MODULE COURSE SYLLABUS IN BUSINESS LAW 2

Definition of law on partnership Concept and nature of partnership; forms of partnership contracts; contribution of partners; conveyance of properties Commencement of partnership; obligations of a capitalist and an industrial partner; sub-partnership and its effect; right to engage in business; right to account partners interest in partnership property Contractual obligations of the partnership; instances of solidary liability; partnership by estoppel. Distinguish dissolution, winding up and termination causes of dissolution grounds for dissolution by decree of court; power to bind dissolved partnership; manner of winding up Liquidation and distribution of assets, accrual of a partners right to account; concept and nature of limited partnership Contribution of a limited partner; liability of a limited partner; admission of a limited partner; rights of a limited partner; compensation. Return of contribution; effect of retirement, death etc of a limited partner; amendment and cancellation of certificate. Attributes of a corporation; corporate entity doctrine; piercing the veil of corporate fiction; classification of corporation; classification of shares; term of corporate existence; contents of articles of incorporation; acquisition of juridical personality. Qualification/disqualifications and election of directors/trustees/corporate officers; removal of directors/trustees or resignation; vacancies compensation; selfdealing and interlocking directors; powers of the corporation. Kinds of powers of the corporation; other powers of corporation Ultra vires acts; ratification of ultra vires act; by-laws and its functions, validity of by laws and its contents, revocation of by laws, distinguished from articles of incorporation Subscription of shares of stocks, nature of certificate of stock; liability of stockholder for non-payment of subscription; procedures for sale of delinquent stocks, corporate books and records; procedure for effecting plan of merger or consolidation

Instances when appraisal right available when right to payment ceases; purpose of a non-stock corporation; distinguished from stock corporations; close corporations; provisions in articles of incorporation; pre-emptive right of stockholders Educational and religious corporations; manner of dissolving corporations; corporate liquidation; foreign corporations; application and issuance of license; doing business in the Philippines; sue due to isolated transactions

Instructions: Read carefully the subject matter and at the end of each subject you find questions which you are to answer which will serve as your examination and will form part of your grade. Answers to the questions shall be submitted before the scheduled final examination. CONTRACT OF PARTNERSHIP 2 or more persons bind themselves to contribute money, property or industry to a common fund; with the intention of dividing the profits among themselves. Requisites: 1. valid contract 2. contribution of money, property or industry to a common fund 3. organized for gain or profit 4. lawful object or purpose; established for the common benefit or interest of the partners. *** mere co-ownership or co-possession) do not establish *** mere sharing of gross returns ) a partnership Kinds of Partnership: 1. universal refer to all present property or to all profits 2. particular has for its object determinate things, their use or fruits or specific undertaking or the exercise of a profession or vocation 3. general one where all the partners are general partners, where their liabilities extend to their individual properties after the assets have been exhausted. 4. limited one where at least one partner is a general partner and the others are limited partners. Leonine Partnership a partnership where one partner is made liable for the losses, but is not entitled to share in the profits. Not allowed. Kinds of Partners: 1. as to liability a. general those who can be held for partnership obligations even to the extent of their private property b. limited n- those who cannot be held liable for partnership obligations 2. as to contribution a. capitalist contribute money or property to common fund b. industrial those who contribute only their skill or industry to the common fund

3. as to management a. managing those who manage or administer partnership affairs b. silent those who have no voice in the management of partnership affairs 4. as to third persons a. ostensible those publicly known as such b. secret those whose connection with the partnership is not known c. by estoppel those who represent themselves or consent to another or others representing them to anyone as partners either in an existing partnership or in one that is fictitious or apparent also known as de facto partners. Rights of partnership: 1. it has a personality separate and distinct from the partners 2. it can acquire or possess property 3. it can incur obligations 4. it can bring actions 5. it can be adjudged insolvent Sharing of net profits is prima facie evidence that one is a partner except if such profits were received in payment: 1. as a debt by instalment or otherwise 2. as wages of an employee or rent to a landlord 3. as an annuity to a widow or representative of a deceased partner 4. as an interest on a loan, though the amount of payment vary with the profits of the business 5. as the consideration for the sale of a goodwill of a business or other property by instalment or otherwise. PRINCIPLE OF DELECTUS PERSONAE no one can become member of the partnership association without the consent of all the partners. Right of a partner to demand formal accounting of partnership affairs, When: 1. he is wrongfully excluded from the partnership business or possession of its property by his co-partners 2. rights exist under the terms of any agreement 3. a partner has derived profits from any transaction connected with the formation, conduct or liquidation of the partnership or from any use by him of his property; or 4. whenever other circumstances render it just and reasonable Property rights of a partner: 1. rights in specific partnership property 2. interest in the partnership and his share of the profits and surplus

