the code

Rule on Joint Venture- Need not be registered expect when a separate personality is desired.

Can the SEC be compelled through mandamus to accept the articles of incorporation?

Name of the Corporation- essential to its existence and identity- in the nature of a trademark, a property right, right in rem- must include the word Corporation or incorporated or abbreviation.

Purpose or Purposes of the Corporation- must state its primary and secondary purposes- Purpose or purposes must be lawful- not contrary to law or morals

- Corporations may not be formed for purposes of exercising professions. Exceptions: Hospitals Optimetry Acebido optical vs. CA- Purpose or Purposes must be stated with sufficient clarity and in broad terms but not indefinitely stated.- Purposes must be Capable of being lawfully combined.Reasons for stating the purpose:1. Investors2. Directors3. Third Persons- A corporation engaged in secondary purposes should be in the nature in relation to its secondary purpose

Place where Principal office is Located- it should be the main office in cases where corporation has different brances.- Change of address which results in change of municipality or city must be effected through amending the articles of incorporation.Can summons be served to the branch of a corporation?

Incorporating Directors or Trustess- Not less than 5 not more than 15 except non stock corporation who may have more than 15 trustees.

Sec. 16 Amendment of Articles of Incorporation

Charter instrument or authority from sovereign power bestowing the right or privilege to be and act as a corporation

Charter of a private corporation Consist of :1. The general incorporation Law2. Articles of incorporation3. By Laws4. Provisions of the constitution and the general laws of the stateFor Corporation created by special laws:1. The Special Law creating the Corporation2. EO of the president3. Rules and regulations applicable to such corporations4. all laws applicable thereto.

Nature of a Corporate Charter1. Contract between the Corporation and the State2. Contract between the Corporation and the Stockholders3. Contract among stockholders themselves

Nature of a Corporate Charter:

Three fold Contract:

State-CorporationConsent = The application made by the corporationObject = Power to exist as CorporationConsideration = To abide by the rules and regulations

Government cannot dissolve a corporation without case as it may result to impairment of contract. Except to Franchise holder where the only requirement in when the common Good Requires

2. Corporation-Stockholders3. Stockholders-Stockholders

Amendments Sec. 16Se. 37 Shortening or extending the corporate termSec. 38 Increasing or decreasing the capital stock

Matters not Subject to amendment1. Name of Incorporators and name of first set of directors2. Names of the subscribers, treasurers of the corporation elected by the subscribers and witnesses except to correct mistakes.

Is a meeting for the stockholders necessary to effect amendment under section 6?- only writtten assent is required hence meeting is not necessary

Limitations- must not be contrary to any provisions or requirement prescribed by the code- not change any provisions in the articles stating an accomplished fact- must be for legitimate purpose- must be approved by the required vote of the board of directors and stockholders- both articles must contain all provisions required by law to be set out in the articles of incorporation- Amended articles must indicate the changes made- take effect only after approval by the SEC or 6 mos after filing without action of the SEC and no attributable cause against the corporation- Favorable recomendations if needed

Sec 17 Grounds when articles of incorporation or amendment may be rejected or disapproved.

- Decisions of the commission in recting or disapproving the articles of incorporation may be appealed by a petition for review.

Grounds for rejection under PD 902-A as superseded by the SRC

Fraud in procuring its certificate of incorporationSerious misrepresentation causing prejudice or damage to the general publicRefusal to comply with lawful orders of the CommissionContinous operation for 5 yrs.Failure to file By-laws within the required period.Failure to file required reports in appropriate forms.

Effects of Revocation,Suspension,Disapproval

Immediately effectiveMay sue only for purposes of liquidation

Sec. 18 Corporate name

Does a Corporation need to register with the DTI if it intended to use another business name?

Part name:Every Corporate name must contain the word Corporation or incorporated or its abb.

Corporate Name must :Not be identical or deciptively or confusingly similar with existing corp.Not be patently Deceptive, confusing or contrary to existing law.

Test of Infringement:priority of adoption- whether the similarity is such as to mislead a person using ordinary care and discrimination. Proof of actual confusion need not be shown.

Requisites for infringement: (Philips BV vs Ca)The Complainant Corporation acquired prior right over the use of such corporate nameThe proposed name is either, identical, or deceptively or confusingly similar, patently deceptive,confusing or contra to existing law

Generic,Geographical, and descriptive terms and names

-Rule : Incapable of exclusive appropriationException: Doctrine of Secondary Meaning- where such word have acquired a secondary meaning or have become distinctive so as to distinguish not only the product of a particular service and its quality but also the name of the producer of the service.- The word or phrase which may be incapable of exclusive appropriation might nevertheless have been used so long and so exclusively by one producer with reference to his article that, in that trade and to that branch of purchasing public, the word or phrase has come to mean that the article was his product.

= can it be registered?

Remedy of an infringed corp

InjunctionDe-registration

Change of Corp. Name-Amendment of the Articles-Effectivity upon approval of the commission

Use of Changed or abandoned namesFormer name of same corporation cannot be appropriated for a certain timeNames of Merged or consolidated corporation may not be used by another corporation without consent of the merged/consolidated corp.Names of Dissolved Corporation or whose registration has been revoked it shall not bee used 3 years from approval of dissolution or 6 years from revocation Dissolve Corporation through expiration of the term may be appropriated by other corporation.

Sec. 19 Commencement of Corporate existence

When does a corporation commences to have a corporate existence?It is the certificate of incorporation that not only gives juridical personality to a corporation but places it under the jurisdiction of the Commission.

In relation to Sec. 22 The corporation must formally organize and commence transaction of its business or construction of its works within 2 yrs. Otherwise its corporate powers shall cease.

Sec. 20 Defacto Corporation

Distinguish De jure Corporation from a defacto Corporation.

A de Jure Corporation is one created in strict or substantial conformity with the mandatory statutory requirements for incorporationand the right of which to exist as a corporation cannot be succesfully attcked or questioned by any party even in direct proceeding for that purpose by the State. While a De facto Corporation, is one which actually exist for all practical purposes as a corporation but which has no legal right to corporate existence as against a state.

