Professional Documents
Culture Documents
81-86)
Refers to the right of a stockholder to demand the fair value of his
shares after dissenting from a prop osed corporate action involving a
fundamental change in the corporation in cases provided by law
A. When Right of Appraisal may be exercised:
1.) Extend or shorten corporate term (Sec. 11);
2.) Restriction of rights or privileges of shares through amendment of
the AOI (Sec. 16);
3.) Sale of all or substantially all corporate assets (Sec. 40);
4.) Equity investment in non-primary purpose business (Sec. 42);
5.) Merger or consolidation (Sec. 77);
All the above require the 2/3 votes of the OCS. The appraisal right
refers only to stockholders who have actually dissented from the above
transactions.
B. Procedure for the Exercise of the Right:
1.) Written demand must be submitted by the dissenting stockholder
on the corporation for the payment of the fair value of the shares
within 30 days from the date the vote was taken. (Failure to do so
shall mean waiver of the right.)
Effect: The dissenting stockholder loses all rights as a stockholder
including dividend rights; only one right remains and that is the
right to receive payment of the fair value of his shares.
2.) Within 10 days from demand, the dissenting stockholder must
submit his certificates of stocks for notation that such certificates
represent dissenting shares. (Failure to do so shall mean waiver of
the right.)
N.B. If such shares are subsequently disposed of and new
certificates are issued to the transferee, the right of appraisal is
automatically extinguished, the transferee becomes a regular
stockholder of the corporation.
a.) 60 days from the approval of the corporate action, the
corporation and the dissenting stockholders shall agree as to
the fair value of the dissenting shares. If no agreement is
reached after the 60-day period, it shall be determined and
appraised by 3 disinterested persons: one appointed by the
2.) A wholly executed ultra vires contract or act shall not be interfered
with as between the parties or persons whose rights are derived
therefrom; but the State can always question said contract or act;
3.) When an ultra vires act is executed on one side but executory
contract on the other side who received benefits therefrom,
recovery can be had by the former; and
4.) The title of the corporation to property cannot be questioned on
the ground that it acquired the property through an ultra vires
contract of transfer.
POWER TO EXTEND OR SHORTEN CORPORATE TERM (Sec 37)
Requirements:
a.) Majority vote of the BOD/T;
b.) Written notice of the proposed action and the time and place of
meeting shall be served to each stockholder or member either by mail
or personal service;
c.) Ratification in a meeting by 2/3 of the OCS or 2/3 of the members, as
the case may be.
This actually requires the amendment of the AOI; meeting must be duly
called for the purpose; dissenting stockholders may exercise appraisal
right.
The extension of corporate life cannot be made within the 3 -year
liquidation period, because that would constitute new business.
POWER TO INCREASE OR DECREASE CAPITAL STOCK; INCUR, CREATE OR
INCREASE BONDED INDEBTEDNESS (Sec 38)
Requirements:
a.) Majority vote of the members of the BOD/T;
b.) 2/3 vote of the OCS or the members, as the case may be, in a meeting
duly called for the purpose with notice previously given;
c.) Certificate of said corporate act shall be signed by majority of the
members of the Board and the Chairman and Secretary of the
stockholders meeting;
Corporate act shall take effect from and after SEC approval.
TITLE V BY-LAWS
BY-LAWS rules of action adopted by a corporation for its internal government
and for the regulation of conduct, and prescribe the rights and duties of its
stockholders or members towards itself and among themselves in reference to
the management of its affairs.
FUNCTIONS:
1. Supplement the AOI;
2. Provide for details not important enough to be stated in the AOI;
3. Continuing rule for the government of the corporation and the
individuals composing it;
4. Define the rights and duties of corporate officers and directors/trustees
and of stockholders/members towards the corporation and among
themselves;
5. Source of authority for corporate officers and agents of the
corporation.
REQUISITES FOR THE VALIDITY OF THE BY-LAWS:
1. Must not be contrary to law nor with the Corporation Code;
2. Must not be contrary to morals and public policy;
3. Must not impair the obligations of contracts
Amendments to the by-laws cannot impair the obligation of existing
contracts or any vested right, e.g., the right of an employee to security
4.
5.
6.
of tenure cannot be adversely affected by any amendment in the bylaws, hence his services can only be terminated for causes provided for
by law.
Must be general and uniform;
Must be consistent with the charter or AOI; and
Must be reasonable, not arbitrary or oppressive.
5.