3. right to participate in the management only in no. 2 is assignable. Rights of a partner in specific partnership property: 1. has an equal right with other partners to possess specific partnership property for partnership purposes 2. not assignable, except in connection with the assignment of rights of all partners in the same property 3. not subject to attachment or execution except on a claim against the partnership 4. not subject to legal support. Partnership maybe held liable to a third person for the act of one of the partners: When: 1. contract was entered into in the name and for the account of the partnership and under its signature and 2. such partner was authorized to act for the partnership Effects of conveyance by partner of his interest in the partnership: 1. conveyance of his whole interest, partnership may either remain or be dissolved 2. assignee does not necessarily become a partner 3. assignee cannot even interfere in management or administration of the partnership business or affairs; and assignee cannot also demand: a. information b. accounting c. inspection of the partnership books Rights of Assignee: 1. get whatever assignor-partner would have obtained 2. avail usual remedies in case of fraud in the management 3. ask for annulment of contract of assignment if he was induced to join through any of the vice of consent 4. demand an accounting (only in case of dissolution) DISSOLUTION change in the relation of the partners caused by any partner ceasing to be associated in the carrying on of the business WINDING UP process of liquidating partnership affairs TERMINATION moment when partnership affairs were wound up. Causes of dissolution of partnership: 1. without violation of the agreement between partners; a. by termination of the definite term or particular undertaking specified in the agreement b. by express will of any partner, who must act in good faith, when no definite term or particular undertaking is specified

2. 3. 4.

5. 6. 7. 8.

c. by express will of the partners who have not assigned their interests or suffered them to be charged for their separate debts, either before or after the termination of any specified term or particular undertaking d. by expulsion of any partners from the business bona fide in accordance with such power conferred by the agreement between the partners in contravention of the agreement between partners where the circumstances do not permit a dissolution; by any event which makes it unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership when a specific thing which a partner had promised to contribute to the partnership perishes before the delivery in any case by the loss of the thing, when the partner who contributed it having reserved the ownership thereof, ahs only transferred to the partnership the use or enjoyment of the same; but the partnership shall not be dissolved by the loss of the thing when it occurs after the partnership has acquired ownership by death of any partner by insolvency of any partner or of the partnership by civil interdiction of any partner by decree of court DISTINCTIONS

GENERAL PARTNER LIMITED PARTNER 1.can be held personally 1.cannot be held liable liable for partnership obligations after all partnership assets are exhausted. 2.may participate in the 2.does not management of partnership 3.may contribute money, 3.can contribute money or property or industry to property only common fund 4.name may appear in the firm 4.does not name 5.there is a limitation on right 5.no such limitation to engage in another business or in the same kind of business Substituted Limited Partner a person admitted to all the rights of a limited partner who has died or has assigned his interest in

a partnership. Has all rights and powers and is subject to all restrictions and liabilities of his assignor, except those liabilities of which he was ignorant at the time he became a limited partner and which could not be ascertained from the certificate. Order of payment in the winding up of partnership liabilities 1./general partnership a. those owing to creditors other than partners b. those owing to partners other than for capital and profits c. those owing to partners in respect of capital d. those owing to partners in respect of profits 2. limited partnership a. those to creditors in the order of priority as provided by law, except those limited partners on account of their contributions and to general partners b. those to limited partners in respect to their share of the profits and other compensation by way of income on their contributions c. those to limited partners in respect to the capital of their contributions d. those to general partners other than for capital and profits e. those to general partners in respect to profits f. those general partners in respect to capital QUESTION NO. 1 What are the tests or indicia to determine the existence of a partnership? QUESTION NO. 2 Assuming that there is mutual contribution of money, property or industry to common fund, is the receipt by a person of a share of the profits of a business conclusive evidence that he is a partner in the business? Explain QUESTION NO. 3 a. Can a husband and wife enter into a contract of partnership? b. A organized a limited partnership with himself as general partner and his two friends, B and C, as limited partners. One year later, A and B got married, and thereafter the two bought the interest of C for a nominal amount. The Commissioner of Internal Revenue now maintains that the marriage of A and B and their subsequent acquisition of the interest of C in the partnership dissolved the limited partnership and if there was no dissolution, the fiction of juridical personality of the partnership should be disregarded for income tax purposes because the spouses have exclusive ownership and control of the business. Consequently, the income tax returns of A and his