Requisites of a de facto corporation:Valid Law under which a corporation with powers assumed might be incorporatedA bona fide attempt to organize a corporation under such law; colorable complianceActual user or exercise in good faith of corporate powers.

Effect on stockholders of a de facto corporation?- enjoy the exemption from personal liability

Absence off Articles of Incorporation = no defactoMinor defect in requirements = produces de facto corporation

Colorable Compliance = De facto CorporationSubstantial Compliance = De jure CorporationNon Compliance = No corporation at all except upon application of estoppel

The corporation must act in good faith in claiming to be a corporation and exercising corporate powers. There must be a showing that the corporation will correct any defect, otherwise it will cease to enjoy the privilege of a defacto corporation.

Basis of De facto Corporation:Protection to third person

Who may attack the status of a defacto corporation?Only the state in a direct proceedingRationale:Individual right is not invaded; it is the states right and authority which are invaded and usurped.

Test of the status of a corporationWhether what has been done toward incorporation and organization is sufficient to constitute a corporation de jure or de facto.

Sec. 21 Corporation by estoppel

Basis:Principle of equity and is designed to prevent injustice and unfairness.applies to third party only to third party when he tries to escape liability on a contract from which he has benefited on the irrelevant ground of defective corporation.

A corporation by estoppel has no real existence in law. It is neither a de jure nor a defacto corporation, but a mere fiction exiting for the particular case, and vanishing where the element of estoppel is absent.

- A corporation which continues its business instead of liwuidating its affairs after the expiration of its corporate term, is a corporation by estoppel for the purpose of being sued on its contracts, not a corporation de facto because it no longer exists in fact and in law as a body corporate, except pnly for purposes of liquidating its affairs

- in order for one to be estopped to deny the corporate existence of an organization, he must have contracted or dealt with it as a corporation. Except upon the attendance of fraud- third party receiving benefits cannot later on deny the existence of a corporation

Sec. 22 Effects of Non use of corporate charter and continuous inoperation

Condition subsequent

-EffectsAutomatic cessation of corporate powersMay be collaterally attacked

Sec. 23 The Board of Directors or trustees

Tri- Level Structure of a corporation:

Stockholders pass upon other corporate actionsElects the Board of Directors.Earns Profit

Directors Policy making BodyExercises Corporate PowersManagement

Officers Execute Policies formulated by the Board of Directors.

Corporation may only act through the Board of DirectorsGeneral Rule: In the absence of authority or a valid delegation from the board of Directors or Trustees, no person, not even its officers can validly bind the corporation.

Exception: Doctrine of Apparent Authority

- Extent of Judicial Review court will not interfere with the regular, honest acts or contracts entered by the directors or contracts intra-vires. Business Judgment rule

The only remedy for internal dissensions is only through Corporate Election.

The Powers of the Board of directors or trustees are original and undelegated.The stockholders of members don not confer, nor can they revoke, those powers. Derivative only in the sense of being received from the state in the act of incorporation.

A director is presumed to serve without compensation and in the absence of express agreement or resolution, the same cannot be asserted.

Genral Rule:Directors or trustees can bind the corporation only by actions taken at a board meeting:

Reason:1. For Purposes of Discussion and an interchange of views2. As Agents of tthe corporation manging its affairs, directors or trusteeshave no power to act other than as a board

Exception:Extra Ordinary Situation or conditions to justify the act

Illustration: - Contract entered by a director where he is the sole stockholder

Contract entered into by a corporate officer authorized by the board (Board of liquidators vs. Heirs of Maximo Kalaw)

Subsequent ratification by the board

Apparent Authority

Delegation of Directors/trustees authorityGeneral rule - May be delegated expressly or impliedly subject to qualification as provided by ABS CBN Case. (1) Specific Purpose except for Executive committee (2) subject to the rules on agency

Exceptions Discretionary powers (e.g. Power to Declare Dividends)Entire Supervision and Control of the CorporationSpecial Powers especially conferred upon it by aresolution.

Term of Office - As Fixed in the by-laws ; or one year and until the successors are elected and qualified

Hold over arises when no successor is elected due to valid and justifiable reason.

Number of Directors:

Stock = Not less than 5 nor more than 15

Non Stock = Not less than 5 may be more than 15

Qualifications of a director or trustee:

Stock Corporation Must own at least one share of the capital stockMust be registered in his name in the booksMust continuously own the share during his termMajority must be a resident of the Philippines

Non Stock Must be a resident of the philippines

Only Natural persons can be elected as directorException: Corporation who owns a shares of stock of another corporation may designate its officer or representative to sit in the latters board.

The by laws may however additional qualification for a director provided the same would not be in conflict with the requirements prescribed by the corporation code.

Acts of a director or other officers are therefore valid so far as third persons are concerned, although he may not ppossess the qualifications prescribed, if he has been elected or appointed by the corporation and permitted to act for it.

Sec. 24 Election of Directors or Trustees

Requirements:Must be made in a meeting of stockholders called for the purposeStockholder must be present or by representative authorized to act by written proxyMajority of the outstanding capital stockMust be by ballot if requested by a voting stockholder or memberMay vote in the manner appropriate for him (straight,cumulative for one, cumulative by distribution)

6. Deliquent stock cannot be voted. A deliquent stock is not entitled to voteor be represented for any corporate purpose7. The candidate receiving the highest votes shall be declared elected. Plurality and not majority.8. Meeting may be adjourn from day to day9. Notice must be given to a stockholder.

Deliquent stocks are not included in computing the quorum.Directors cannot change the date of election for purposes of extending there term except for justifiable reasons;

Sec 25 Corporate Officers- Quorum

Corporate Officers those as given that character either by the code or in the by laws- Conflict arising thereon are in the nature of Intra-corporate disputes.

Employees other officers of the corporation that are not mentioned in the code or in the by laws.

- Conflict arising thereon are in the nature of a Labor Dispute

Only the by-laws can enumerate the officers of the corporation and the board cannot create new offices without amending the by-laws except as it may be empowered under the by- laws or merely appointive officers which are the corporate officers.