BY-LAWS
Nature
Condition precedent in the
Condition subsequent (absence
acquisition of corporate existence
merely furnishes a ground for the
revocation of the franchise)
Purpose
Essentially a contract between the
For the internal government of the
corporation and the SHs/members;
corporation but has the force of a
between the SHs/members inter se; contract between the corporation
and between the corporation and
and the SHs/members, and between
the State
the SHs/members
Time of execution
Executed before incorporation
May be executed after incorporation
(may be filed simultaneously with
the AOI)
Amendment
Amendment by a majority of the
May be amended by a majority vote
D/T and 2/3 of the OCS/members
of the BOD and majority of the
OCS/members
TITLE VI MEETINGS
KINDS OF CORPORATE MEETINGS
1. Meetings of stockholders or members:
a.) Regular held annually on a date fixed in the by-laws, or if not
fixed, on any date in April as determined by the board
b.) Special held at any time deemed necessary or as provided in the
by-laws
2. Meetings of directors or trustees:
a.) Regular held by the board monthly, unless the by-laws provide
otherwise
b.) Special held by the board at any time upon the call of the
president or as provided in the by-laws
Where? anywhere in or out of the Philippines, unless the by-laws
provide otherwise.
Note: Whenever there is no person authorized to call a meeting, the SEC, upon
petition of a stockholder or member, and on the showing of good cause, may
issue an order to the petitioning stockholder or member directing him to call a
meeting of the corporation by giving proper notice.
PLACE AND TIME OF MEETINGS OF SHS/MEMBERS (Sec. 51)
In the city or municipality where the principal office of the corporation
is located, and if practicable, in the principal office of the corporation.
Even if the meeting be improperly held or called, any business
transacted at such meeting shall be valid if within the powers or
authority of the corporation, and provided that all the stockholders or
d.) The special meeting for the removal of directors or trustees may
be called by the secretary or by a SH/member.
4. There must be previous notice.
Regular meeting written notice must be sent to registered SHs or
members at least 2 weeks before the meeting
Special meeting written notice must be sent at least one week
5. There must be a quorum.
Note: The President shall preside at all meetings of the directors or trustees as
well as of the stockholders or members, unless the by-laws provide otherwise.
RULES ON MEETING/VOTING APPLICABLE TO CERTAIN KINDS OF SHARES
1. Delinquent shares shall not be entitled to vote.
2. Treasury shares have no voting rights while they remain in the treasury.
3. Fractional shares shall not be entitled to vote.
4. Escrow shares shall not be entitled to vote.
5. Unpaid shares, if not delinquent, are entitled to all the rights of a SH
including the right to vote.
MANNER OF VOTING
A SH/member may vote:
1. Directly (in person); or
2. Indirectly, through representative
a.) By means of a proxy;
b.) By a trustee under a voting trust agreement; or
c.) By executors, administrators, receivers, or other legal
representatives duly appointed by the court.
PROXIES (Sec. 58)
May refer to:
1. The written authority given by one person to another so that the
second person can act for the first;
2. The person authorized by an absent SH or member to vote for him at a
SHs or members meeting;
3. The instrument which evidences the authority of the agent.
all the rights of a SH. Until the stocks are fully paid, it continues to be a
subsisting liability that is legally enforceable.
KINDS OF SUBSCRIPTION CONTRACT:
a.) Pre-incorporation subscription Sec. 61
b.) Post incorporation subscription entered into after the incorporation
for the acquisition of unissued stock
c.) Conditional one which is subject to a condition, which may be a past
event unknown to the parties or a future, uncertain event
d.) Absolute not subject to any condition and the subscriber becomes
liable on the subscription and acquires the rights of a SH from the time
it is accepted
e.) Subscription with a special term one where the corporation agrees to
do something, the fulfillment of which not being a condition precedent
to the accrual of a liability of the subscriber or the acquisition of the
rights of a stockholder.
PRE-INCORPORATION SUBSCRIPTION (Sec. 61)
One entered into before incorporation which constitutes a binding
contract among the subscribers.
Irrevocable for a period of at least 6 months from the date of
subscription unless:
a.) All of the other subscribers consent to the revocation, or
b.) The incorporation fails to materialize.
It shall likewise be irrevocable after the submission of the AOI to the
SEC.
STOCK OPTIONS
A privilege granted to a party to subscribe to a certain portion of the
unissued capital stock of a corporation within a certain period and
under the terms and conditions of the grant exercisable by the grantee
at any time within the period granted
UNDERWRITING AGREEMENT
SHARES OF STOCK
Interest or right which owner has in the management of the
corporation, and its surplus profits, and, on dissolution, in all of its
assets remaining after the payment of its debt.