wife B should have included his and his wifes individual incomes and that of the limited partnership. Is this correct? Reason. QUESTION NO. 4 a. Who shall manage the partnership? Qualify your answer. b. A, B, C and D organized a general partnership with A and B as industrial partners and C, who contributed 30,000 to the partners common fund, and D, who contributed 10,000 to the common fund as capitalist partners. A and B were both appointed managing without any specifications of their respective duties. When the firm commenced business operations, the two appointed X as accountant of the company. A year later, A decided to dismiss X. but this was opposed by B. How can the conflict between the two be resolved? c. Suppose that in the above problem, nobody was appointed managing partner of the firm, how shall the conflict between A and B resolved? QUESTION NO. 5 A, B and C formed a general partnership with the following contributions to the common fund: A, 2,000; B, 4,000; C, 6,000. There was no agreement on the division of profits or apportionment of losses. After some years of business operations, the assets of the partnership dwindled to 3,000; so the partners agreed to stop their loan of 12,000. Under the circumstances, from whom can Corpuz demand satisfaction of his credit, and to what extent? LAW ON CORPORATIONS CORPORATION artificial being created by operation of law having the right of succession, and the powers, attributes and properties expressly authorized by law and incident to its existence. CONCESSION THEORY juristic principle in the creation of corporation under which a corporation is an artificial creature without any existence until it has received the imprimatur of the state acting according to laws, through SEC Theory of Corporate Enterprise or Economic Unit corporation not merely an artificial being, but more as an aggrupation of persons doing business or an underlying business unit Primary franchise - the franchise to exist as a corporation Secondary Franchise right or privilege conferred upon existing corporation, such as to use the streets of a municipality to lay

pipes or tracks or operate a messenger and express delivery service. ATTRIBUTES OF CORPORATION distinct personality perpetual succession acquisition of property, contracting obligations and bringing of suits; and receipt and enjoyment in common of privileges and immunities Doctrine of piercing the veil of corporate fiction allows the state to disregard for certain justifiable reasons the fiction of juridical personality for the corporation, separate and distinct from the persons composing it. When applied: used as a cloak to cover fraud, illegality or it results in injustice one corporation is mere subsidiary, instrumentality or department of another corporation corporation was used as an alter ego or business conduit for sole benefit of the stockholder corporation is used as a shield to an end which is subversive to justice Classes of Corporations: as to organizers public by state only private by private persons alone or with the state as to functions public governmental and other functions; and private usually for profit making functions as to governing law public special laws private law on private corporation (i) close corporations (ii) special corporations (iii) foreign corporations (iv) de facto corporations (v) corporations by estoppel Corporation by Estoppel group of persons which holds itself out as a corporation and enters into a contract with a 3 rd persons on the strength of such appearance. It cannot be permitted to deny its existence in an action under said contract. Corporation by Prescription body which though not lawfully organized as a corporation, has been duly recognized by immemorial usage as a corporation, with rights and duties maintainable at law.

Acquired Asset Corporation organized under general corporation law under private ownership where at least a majority of the shares of stock of which were conveyed to a government corporations in satisfaction of a debt incurred with government financial institution, whether by foreclosure or otherwise; or a subsidiary corporation of a government organized exclusively to own and manage or lease or operate specific physical assets acquired by a government financial institution in satisfaction of debts incurred therewith. De Facto Corporation a corporation where there exists a flaw in its incorporation Rule on De Facto Corporation: the due incorporation of a corporation claiming in good faith to be a corporation, and its right to exercise corporate powers, shall not be inquired into collaterally in any private suit to which such corporation may be a party. Such inquiry maybe made by the solicitor general in a quo warranto proceeding. Requisites of De Facto Corporation 1. organized under a valid law 2. bonafide compliance with formalities of law 3. user of corporate powers 4. an additional requirement of issuance of certificate of incorporation by the SEC is also required. Components of a Corporation: 1. incorporators 2. corporators 3. stockholders and members 4. promoter 5. board of directors 6. executive committee 7. officers of the corporation DISTINCTIONS Incorporators 1.signatory to articles Corporators 1.stockholder of stock corporation of member of non stock corporation 2.cease to be such if they are no longer stockholders 3.no restriction as to number