Election of Officers:- Majority of all members of the board

Corporate acts:- Majority of the members present

President Must be a director hence must own a shares of stock in his own name- Acts may bind the corporation for contracts entered in the ordinary course of business, provided the same is reasonable under the circumstances.Exception : Acts which are beyond his power as may be granted only to the directors.

- Corporation must prove that the said act is beyond the power of the officer and that it is free from any ratification.

Vice president may not be a director except when the by laws provides that the VP shall take place as president during his absence.

Secretary May or may not be a director unless required in the by laws- May not also own a share of stock- Must be a resident or citizen of the Philippines- ministerial officer who cannot bind the corporation unless expressly authorized to do so

Treasurer May or may not be a director- May not also own a share of stock- Good Corporate practice requires that Treasurer must be a resident (sec opinion)

Apparent AuthorityNot only through corporate practice but its existence may be ascertained through:

The genral manner in which the corporation holds out its officer or agentThe acquiscence in his act of a particular nature, with actual or constructive knowledge thereof

Inside Directors Directors who are also officers

Sources of Powers of corporate officers:StatuteArticles of IncorporationBy lawResolution of the board

Officers of a corporation who acted for and in behalf of the corporationwithin the scope of their authority and in good faith do not become liable with the corporation.Exception : Doctrine of Piercing the veilAlter ego doctrine

Corporations are not bound by the act of its unauthorized officersException : Doctrine of Apparent authority against third person (may be prove by previous acts or conduct of the corporation;Authority by estoppel (a Corporation which by its voluntary act, places an officer or agent in such a position or situation that a person of ordinary prudence are justified in assuming that he has authority to perfor the act)Subsequent ratification by the corporate board

Requisites for the Validity of a corporate act

Board MeetingPresence of the required QuoromDecision of the majority of those presence or members as may be requiredPlace and time of meeting

Proxy voting is not allowed in the Board of directors/trustees manner of votingA Director should cast his vote as he is elected as such purposely to participate the management of the corporation hence s by laws which procides that the chairman of the board may only vote in case of tie is invalid.

Sec. 26 Report of Election of directors, trustees and officers

Reportorial requirements to the SEC upon election of directorsnamesnationalitiesresidences

- Vacancy by reason of death, resignation or any other manner ceased to hold office.

Sec. 26 Disqualification of directors

Purpose is to avoid election or appointment of unworthy officers in view of the fiduciary character of their positions.

2 grounds of disqualification

Conviction by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years.Violation of the code, committed within five (5) years prior to date of election or appointment.

Produces a de facto officer

Right to possess office and salary

General rule: while de facto officers have the same powers of a dejure officers, they do not enjoy same rights as they may be ousted from office and not entitled to salaryException: De facto officers in good faith are legally entitled to compensation (Cojuanco Vs. Roxas 195 Scra 797)

Sec. 27 Removal of Directors

The Removal of Directors rests upon the prerogative of the stockholders.

Requisites for Removal of Directors:Removal must be done at a regular meeting or special meeting called for the purpose.Previous notice to stockholders or members of the corporation of the intention to propose such removal at the meeting.Removal must be by a vote of stockholders representing 2/3 of the outstanding capital stock or 2/3 of members entitled to voteMay be with or without cause but if without cause, it must not be done to deprive minority stockholders

As a rule Directors elected to represent the minority stockholders through cumulative voting may not be removed without cause.Exception: if removal is initiated by the minority stockholders

Initiation- Upon call of the president- upon written demand of the stockholders representing or holding at least majority of the outstanding capital stock.

Removal of a hold over director is considered as expiration of the term .

Courts have no power to remove a director except when a receiver is appointed by the court. In which case the court may thereafter removed such appointee.

Filling of Vacancy as effect of removal:

May be replaced by election in the same meeting without need of further noticeAt any regular of special meeting called for the purpose

Sec 29 Vacancies in the office of director or trustees Applies only in cases other than removal or expiration of the termInstance where a board of directors may elect a director provided the remaining director still constitute a quorum.

Section applies to resignation, death, abandonment, or disqualificationThe person elected to fill the vacancy holds office for the unexpired term of the predecessor.

Filling of VacanciesBy StockholdersA. Vacancy results from removal or expiration of the termB. Other than removal or expiration and directors remaining does not constitute a quorum.C. Referral by the BoardD. Vacancy created by reason of an increase in the number of directors

2. By the members of the BoardA. If still constituting a quorum, majority of members may fill in vacancies that arose other than removal or expiration of the term.

Sec. 30 Compensation of Directors

General Rule:In the absence of any provisions the directors shall not receive any compensation except for reasonable per diems.The compensation is granted by the stockholders representing majority of the outstanding capital stock in a regular or special stockholders meeting.

Limitationmust not exceed 10% of the net income before income tax of the corporation during the preceding year.

Sec. 31 Liability of Directors, Trustees or Officers

General Rule:Directors and Officers are not liable for their official acts unless they exceeded their authority.

Exceptions: under Sec. 311. He willfully and knowingly votes or assents to patently unlawful acts of the corporation.2. He is guilty of Gross negligence or bad faith in directing the affairs of the corporation3. he acquires any personal or pecuniary interest in conflict with his duties

Other exceptions:4. He Consents to the issuance of watered stocks or who having knowledge thereof, does not forthwith file with the corporate secretary his written objection thereto.5. Agrees to hold himself personally liable with the corporation6. he is made by specific provisions of law, to personally answer for his corporate action.

Sec. 32 Dealing of Directors, trustees or officers with the corporation

Refers to Self Dealing DirectorsGeneral Rule:Contract is VoidableException:That the presence of such directors in the board meeting in which the contract was approved is not necessary to constitute a quorum.The vote of such director was not necessarry for the approval of the contract.The contract is fair and reasonable under the contractIn case for officer, the contract with officer has been previously authorized by the board of directors.In the absence of the first two conditions, in case a contract with director or trustee, may ratified by the stockholder by the vote of 2/3 or the outstanding capital stock in a meeting called for the purpose. Provided that fyll disclosure of the adverse interest be made and contract is fair and reasonable.