CERTIFICATE OF STOCK
Paper representation or tangible evidence of the stock itself and of the
various interests therein
REMEDIES WHERE CORPORATION REFUSES TO ISSUE CERTIFICATE: (SM-DR)
1. Suit for specific performance of an express or implied contract;
2. Petition for mandamus;
3. Suit for damages where specific performance cannot be granted;
4. Rescind contract of subscription and recover the consideration paid
ISSUANCE OF THE CERTIFICATE OF STOCK (Sec. 64)
Requisites:
1. The certificate must be signed by the President or Vice-President,
countersigned by the secretary or assistant secretary;
2. Must be sealed with the seal of the corporation;
3. Certificate must be delivered;
4. The par value, as to par value shares or full subscription as to no par
value shares must first be fully paid;
BASIS: Doctrine of Indivisibility of Subscription subscription is one,
entire, indivisible and whole contract, which cannot be divided into
portions.
5. Original certificate must be surrendered where the person requesting
the issuance of a certificate is a transferee from the stockholder.
ACTIONS BY STOCKHOLDERS OR MEMBERS:
1. Derivative Suit
2. Individual Suit
3. Representative Suit
LIABILITY OF DIRECTORS FOR WATERED STOCKS (Sec. 65)
Watered Stock stock issued not in exchange for its equivalent either in cash,
property, share, stock dividends, or services.
Includes:
a.) Issued without consideration (bonus share);
b.) Issued as fully p[aid when the corporation has received a lesser sum of
money than its par or issued value (discount share);
c.) Issued for a consideration other than actual cash such as property or
services the fair valuation of which is less than its par or issued value;
and
d.) Issued as stock dividend when there are not sufficient retained
earnings or surplus to justify it.
DELINQUENCY SALE (Sec. 68)
1. If the subscription contract fixes the date for payment, failure to pay on
such date shall render the entire balance due and payable with
interest. 30 days therefrom, if still unpaid, the shares become
delinquent, as of the due date, and subject to sale, unless the board
declares otherwise.
2. If no date is fixed in the subscription contract, the board of directors
can make the call for payment, and specify the due date. The notice of
call is mandatory. A mere demand is insufficient. The failure to pay on
such date shall render the entire balance due and payable with
interest. 30 days therefrom, if still unpaid, the shares become
delinquent, as of the date of the call, and subject to sale, unless the
board declares otherwise.
Note: A CALL is the resolution or formal declaration of the board that the
unpaid subscriptions are due and payable.
PROCEDURE FOR THE SALE OF DELINQUENT STOCKS
1. Resolution of the board
2. Notice of sale
3. Publication of the notice
4. Sale at public auction
5. Transfer of the stock so purchased in the books of the corporation
6. Credit Remainder in favor of the delinquent stockholder
2.
NON-STOCK
Nature
Has capital stock, divided into shares
Does not have shares and may not
and with authority to distribute
distribute profits to its members
dividends to its stockholders
Meeting/Voting of members/SHs
SHs and directors must act in a
Members may be allowed by the bymeeting, except where a mere assent
laws to vote by mail or other similar
is sufficient or a formal meeting
means
unnecessary
Manner of voting
Cumulative voting is available in the
Cumulative voting not available unless
election of directors
otherwise provided in the AOI/by-laws
Proxy
SHs may vote by proxy
Members may be deprived of the right
to vote by proxy in the AOI/by-laws
Non-transferability of membership
SHs may transfer their shares
Members cannot transfer their
membership unless allowed by the
AOI/by-laws
Directors/trustees
Directors cannot exceed 15 in number Trustees may exceed 15 in number
Term of Director/trustee
Term of a director is 1 year
Term of a trustee is 3 years; 1/3 of the
Board shall be elected annually
Election of officers
Officers are elected by the BOD
Officers may be directly elected by the
members unless otherwise provided in
the AOI/by-laws
Place of meeting
SHs meetings shall be held in the city
By-laws may provide that members of
or municipality where principal office
a non-stock corporation may hold
of corporation is located, and if
their meetings at any place within the
practicable in the principal office
Phils.
2.
CHARACTERISTICS:
1. SHs may act as directors without need of election and therefore are
liable as directors;
2. SHs who are involved in the management of the corporation are liable
in the same manner as directors are;
3. Quorum may be greater than mere majority;
4.