2.do not cease to be such

3.number is limited to 5 15 4.must capacity have

contractual 4.may be such through his guardian

Promoter person who undertakes to form a corporation and to produce for it the rights, instrumentalities and capacity by which it is to carry out the purpose set forth in its charter and to establish it as fully able to do business. Underwriter one who, under an agreement made before corporate shares are bought by the public, will, in the event of the publics not taking all the shares or the number mentioned in the agreement, take the shares which the public does not take. Pre-Incorporation Subscription contract- subscription of shares of stock of a corporation still to be formed shall be irrevocable for a period of at least 6 months from date of subscription, unless: 1. all of the other subscribers consent to the revocation 2. the incorporation of said corporation fails to materialize within said period or within a longer period as may be stipulated in the contract of subscription, provided that no pre-incorporation subscription may be revoked after the submission of the articles of incorporation to the SEC Limitations on the powers of Executive Committee ** it cannot act on the following: 1.matters needing stockholders approval 2. filling up of board vacancies 3. amendment, repeal or adoption of by-laws 4. amendment of irrepealable board resolution 5. cash dividend declaration Capital Stock or Legal Stock or Stated Capital the amount fixed by the corporate charter to be subscribed and paid in cash, kind or property at the organization of the corporation or afterwards and upon which the corporation it is to conduct its operation Capital actual property or estate of the corporation whether in money or property Authorized Capital Stock total amount in the charter which may be raised by the corporation for its operations Share 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. Consideration: 1. cash 2. property delivered to the corporation 3. labor or services actually rendered 4. prior corporate obligations 5. amounts transferred from unrestricted retained earning to stated capital

6. outstanding shares exchange for stocks in the event of reclassification or conversion Prohibition: shares of stock shall not be issued in exchange for promissory notes or future services. Number and Qualification of Incorporators: 1. natural persons 2. not less than 5 but not more than 15 3. of legal age 4. majority must be residents of the Philippines 5. each must own or subscribe to at least one share Corporate Term: 50 years which may be subject to extension for another 50 years by amendment of Articles. Effects of Non-Use of Corporate Charter and Continous inoperation of a corporation: 1. Non-user for 2 years when the corporation does not fully organize and commence the transaction of its business or the construction of its works within 2 years from the date of its incorporation. Its corporate powers cease and the corporation shll be deemed dissolved. Suspension or cancellation of corporate franchise is not automatic. 2. Non-user for 5 years when the corporation has commenced the transaction of its business but subsequently becomes continuously inoperative for a period of at least 5 years EXCEPT if reason for non-use or inoperation is beyond the control of the corporation. Minimum Capital Required General rule: no minimum required for capital stock Except: 1. Domestic insurance corporations **500T capital stock; 50% subscribed and the balance payable in 12 months 2. private development banks **4M for class A **2M for class B **1M for class C 3. Investment Companies **paid up at least 500T 4. Savings and Loan Corporation to be fixed by the Monetary Board but not less than 100T 5. Financing Companies:

2M for Metro Manila 1M for Cities 500T for others Amount of Capital Stock to be subscribed and paid for purposes of corporation: ** 25% of ACS must be subscribed at time of incorporation **25% of total subscription must be paid upon subscription but must not be less than 5,000 Classification of Shares: 1. preferred stock distributed always with par value and preference is to assets after dissolution, distribution of dividends and other preferences 2. redeemable 3. treasury stock 4. founders stock 5. non-voting share 6. common stock 7. promotion stock 8. escrow stock deposited with 3rd person to be delivered to S/H or his assign after complying with certain conditions, usually payment of full subscription price 9. over-issued stock 10.water stock issued as fully paid when in fact it is not 11.no par value stock 12.debenture charge on the net earnings and profit of the corporation 13.deferred 14.stock warrant security which entitle holder the right to subscribe to or purchase from the unissued capital stock of a corporation in the future 15.scrip = applied to certificates issued by trustee in a voting trust 16.street certificate stock certificate indorsed by the registered holder in blank and the transferee can command its transfer to his name from the issuing corporation. The certificate may be transferred by mere deliver. Stock Certificate written acknowledgement by the corporation of the S/Hs interest in the corporation. It is personal property and maybe mortgaged or pledged. Matters where holders of non-voting shares may vote: 1. amendment of Articles of Incorporation 2. adoption and amendment of by-laws 3. increase or decrease of bonded indebtedness 4. increase or decrease of capital stock 5. sale or disposition of all or substantially all of corporate property 6. merger or consolidation of corporation