Sec. 33 Contracts between corporations with interlocking directors

Interlocking director one who is a director of a corporation and at the same time a director of another corporation.

Nominal interest Stockholding not exceeding 20 % of the outstanding capital stock

Rule:Valid except as may be prescribed under Sec. 33 and Sec. 32. (Absence of Fraud, Fair and reasonable, and both interest are the same)

Sec. 34 Disloyalty of a Director

Doctrine of Corporate Oppurtunity When a director, trustee or officer attempts to acquire or acquires in violaiton of his duties any interest adverse to the corporation in respect of any matter which has been reposed in him in confinence, as to which equity imposes a liability upon him to deal in his own behalf, he shall be liable as a trustee for the corporation and must account for the profits which otherwise would have accrued to the corporation.

Exception to the liabilty of the director/officer When ratified by majority vote of the stockholder representing the outstanding capital stock

Non- applicability of the DoctrineThe director acts in goodfaith

2. The director does not exploit opportunity by employment of companys resources, or not directly in competition with the corporation3. When corporation is no longer able to avail itself of the opportunity arising from financial difficulties or legal restrictions or from any other factor.

Sec. 35. Executive committee

The by laws and not the directors may create executive committee, composed of not less than 3 members of the board to be appointed by the board.The Committee have no powers to act on matters:Approval of actions for which shareholders approval is also required Filling of vacancies of the boardAmendment or repeal of any resolution of the boardDistribution of cash dividends.

Title III Required Vote Approval

Stockholders representing majority of the OCSWritten demand for removal of a director (Sec. 28)Fixing directors Compensation other than per Diem (Sec. 30)Stockholders representing 2/3 of the OCSRemoval of a Director (Sec. 28)Ratification for contracts of self dealing directors (Sec. 32)Ratification for contracts/acts of a disloyal director (sec. 34)Majority of the quorum by BODCorporate Acts/Resolutions(Sec. 25)Majority of Members of BODElection of Officers (Sec. 25)Filling of Vacancies caused other than removal or expiration (Sec. 29)

Sec. 36 Corporate Powers and Capacity

Doctrine of Limited Capacity a corporation has only such powers as are expressly granted and those that are necessarily implied from those expressly granted or those which are incidental to its existence

Ultra vires- Acts or contracts of a corporation outside the scope of its express, implied, and incidental powers

Express powers powers expressly conferred upon the corporation law.

An enumerates the express powers given to corporations created under the general incorporation law.

Implied powers powers which reasonably necessary to execute the express powers and to accomplish or carry out the purposes for which the corporation was formed.

Distinguish implied powers from express powers.Express powers has to do with main business object and purpose of the corporation while implied relates to the means and methods of attaining those object.Test whether express powers is mention in the charter while in implied whether they are fairly incidental.

Incidental powers mention in Sec. 36:Power of sucessionTo sue and be suedTo have a corporate nameTo purchase and hold real and personal propertyTo adopt and use corporate sealTo adopt by laws

Power to sue and be Sued

Dissolved corporation may sue and be sued, after the expiration 3 yrs winding up, it ceases to be a de facto.Unregistered Corporation No legal capacity to sueForeign corporation No capacity when did not obtain license

Real Party in interest Corporation itself.There must be a specific authorization to sign the verification and certification in behalf of the corporation

Service of Summons may be made to an agent or representative of the corporation so integrated to the corporation as to make it a priori supposable that he will realize his responsibilities and know what he should do with any legal papers served on him.

Power to adopt and use corporate sealIncidental power of the corporationA corporation may however exist even without a corporate seal.

Power to acquire and convey property, including shares or securities.Incidental power of the corporation must be necessary or incidental to the operation of business or must be its primary purposeA corporation has no power to purchase stock in another corporation unless it is one of the activities permitted by its articles of incorporation.

Power to contribute to charityBased on the view that business corporations are not organized solely as profit making enterprise but also as economic and social institution with corresponding public responsibility to aid in the betterment of economic and social conditions in the community in which such corporations are doing business. Subject to limitation that the amount must be reasonable, and must not be to aid any political party\ it may be paid out of capital

Power to establish pension plansPower to act as guarantor

Sec. 37 Power to extend or shorten corporate termProcedure:- Amendments of the articles of incorporation- Approved by majority vote of directors and ratified by 2/3 of stockholders of the outstanding capital stock- Appraisal right is given to a dissenting stockholder in case only of extending the term under sec. 37. hower should be applicable also in cases of shortening the period under sec. 81

Appraisal right right of the stockholder in cases provided by law to demand payment of the fair value of their shares.

Sec. 38 Power to increase or decrease capital stock, incur, create or increase bonded indebtedness.

Power to increase or decrease capital stockMay be done despite that its authorized capital stock may not have been fully subscribed yetA corporation cannot issue stock in excess of the amount limited by its articles of incorporation

Requisites:Approve by the Majority of the board of directorsFavored by 2/3 of the outstanding capital stock in a meeting duly called for the purpose.Written notice of the proposal must be given to the stockholders.A Certificate Duplicate must be filed in the SEC stating matters mentionedd under sec. 38The increased capital stock, 25 % thereof must be subscribed and 25% thereof must be paid in form of cash or property and stated through a treasurers affidavit.No decrease is allowed if its effect will prejudice the rights of the corporate creditors.In non stock corporation it may create, incur, increase bonded indebtedness by a majority vote of the trustees and approved by 2/3 of the members.

The capital stock of a corporation stands increased or decreased only from and after approval and the issuance by the Sec of its certificate of filing.