Pre-emptive right
Subject to the exceptions found in Sec. Subject to no exceptions unless denied
39
in the articles
Appraisal right
May be exercised by a SH only in the
May be exercised and compelled
cases provided in Secs. 81 and 42 of
against the corporation by a SH for any
the Code
reason
Purchase of its own shares
Must always be made from the
In case of an arbitration of an intraunrestricted retained earnings (except corporate deadlock by the SEC, the
as regards redeemable shares)
corporation may be ordered to
purchase its own shares from the SHs
regardless of the availability of URE
Remedy of arbitration
Not a remedy
Available remedy in case the directors
or SHs are so divided respecting the
management of the corporation
Note: The following cannot be a close corporation: (BIMPOSE)
a.) Banks;
b.) Insurance companies;
c.) Mining companies;
d.) Public utilities;
e.) Oil companies;
f.) Stock exchanges;
g.) Educational institutions;
h.) Other corporations declared to be bested with public interest
VALIDITY OF RESTRICTIONS ON TRANSFER OF SHARES (Sec. 98)
It is mandatory for the AOI of a close corporation to provide that all of
the issued stocks of all classes be subject to one or more restriction.
The restriction on transfer is in the nature of a right of first refusal in
favor of the SHs which can be waived by the SH, if the latter fails to
exercise the option to purchase within the period stated in the articles
and by-laws.
Any transfer made should not result in exceeding the number of SHs as
allowed by the Code.
-
Note: Under Sec. 99, good faith is not a defense because there is a conclusive
presumption of knowledge of the restriction.
EFFECTS WHERE STOCKHOLDERS ARE MANAGERS (Sec. 100)
1. No longer necessary to elect directors;
2. SHs concerned shall be deemed the directors;
3. SHs shall have the same liabilities as directors;
4. To the extent that the SHs are actively engaged in the management or
operation of the business and affairs of a close corporation, the SHs
shall be held to strict fiduciary duties to each other and among
themselves; and
5. The SHs shall be personally liable for corporate torts unless the
corporation has obtained reasonably adequate liability insurance.
DEADLOCKS (Sec. 104)
Arise when the directors or SHs are so divided respecting the
management of the business and affairs of the corporation that the
votes required for any corporate action cannot be obtained and as a
result, business and affairs can no longer be conducted to the
advantage of the SHs generally
In this case, the SEC shall have the power to arbitrate the dispute and
in the exercise of such power, the SEC shall have the authority to:
a.) Cancel or alter any provision in the articles of incorporation or bylaws;
b.) Cancel, alter or enjoin any resolution of the corporation;
c.) Direct or prohibit any act of the corporation;
d.) Require the purchase at their fair value of shares of any SH either
by any SH or by the corporation regardless of the availability of
URE;
e.) Appoint a provisional director;
f.) Dissolve the corporation; or
g.) Grant such other relief as the circumstances may warrant.
3.
4.
5.
6.
affairs. The termination of the life of a juridical entity does not by itself cause
the extinction or diminution of the rights and liabilities of such entity nor those
of its owners and creditors alike. (Sec. 145)
METHODS:
1. By the corporation itself through its board of directors/trustees;
2. By a trustee to whom the corporate assets have been conveyed; and
3. By a management committee or rehabilitation receiver appointed by
the SEC.
Note:
a.) The 3-year period of liquidation does not apply to methods 2 and 3 as
long as the trustee or the receiver is appointed within the said period.
b.) But the word trustee as used in the corporation statute must be
understood in its general concept which could include the counsel to
whom was entrusted the prosecution of the suit filed by the
corporation.
c.) The board of directors may also be permitted to complete the
corporate liquidation by continuing as trustees by legal implication.
d.) The question as to the right of priority of a claimant against the assets
of a corporation that is being dissolved and liquidated becomes of
importance only when the assets of the corporation are not sufficient
to pay all claims.
LIQUIDATION vs. REHABILITATION
LIQUIDATION
REHABILITATION
Nature
Connotes a winding up or settling with Connotes a reopening or
creditors and debtors
reorganization
Continuity of corporate life
Winding up process so that assets may Contemplates a continuance of
be distributed to those entitled
corporate life in an effort to restore
the corporation to its former
successful operation
Formed, organized or existing under any law other than those of the
Philippines and whose laws allow Filipino citizens and corporation to do
business in its own country or state. (This definition espouses the
incorporation test and the reciprocity rule and is significant for
licensing purposes.)
5.
6.
7.
8.
9.
REFERENCES:
1.
2.
3.
4.
5.
6.
7.
8.
9.