** paid up:

7. investments of funds in another corporation or another business purpose 8. corporate dissolution Trust Fund Doctrine the subscribed capital stock of the corporation is a trust fund for the payment of debts of the corporation which the creditors have the right to look up to satisfy their credits. Corporation may not dissipate this and the creditors may sue stockholders directly for the unpaid subscription Preemptive right of Stockholders right of S/H at the time of issue of capital stock, in preference to other persons and as between themselves to subscribe for, or purchase, the unissued stock in proportion to the number of shares of the original stock held by them respectively. Reacquisition by corporation of its stock: 1. to eliminate fractional shares 2. to compromise indebtedness arising out of unpaid subscription 3. to purchase deliquent shares 4. to exercise its right of appraisal Contents of the Articles of Incorporation 1. name of corporation 2. purpose/s, indicating the primary and secondary purposes 3. place of principal office 4. duration 5. name, citizenship & residences of incorporators 6. number, names, citizenship & residences of directors 7. if stock corporation, amount of capital stock, number of shares and in case of par value stock corporation, the par value of each share 8. names, residences, number of shares and amounts of subscription of subscribers, which shall not be 25% of ACS 9. names, residences and amount paid by each subscriber on their subscription which shall not be 25% of total subscription 10. name of treasurer elected by subscribers 11. if the corporation engages in a nationalized industry, a statement that no transfer of stock will be allowed if it will reduce the stock ownership of Filipinos to a percentage below the required legal minimum Merger one corporation absorbs the other and remain in existence while the other is dissolved Consolidation a new corporation is created and consolidating corporations are extinguished General Rule: when one corporation buys all the shares of another corporation, this will not operate to dissolve the other

corporation as the two corporation still maintaining their separate corporate entities, one will not answer for the debts of other. Exceptions 1. if there is an express assumption of liabilities 2. there is a consolidation or merger 3. if the purchase was in fraud of creditors 4. if the purchaser becomes a continuation of the seller Books required to be kept 1. Book of Minutes a. minutes of S/H meetings b. minutes of board meetings 2. Book of all business transactions 3. Stocks and transfer book Corporate Powers and Capacity 1. to sue and be sued 2. of succession 3. to adopt and use of corporate seal 4. to amend Articles 5. to adopt by-laws 6. for stock corporations issue and sell stocks to subscribers and treasury stocks for non-stock corporations admit members 7. purchase ) receive ) real property grant ) personal property take ) securities and deal ) bonds 8. to adopt a plan of merger or consolidation 9. to make reasonable donations for: a. public welfare b. hospital Prohibition: no donations to c. charitable 1. political party d. cultural 2. candidate e. scientific 3. partisan political activity f. civic g. similar purposes 10. to establish a. pension b. retirement ) for the benefit of a. directors b. trustees c. other plans c. officers d. employees 11. other powers essential or necessary to carry out its purposes. Theory of General Capacity corporation is said to hold such powers as are not prohibited or withheld from it by general law (everything is allowed except when prohibited).

Theory of special capacity corporation cannot exercise powers except those expressly or impliedly given (everything is prohibited except when allowed) Concession Theory a group of persons wanting to create a corporations will have to execute documents and comply with requirements set by state before being given corporate personality. Repository of corporate powers unless otherwise provided by the code, the corporate powers of all corporation shall be exercised, all business conducted and all property of such corporations controlled and held by the board of directors or trustees to be elected from among the members of the corporation, who shall hold office for one year and until their successors are elected and qualified. Except: 1. executive committee 2. the corporation enters into a management contract Remedies in case of Mismanagement: 1. receivership 2. injunction if the act has not yet been done 3. dissolution if the abuse amounts to a ground for quo warranto but the solicitor general refuses to act 4. derivative suit or complaint filed with SEC Corporate Officers: 1. President who shall be a director 2. Treasurer who may or may not be a director 3. Secretary who shall be a resident and citizen of the Phil. 4. such other officers as may be provided for in the by-laws Effects of Ultra Vires Act on: 1. executed contract courts will not set aside or interfere with such contracts 2. executory contracts no enforcement even at the suit of either party (void and unenforceable) 3. part executed and part executory principle of no unjust enrichment at expense of another shall apply 4. executory contracts apparently authorized but ultra vires the principle of estoppel shall apply

Liability of Directors 1. voting or assenting, knowingly and wilfully to patently unlawful acts of the corporation 2. guilty of gross negligence or guilty of bad faith in 3. directing affairs

4. acquiring interest, personal or pecuniary interest in conflict with their duty as such directors or trustees Special Fact Doctrine director takes advantage of an information by virtue of his office to the disadvantage of the corporation. Doctrine of Corporate Opportunity if there is presented to a corporate officer or director a business opportunity which 1. corporation is financially able to undertake 2. from its nature is in line with corporations business and is of practical advantage to it 3. one in which the corporation has an interest or a reasonable expectancy ** by embracing the opportunity, the self-interest of the officer or director will be brought into conflict with that of his corporation, the law will not permit him to seize the opportunity Rights of Stockholders: 1. direct or indirect participation in management a. voting rights b. voting to remove directors 2. proprietary rights a. right too dividends b. appraisal right c. issue of stock certificate for fully paid shares d. proportionate participation in the distribution of assets on liquidation e. transfer of stocks f. preemptive right g. right to inspect books and record h. right to financial statement i. right to recover stocks unlawfully sold for delinquent payment of subscription 3. remedial rights a. individual suit b. representative suit c. derivative suit suit brought by S/H, for and in behalf of the corporation and against any person be he also a S/H, director, officer or 3rd person Requisites: 1. party bringing suit should be a shareholder as of the time of the act or transaction complained of 2. he has exhausted intra-corporate remedies 3. the cause of action actually devolves on the corporation, the wrongdoing or harm having been caused to the corporation and not to the particular stockholder bringing the suit.