Over issue stock/spurious stocks an issue of stock by a corporation in excess of the amount prescribed or limited by its articles of incorporation

Ways of Increasing (decreasing) Authorized Capital stockBy increasing the number of shares without increasing the par valueBy increasing the par value without increasing the number of sharesBy increasing both

Person entitled to question the increase or decreaseCorporationDissenting StockholdersCreditors

Sec 39. Power to deny Pre- emptive right

Pre emptive right- Whenever the capital stock is increased and new shares of stock are issued, the new issue must be offered first to the stockholders who are such at the time the increase was made in proportion to their existing shareholdings and on equal terms with other holders before subscription are received from the general public.- It may also stand to unissued shares.

Exceptions under Sec. 39:Share issued in compliance with existing lawIssued in exhange for property needed for corporate purposes or in payment of debt with approval of stockholders representing 2/3 of OCS

Sec. 40 Sale or Other Disposition of Assets

- Sale of substantially all properties of the Corporation must be made with approval by the stockholder representing 2/3 of toutstanding capital stock

A dissenting stockholder may enforce his appraisal rightSale as part of its primary purpose, no approval is required

liability of the purchasing corporation

General Rule:No LiabilityException:(1) Express or implied agreement(2) When transaction amounts to consolidation(3) where purchasing corp. Is merely a continuation of selling corp.(4) Fraudulent transaction

Sec. 41 Power to Acquire own shares

Purposes:To eliminate fractional shares arising out of stock dividendsTo collect or compromise an indebtedness to the corporation

3. To pay dissenting or withdrawing stockholders entitled to payment of their shares

Requisites:1. The corporation must have an unrestricted retained earnings.2. For a legitimate and proper corporate purpose3. The corporation acts in good faith and without prejudice to its creditors4. That the conditions of corporate affairs warrant its.

Appraisal rights under Title IV.Extension of the corporate term ( Section 37)Sale or disposition of corporate assets (Section 40)Power to invest corporate funds in another corporation (Sec. 42)

Redeemable Shares however may be reacquired by the corporation even the non existence of unrestricted retained earnings.

Trust Fund Doctrine The assets of the corporation as represented by its capital stock are trust fund to be maintained unimpaired and to be used to pay corporate creditors in the sense that there can be no distribution of such assets among the stockholders without provisions being made for the payment of corporate debts.

Sec. 42 Power to Invest corporate Funds in another corporation or business of for any other purpose

Right to invest to other corporation for any other purpose other than the primary purpose

Requisites:1. Approved by majority of the Board2. Ratified by a vote of 2/3 of the stockholders representing the outstanding capital stock.3. Dissenting stockholders are given appraisal rights.

The other purpose however must be stated in the articles of incorporation otherwise the corporation is not allowed to engaged in such business.

A Corporate funds may be loaned to a stock holder provided that:The Funds are not presently used by the corporation and the loaning is not on a regular basis.Will make the funds productive instead of remaining idle.No restrictions in the Articles of IncorporationThere must be a collateralThe lending in not used to defraud creditorsSec. 42 is complied with

Sec. 43 Power to Declare Dividends

Requisites:1. Unrestricted Retained earnings2. Approval of the stockholders 2/3 vote (for stock dividends)

Power to declare dividends rest upon the Board of directors

Forms of dividends:CashStocksProperty

Retained Earning = Assets Liabilities and legal capital

Sec. Memo. Circ. No 11, December 5, 2008The surplus profits or income must beBonafide income founded upon actual earnings or profits.Actual earnings or profits shall mean net income for the year based on the audited financial statement, adjusted for unrealized items enumerated below, which are not available for dividend declaration:(a) Share/equity in net income of the associate or joint venture accounted for under equity method, as the same is not yet actually realized or earned.

(b) Unrealized foreign exchange gains, except those attributable to cash and cash equivalents.(C) Unrealized acturial gains which results when the company opts to recognize actuarial gainEtc.

(3) Additional paid in capital shall neither be declared as dividends

Unrestrected earnings from which dividends may be declared are not limited to the accumulated earned surplus of the corporation but may also include other gains not arising from its business. proceeds from shares issued above par does not form part of the capital.

Action to enforce declaration of dividends:General RuleDirector may not be compelled by mandamus to declare dividendsException Sufficient net profits have been earned to obligate the corporation

- A director may be held liable to the improper declaration of dividends.

Delinquent stocks:Stock witheld until unpaid subscription be fully paidCash application to unpaid subscription first

The stock however must be declared to be delinquent.

Sec. 44 Power to enter into management contract

Sec. 46 Adoption of By LawsBy Laws rules of action adopted by a corporation for its internal government and for the government of its stockholders or members and those having the direction, management and control of its affairs in their relation to the corp.Inherent power of the corporation

Two Ways of Filing By LawsOne after receipt of official notice of the issuance of the certificate of incorporation.- Must be approve by stockholders representing at least majority of the outstanding capital stock or members- Must be signed by the approving members/stockholders- Kept in the principal office of the corporation

2. Filed Prior to incorporation- Must be signed by all incorporators- Submitted together with the articles of incorporation

-By laws is effective only upon issuance of SEC of a certification that it is not inconsistent with the code

- Additional requirements of certificate may be required for banking and financial corporation or other corporations stated under sec. 46

Effect of failure to File By-laws- renders the corporation liable to the revocation of its registration.

Construction of by-laws;Govern by the general rules on construction of contractsStricly construed if provides for disenfranchisement of membersProspective in applicationEffective only upon issuance of a certificate from a corporation

Elements of a valid by-lawsThey must not be contrary to law and inconsistent with the code.Must not be contrary to moralsMust not impair obligations and contractsMust be general and uniform in their operation and not directed against a particular individualThey must be consistent with the charters of articles of incorporationThey must be reasonable

Stockholders are presumed to know the provisions of the corporations by lawsThird person are not bound by the by laws of the corporation

Sec. 47 Contents of by-laws

By laws must contain:The time place and manner of calling and conducting regular and special meetings of the directors or trustees.The time and manner of calling and conducting meetings of the stockholdersThe required quorom in meetings of stockholders or members and the manner of voting thereinThe form of proxies of stockholders and members and the manner of voting themThe qualifications, duties and compensation of directors or trustees, officers and employeesThe time for holding the annual election of directors or trustees and the mode or manner of giving notice thereofThe manner of election or appointment and the term of office of all officers other than deirectorsPenaltiesThe manner of issuing certificatesSuch other matters

Sec. 48 Amendments to by laws

-Power to amend emanates from the power to create by laws

RequisitesMajority of the Board of directors or trustees2. Stockholders representing majority of the outstanding capital stock

Power to delegate amendmentsStockholders representing the owners of 2/3 of the outstanding capital stock may delegate the power to amend which may however be revoked by a vote of majority of the stockholders representing the outstanding capital stock.