Cumulative voting S/H being entitled to that number of votes that his number of shares multiplied by the number of directors to be elected will bring may give all said votes to one candidate or he may distribute them among candidates as he sees fit Proxies S/H and members may vote in person or by proxy in all meetings of S/H or members Form in writing signed by the S/H or member and filed before the scheduled meeting with the corporate secretary Period of validity unless otherwise provided in the proxy, it shall be valid only for the meeting for which it is intended. No proxy shall be valid and effective for a longer period than 5 years at any one time. Voting trust one or more S/H of a stock corporation may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote and other rights pertaining to the shares for a period not exceeding 5 years at any one time. However, if the voting trust was a requirement for a loan agreement, period may exceed 5 years but shall automatically expire upon full payment of the loan. Dividends unrestricted retained earnings set apart from the general mass of funds of the corporation and distributed among the S/H in proportion to their shares or interest in the corporation in the form of cash, property or stocks. Appraisal right when a S/H not agreeable to certain corporate actuations may protest, and compel the corporation to buy his shares. Instances where it maybe exercised: 1. extension of duration of corporate term 2. change in the rights of S/H authorize preferences superior to those S/H or restrict the right of any S/H 3. S/H authorized board to engage in a purpose other than main purposes stated in the Articles 4. corporation decides to sell or disposed of all or substantial all of assets of corporation Liabilities of stockholders 1. to the corporation for unpaid subscription plus interest 2. to creditors for unpaid subscriptions 3. to the corporation for watered stocks Dissolution of a corporation extinguishment of the franchise of a corporation and the termination of its corporate existence Modes of Dissolution of a corporation: 1. voluntary dissolution

a. where no creditors are affected b. where creditors are affected c. by shortening corporate term 2. involuntary dissolution, for a. violation of the new corporation code. b. Failure to organize and commence business within 2 years from incorporation c. may be dissolved by SEC in grounds provided by existing laws, rules and regulations d. failure to file by-laws within 30 days from issue of certificate of incorporation. Foreign Corporation corporation formed, organized or existing under any law other than those of the Phils. And whose laws allow Filipino citizens and corporations too do business in its own country or state. Engaging in Business implies a community of commercial dealings and arrangements, and contemplates to some extent the performance of act or works or the exercise of some functions normally incident to and in progressive prosecution of, the purpose and object of its organization Suability of foreign corporations: 1. foreign corporation doing business in the Philippines a. with license: may sue and be sued in the Philippines b. without license : cannot sue but may be sued in the Philippines 2. foreign corporation not doing business in the Philippines, on isolated transaction may sue and be sued CLOSE CORPORATIONS Requirements for close corporations: 1. number of stockholders not to exceed 20 2. restriction pre-emption in favour of the stockholder or the corporation 3. the stocks cannot be listed in the stock exchange nor should they be publicly offered. ** special type of close corporation 2/3 of the voting stocks or voting rights is owned or controlled by another corporation which is not a close corporation ** the following cannot be a close corporation a. mining companies b. oil companies c. stock exchanges d. banks e. insurance companies f. public utility g. education institution

h. other corporations declared to be vested with public interest Restrictions on transfer the restrictions in the transfer of the stocks must appear: 1. in the articles 2. in the by-laws 3. on the stock certificates Preemptive right in close corporations shall extend to all stock to be issued, including reissuance of treasury share, whether for money or property or personal services, or in payment of corporate debts, unless the articles of incorporation provide otherwise. Characteristics of close corporation 1. S/H act as directors without need of election and therefore are liable as directors 2. quorum may be greater than mere majority 3. transfers of stocks to others, which would increase the number of S/H to more than the maximum are invalid 4. corporate situations may be binding even without a formal board meeting, if the s/H had knowledge or ratified the informal action of the others 5. preemptive right extends to all stock issues 6. deadlocks in board are settled by the SEC, on written petition by any S/H 7. S/H may withdraw and avail of his right of appraisal Distribution of assets on dissolution of non-stock corporations 1. all its creditors shall be paid 2. assets held subject to return on dissolution, shall be delivered back to their givers 3. assets held for charitable, religious, etc. without a condition for their return on dissolution shall be conveyed to one or more organizations engaged in similar activities as dissolved corporations 4. all other assets shall be distributed to members as provided for in the articles or by-laws NON-STOCK CORPORRATIONS ** Corporation where no part of its income is distributable as dividends to: a. members b. trustees c. officers ** except -- at dissolution Disposition of profits: for furtherance of purpose or purposes of the corporation Conditions: necessary and proper

Purposes: a. charitable b. religious c. educational d. professional e. cultural f. fraternal g. literary h. scientific i. social j. civic services k. similar purposes such as chambers or combinations for: 1. trade 2. industry 3. agricultural RELIGIOUS CORPORATIONS Kinds 1. corporation sole special form of corporation, usually associated with the clergy and consists of one person only and his successors, who are incorporated by law to give some legal capacities and advantages 2. religious societies non-stock corporation governed by a board but with religious purposes. QUESTION NO. 1 Jose Santos owns and operates a fleet of ten buses plying a route extending from Manila to Tarlac. He also owns a store dealing in clothing materials, shoes, etc. situated in Makati, Rizal. About 250,000 is invested in the transportation business and 100,000 in the store. He now seeks your counsel as to whether or not it is advisable for him to incorporate these businesses or to continue operating them as single proprietorship. 1. What factors or information would y u consider relevant in dealing with the problem? 2. What advice would you give? State your reasons. QUESTION NO. 2 In the complaint filed by XYZ corporation, its President alleged that he suffered mental anguish, fright, social humiliation and serious anxiety as a result of the tortious act of ABC corporation. In its counterclaim, ABC corporation claimed to have suffered oral damages due to besmirched reputation or goodwill. 1. May XYZ corporation recover moral damages based on the allegations in the complaint? 1. May ABC corporation recover moral damages? Give reasons for your answer.

QUESTION NO. 3 What facts and circumstances must be proved in order that the stockholders may be held liable for the obligations contracted by the corporation? QUESTION NO. 4 What determines the nationality of a corporation? For what matters are foreign corporations doing business in the Philippines subject to the laws, rules and regulations of the country of their creation? QUESTION NO. 5 May a corporation composed entirely of aliens be organized and incorporated in the Philippines? Explain. QUESTION NO. 6 Global KL Malaysia (GLOBAL), a 100% Malaysian-owned corporation, desires to build a hotel beach resort in Samal Island, Davao City, to take advantage of the increased traffic of tourists and boost the tourism industry of the Philippines. 1. Assuming that GLOBAL has US$100 million to invest in a hotel beach resort in the Philippines, may it be allowed to acquire the land on which to build the resort? If so, under what terms and conditions may GLOBAL acquire the land? Discuss fully. 2. May GLOBAL be allowed to manage the hotel beach resort? Explain 3. May GLOBAL be allowed to operate restaurants within the hotel beach resort? Explain. QUESTION NO. 7 At the annual meeting of ABC corporation for the election of five directors as provided for in its articles of incorporation, A, B, C, D and E received the highest number of votes and were proclaimed elected. F received ten votes less than E. Subsequently, E sold all his shares to F. At the next Board of Directors meeting following the transfer of the shares in the books of the corporation, both E and F appeared; e claimed that notwithstanding the sale of his shares to F, he remained a director since the corporation code provides that directors shall hold office for one year and until their successors are elected and qualified . On the other hand, F claimed that since he would have been elected as a director had it not been for Es nomination and election, then he (F) should now be considered a director as he has acquired all the shares of E. Decide with reasons.

QUESTION NO. 8 The Articles of incorporation to be registered in the securities and Exchange Commission contained the following provision: a)First Article. The name of the corporation shall be toho Marketing Company b) Third Article. The principal office of the corporation shall be located in Region III, in such municipality therein as its Board of Directors may designate. c)Seventh Article. The capital stock of the corporation is 1,000,000 (1 M), Philippine currency, What are your comments and suggested changes to the proposed articles? QUESTION NO. 9 What private corporations may not issue no-par value shares of stock and what shares of stock may not be issued without a stated par value? QUESTION NO. 10 A, B and C are shareholders of XYZ company. A has an unpaid subscription of 100,000.00. Bs share are fully paid up, while C owns only nominal but fully paid up shares and is a director and officer. XYZ company becomes insolvent, and it is established that the insolvency is the result of fraudulent practices within the company. If you were counsel for a creditor of XYZ company, would you advise legal action against A, B and C? QUESTION NO. 11 The stockholders of People Power, Inc. (PPI) approved the following two resolutions in a special stockholders meeting (i) resolution increasing the subscribed capital stock of PPI, and (ii) resolution authorizing the board of directors to issue for cash payment the new shares from the proposed capital stock increase in favor of outside investors who are non-stockholders. The foregoing resolutions were approved by stockholders representing 90% of the total outstanding capital stock. The sole dissenter was Jose Estrada who owned the rest (1%) of the stock. a) Are the resolutions binding on the corporation and its stockholders, including Estrada, the dissenting stockholder? b) What remedies, if any, are available to Estrada?