In case of conflict, by laws prevails over the resolutions

Sec. 49 Kinds of MeetingsTwo Kinds of Meetings1. Regular2. Special

Sec. 50 Regular and special meetings of stockholders or members

Reequisites of a valid meeting

It must be held at the proper placeIt must be held at the stated date and at the appointed time or at a reasonable time thereafterIt must be called by the proper personThere must be a previous notice(2 weeks for regular, 1 week for special)5. There must be a quorum

Sec. 51 Place and time of meetings of stockholders or members

Must be at the city or municipality where the pricipal office is situtatedIrregular meetings may be valid provided all stockholders or members are present during the meeting

Who may call a meeting- thru the secretary1. The person designated in the by laws2. director or trustee or by an officer entrusted with the management of the corporation unless otherwise provided by law3. the petitioning stockholder or member

Sec. 52 Quorum in meetings

- stockholders representing a majority of the outstanding capital stock or that may be provided by the bylaws.

Sec. 53 Regular or Special meetings of Director

Regular MonthlySpecial upon call of the president or as may be provided in the by laws

Notice- at least a day prior to the meeting

May be held anywhere in or outside of the philippines

Sec. 54 Who presides in a meeting

Sec. 55 Right to vote of pledgors, mortgagors. And administrators

Sec. 56 Voting in case of joint ownership

Consent of all co-owners is required in order to vote of such stock except:a. When there is a written proxyb. When shares are owned in an and/or capacity

For married individuals it shall be governed by the property relations entered into during the marriage.

Sec. 57 Voting Rights for treasury shares

No voting rights if the stock remains in the treasury

Sec. 58 Proxies

Proxy designates the formal witten authority given by the owner of holder of the stock who has a right to vote it, or by a member, as principal, to another person as an agent, to exercise the voting rights of the former.

- A form of agency

PurposesA. Presence of Quorum MeetingsB. Exercise the right to vote despite absenceC. Voting and management control

Voting by proxy however is not allowed in board meetings under Section 25

A corporation cannot restrict the right of the stockholder to appoint any person he sees fit to represent him nor can a corporation deprived a stockholder to vote by proxy it being a personal right of the stockholder, except in non-stock corporation

The agent may only act through in so far as the right is available of his principal.

Limitations:Proxies must be in writing and signed by the stockholder or member and filed before the scheduled meeting.As a general rule a proxy is valid only for the meeting it was intended.A continuing proxy must not exceed 5 years at any one time.

Types of proxiesGeneral proxies confers a general discretionary power of attorney to attend and vote at an annual meeting to vote for directors and all ordinary matters that may properly come before a regular meeting.Limited Proxies limits the power conferred. It may restrict the authority to vote to specified matters only and may direct the manner in which the vote shall be cast.Continuing proxies confers a continuing proxy but not exceeding 5 yearsLimited and specific proxies used only for a specific meeting

Proxies may be revoked expressly or impliedly.

Sec. 59 Voting Trust

Results in the separation of the voting rights of a stockholder from his other right. The transferring stockholder departs his voting power but retains the equitable or the beneficial ownershipt of the stock.

Rights of the voting trustee:The right to voteMay vote in person or by proxyMay exercise right to inspect corporate books and recordQualified to be a director

6. A proxy need not be notarized7. A proxy does not have the right to inspect corporate books or records.

Sec. 60 Subscription Contract contract for acquisition of unissued stock in an existing corporation or a still to be formed.

The law does not require that subscription contract be in writing although it is usual and convenient for it to be in writing

Kinds of SubscriptionPre- incorporation Post incorporation subscriptionConditional subscriptionAbsolute subscriptionSubscription with a special term

Stock option a privilege granted to a party to subcribe to a certain portion of the unissued capital stock of the corporation with a certain period and under the terms and conditions of the grant

Before a corporation shall grant stock option it must first secure the approval from SEC (SEC RULE BED No. 902-1-3 Sec. 1 and sec. 2.)

Sec. 61 Pre Incorporation subscription

A pre incorporation subscription is irrevocable for a period of six (6) monthsexception:- unless all other subscribers consent to the revocation- when the incorporation of the subscription fails to materialize within the said period.exception to the exception- after the submission of the articles of incorporation to the SEC

Reason for the rule :to prevent speculating on the stocks of a proposed corporation

Sec. 62 Consideration for stock

Equity securities stock issued by the corporation to persons who wants to invest capital in it, for money property or services

Equity capital capital contributed by stockholders in exchange for shares of stock

Power to issue stock rest upon the board of directors except for increase or decrease of stocks

For considerations other than cash, its value must be worth the value of the stocks issued. (true value rule)

Good faith rule the value is a matter about which men may honestly differ and in which further questions of intention, good faith and fraud are submitted to the court. No other devices is allowed but margin is considered for the difference in valuation

Property in payment of stock

Must be of a kind which the corporation may lawfully acquire and hold in carrying out the purposes of its incorporation and which is necessary or proper for it to own in carrying on its business

Services in payment of stock only to labor performed provided the transaction is in good faith and no fraud is perpetrated upon the stockholders or creditors.

An agreement to issue stock for sevices before the same is rendered is void

Sec. 63 Certificate of stock and transfer of shares

Certificate of Stock written instrument signed by the proper officer of a corporation stating or acknowleging that the person named therein is the owner of the designated number of shares.

Restriction on transfer of stock The corporation has only the power to regulate but not the power to prohibit in so far as the trasfer of stocks is concern.

Right of First Refusal valid

Validity of transfer As between parties upon delivery and endorsement of the certificate

As between corporation and creditors Registration in the book

Reason for requiring registrationTo enable the corporation to know at all times who its actual stockholdersTo afford the corporation an oppurtunity to object to the transfer in case it has claims against the stockAvoid fictitious or fraudulent transfers.

Remedy against refusal for registrationGeneral rule: mandamus is not allowed/ adminitrative mandamusException: when the following are present:1. Due application has been made2. application was denied3. no unpaid claims against the stock

Sec. 64 Issuance of Stock Certificate

Only paid shares are entitled to the issuance of stock certificates

In case of partial payments, it shall be applied to all stocks subscribed proportionately.Sec OpinionMay be applied first to feww stock and a certificate be issued.But once said option is execised by the corporation it shall apply to all stockholders

Relation of Stockholder to the corporation - Contractual relation and not creditor-debtor but for unpaid subscription stockholder is the debtor of the corporation.

Rights and remedies of the heirs of a stockholder

Rule of Majority is applied in corporation

Rights of Dissenting MinorityAppraisal RightActions at law

Actions by Stockholders or MembersDerivative actionsIndividual actionsRepresentative actions

Derivative Suits Brought by one or more stockholders or members in the name and on behalf of the corporation to redress wrongs committed against it or to protect or vidicate corporate rights, whenever the officials of the corporation refuse to sue or are the ones being sued.

- a remedy for minority stockholders grounded upon equity

- The corporation is the real party in interest hence it must be impleaded.

- Nature is representative action

Requisites for bringing the actionThere must be an existing cause of action in favor of the corporation.Exhaustion of the intra-corporate remediesThe stock holder or member must have been such at the time of the objectionable acts or transaction.The action must be brought by the stockholder or member in the name of the corporation

Individual Suit an action brought by a stockholder against the corporation for direct violation of his contractual rights as such individual stockholder. Such as the right to vote, the right to share in declared dividends.

Distinguish from Derivative suit

Representative suit an action brought by a stockholder in behalf of himself and all other stockholders similarly situated.

A form of class action- common cause of action- parties are so numerous

Distinguish derivative suit from representative suit

Jurisdiction ove intracorporate controversiesRegular Courts prior to pd 902-ASEC PD 902-ASpecial Commercial Courts - SRC

Sec. 65 Libility of directors for watered stocks

Watered Stocks stock issued not in exchange for its equivalent either in cash, property, share, stock dividends or services.

- Issued without consideration- Issued fully paid when corporation has received a lesser sum than its par value or issued value- issued for consideration other than cash and is valuated less than its par or issued- stock dividends issued with no sufficient retained earnings

Liabilities Directors SolidarySubscriber Direct and SolidarySubsequent Transferee same with his transferror

Prohibition on issuance of stocks less than its par value or issued value applies only to the original issue.

Suit by the state Quo warrantoInjunction

Sec. 66 Interest on unpaid subscription

Fixes the rates of interest1. as may be provided in the by laws2. Legal Rate

Interest shall be counted from the date of subscription.

If no interest is mentioned in the by-laws then interest shall only be paid from the time of declaration of a deliquent stock

Sec. 67 Payment of Balance of Subscription

Payment shall be due upon specified date of the subscription contract or on the date stated in the call or assessment made by the board.

If within 30 days and no payment is made, stocks shall become delingquent and shall be subject to sale.

Call a declaration officially made by a corporation usually expressed in the form of resolution of the board of director rewuiring the payment of all or a certain prescribed poriton of a subcribers stock subscriptionAssessment applied both to paid subscription

Requisites for a valid callMade in the manner prescribed by lawMade by the board of directors.Operate uniformlu upon all shareholders

Sec. 68 Deliquency sale

Made not less than 30 days nor later than 60 days from the date the stock become delinquentNotices shall be observeSold at public auction including all expensesRemaining shares shall be credited back to the stockholder and shall be considered as having fully paidCorporation may participate in bidding if there are no qualified biddersCorporation cannot forfeit the delinquent stock

Sec. 69 When Sale may be uestioned

Gounds for questioning the delinquent sale:1. Irregularity of the notice of sale2. defect in the sale itsel- The party seeking the action must pay first or tenders to the sum which it was sold

Secc. 70 Court action to recover unpaid subscription

Call is still required prior to the action

Sec. 71 Effects of Delinquency

Deprived the right to be voted or be entitled to voteNot included in determining the existence of quorumQuo warranto may be instituted against directors elected by deliquent stockholdersNot entitled to any of the rights of a stockholder but shall entitled to dividends in accordance with the codeShall be subject to delinquent sale

Sec. 72 Rights of Unpaid shares

Shares not fully paid which are not deliquent shall have all the rights of a stockholder

Sec. 73 Lost or destroyed certificates

Sec. 74 Books to be Kept

Required Books to be Kept:A record of All Business Transactions:Minutes of all meetings of stockholders or members;Minutes of all meetings of directors or trusteesStocks and Transfer Books , in case of stock corporation

The records and all business transaction shall be open to the inspection of any director, trustee, stockholder or member of the corporation at reasonable hours on business days.

Exception;1. improper use of information 2. was not acting in good faith or for a legitimate purpose in making his demandRemedy for refusal:MandamusDamages

Libilities:SecretaryDirectors who voted for the denial

Sec. 75 Rights to Financial Statements

Right of the Stockholder to demand financial statements

Merger and Consolidation

Sec. 76 Plan of Merger or Consolidation

Matters that should be set forth by the Board of directors or trustees of each corporation:

Names of the corporations;Terms of the merger or consolidation and the mode of carrying into effectStatement of changes in the articles of incorporationOther necessary provisions

Merger Two or more corporations unite, one corporation which retains its corporate existence absorbing or merging in itself the other which disappears as a separate corporation.- Transfer of all assets and the assumption of debts and libilities

Consolidation Two or more Corporation unite, giving rise to a new corporate body and dissolving the constituent corporation which cease to exist

Sec. 77. Stockholders or members approval

Requisites: (including amendment)> Approved by majority vote of the directors of each constituent corporation> Approval of the stockholders representing at least 2/3 of the outstanding capital stock

May give rise to am appraisal right by a dissenting stockholder>however, may extinguished upon abandonment of the plan

Sec. 78 Articles of Merger or consolidationSec. 79 SECs approval and effectivity of merger and consolidation

Merger or Consolidation shall be approve only upon the issuance of the SEC Certificate of merger or consolidation.

Articles of Merger or consolidation shall also be furnished to the SEC stating the matters mentioned in Sec. 78

Forms of Corporate CombinationsSale of Assets All or substantially all of the assets of the corporation. May be made during dissolution. Governed under Sec. 40. does not however effect automatic dissolution of the corporation.Lease of Assets a corporation without being dissolved, leases its property to another corporation for which the lessor merely receives rental paid by the lesee. Corporation is not dissolved.Sale of stock The purpose of the holding company is to acquire sufficient amount of stock of another corporation for the purpose of acquiring control.Parent or holding company acquiring corporationSubsidiary corporation company whose stocks are acquired4. Merger5. Consolidation

Sec. 80 Effects of Merger and consolidation

Effects of Merger and consolidationThe consitutent corporations shall become a single corporationThe separate existence of the constituent corporations shall cease, except that of the surviving or the consolidated corporationSurviving or consolidated corporation shall possess all rights etc of a corp.Surviving or consolidated corporation shall posses all rights of both corp.Surviving or consolidated corp. Assumes the liabilities.

Merger and Consolidation Distinguish from sale of assetsIn Merger or Consolidation, the sale of assets is necessarily included while in sale it is does not necessarily result in merger or consolidation.In merger or Consolidation, there is automatic assumption of liabilitiesContinuance of enterprise while in Sale comtemplates LiquidationTrasfer of assets = by virtue of law while in sale, by reason of contractCorporation is automatically dissove while in sale does not result in automatic dissolution

Appraisal Right

Sec. 81 Instances of Appraisal Right.

Appraisal right Right of the stockholder to demand payment of the fair value of his shares, after dissenting from a proposed corporate action involving a fundamental change in the corporation in cases provided by law.

- Any fundamental change in the corporate charter would require the consent of all the stockholders, in as much as it would impair the obligation of the contract between the corporation and its stockholders

Instances when appraisal right availableIn case of amendment of the articles of incorporation has the effect of changing or restricting the rights of any stockholder or class of shares, or opf authorizing preferences in any respect, superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existenceConveyance of all or substantially all of corporate propertyIn case of merger or consolidationIn case the corporation decides to invest its funds in another corporation or business for any purpose other than its primary purpose (Sec. 42)Close Corporation, any stock holder may compel the corporation to purchase his share for any reason at their fair value when the corporation has sufficient assets in its books to cover its debts and liabilities exclusive of capital stock.

Limitations on the exercise of the rightOnly in intances provided by lawMust vote against the proposed corporate actionWritten demand to the corporation 30 days after the date of the votePrice must be based on the fair value of the sharePayment must be made out of the unrestricted retained earningsTransfer of shares

Sec. 82 How right is exercisedSec. 83. Effect of demand and termination of right

Effects:Rights accruing to such shares including voting and dividend rights shall be suspendedOnly entitled to receive payment of the fair value of his shares.If not paid after 30 days from the award, he shall be restored with his rights.

Sec. 84 When right to payment ceases

Extinguishment of the right to paymentWithdrawal of demand with consent of the corporationProposed action is abandoned or rescindedDisapproved by the SECCommission rule that the stockholder is not entitled for the right

Sec. 85 Who bears cost of appraisalSection 86 Notations on the certificate

Non Stock CorporationOrganized for an eleemosynary purpose and where no part of its income is distributable to its members, trustees, or officers subject to the provisions on dissolution, provided that any profit which a non stock corporation may obtain as an incident to its operation shall whenver necessary or proper be used for the furtherance ot the purpose or purposes for which the corporation was organized.

Eleemosynary purpose Formed or organized for charitable, religious, educational, professional, cultural, recreational, fraternal, literary, scientifica, social civic service, or similar purposes,

Right to vote - Limited, broadened or denied as specified in the articles or in the by laws. Unless limited or broadened each members shall be entitled to one vote.- May vote by proxy except when specifically denied in the articles

Membership in non stock corporation in non-transferrable unless the articles and by laws provide. Personal and non-transferrable right.

Election and Terms of trustees Unless specified in the by laws, the board of trustees of non-stock corporations, which may be more than 15 in number shall classify themselves that the term of office of 1/3 of their number shall expire every year; and subsequent election

Of trustees shall held anually with a term of 3 years

Vacancies shall hold office only for the unexpired term

Qualification must be a member of the corporation

Place of meetings anywhere within the philippines outside of the principal office provided notices must be given.

Rules in Distribution of assets:All debts must be paidAssets held under condition of being return must be returnedOther assets held subject to specific use (charitable education etc.) must be transferred to other corporation societies having the same purposeAll oher assets not included above shall be distributed in accordance with the stipulation in the articles or by laws

CLOSE CORPORATIONContents of the Artices:Number of stockholders must not exceed 20Restriction: right of first refusal in favor of the stockholder or corporationStocks cannot be listed in he stock exchange nor publicly offered

Special Rule in Stock ownership a corpotaion is not deemed close whenever 2/3 of the voting stocks or voting rights is owned or controlled by another corporation which is not a close corporation

Certain business ventures may not be allowed to be operated by a close corporation

Restriction on transfers must appear:

Articles of incorporationBy lawsStock certificate

Premptive right may be against all kinds of shares including treasury sharesThe articles may provide, that Management may be excercised by the stockholders and the latter shal be deemed directors.

DISSOLUTIONSec. 117 Methods of dissolution Dissolution signifies the extinguishnment of a corporations franchise and the termination of its corporate existence

A condition of law and fact which ends the capacity of the body corporate to act as such and necessitates a liquidation and extinguishment of all lega