QUESTION NO. 12 A resident of Manila who owns shares of stock of a Zamboanga corporation mortgages those shares to a resident of Naga City. Where should the mortgage be registered? Would the mortgage be valid if it is not registered in the books of the corporation. Explain your answer. QUESTION NO. 13 A group of individuals, desiring to organize a corporation asked for your advice on the following proposals: a. as to authorized capital stock 1 million divided into 500,000 no par value shares of preferred stock to be offered at an issue value of 1.00 per share and 500,000 shares of common stock, with a par value of 1.00 per share. b. as to voting rights all shares shall have the same voting rights except that the common shares shall not vote on any proposed increase or decrease of the authorized capital stock. What features of the foregoing proposals are not permitted by law? QUESTION NO. 14 The AB memorial foundation, Inc. was incorporated as a non-stock corporation in order to establish and maintain a library and museum in honor of the deceased parents of incorporators. Its articles of Incorporation provide for a board of trustees composed of the five (5) incorporators, which is authorized to admit new members. The Articles of Incorporation also allow the foundation to receive donations from members. As of January 1993, 60 members had been admitted by the board of trustees. a. can the foundation use the funds donated to it by its members for the purchase of food and medicine for distribution to the victims of the Pinatubo eruption? b. Can the foundation operate a specialty restaurant that caters to the general public in order to augment it funds? c. One of the original trustees died and the other two (2) resigned because they immigrated to the US. How will the vacancies in the board of trustees filled. MARIA TERESA S. ROBLES Instructor

ANSWERS TO THE QUESTIONS: 1. there are always two tests which must be applied in order to determine whether or not a partnership exists. The first test is to determine whether or not there is an agreement to contribute money, property or industry to common fund, and the second test is to determine whether or not there is an intent of the contracting parties to divide the profits among themselves. Once it can be shown that there was an agreement to contribute money, property or industry to a common fund and that there was an intent to divide the profits among themselves then a partnership contract exists. 2. No, it is not conclusive evidence that he is a partner in the business. According to the civil code, it is merely prima facie evidence that he is a partner. This inference, however cannot be drawn if such profits are payments for the following (a) debt payable by instalments or otherwise (b) wages of an employee or rent to a landlord (c) annuity to a widow or to a legal representative of a deceased partner (d) interest on a loan (e) sale of the goodwill of a business or other property by installment or otherwise. 3. 3.a) If the partnership is a universal partnership the husband and a wife cannot enter into such contract. This is because under the civil code (Art 1782) persons prohibited from making donations to each other are prohibited from entering into universal partnership. However, if the partnership in particular partnership or a limited partnership, they cannot. 3.b) The commissioner of internal revenue rest his theory upon the opinion that a husband and a wife may not enter into a contract of general partnership because under the civil code, which applies in the absence of express provision in the code, persons prohibited from making donations to each other are prohibited from making donations to each other are prohibited from entering into universal partnerships. It follows that the marriage of partners necessarily brings about the dissolution of a preexisting partnership. What the commissioner has evidently failed to observe is the fact that the partnership in the case at bar is a limited and, at the same time, particular partnership and not a universal partnership, such as the one that has for its object all the present property of the partners as contributed by them to the common fun , or else all that the partners may acquire by their industry or work during the existence of the partnership. Nor could the subsequent marriage of the partners operate to dissolve the partnership such marriage not being one of the causes provided for that purpose either.

It being a basic tenet that the partnership has a juridical personality of its own, distinct and separate from that of its partners, the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited partnership separate individuality makes it possible to equate its income with that of the component members. 4. 4(a) The management of partnership may be vested by agreement in one or some or all of the partners, or even in a third person, either in the articles of partnership or after the partnership had already been constituted. If there is no agreement, it is vested in all of the partners. 4(b) If there is conflict it shall be resolved by the decision of the majority of the managing partners, and in case of a tie, it shall be decided among the partners owning the controlling interest. It is clear that in the instant case, there is a tie, consequently, the matter must now be decided by C who owns the controlling interest. If he casts his vote in favor of A, X is out of a job; if he casts his vote in favor of B, X still has job. 4(c) When the manner of management has not been upon, all the partners shall be considered agents and whatever any one of them may do alone shall bind the partnership, with out prejudice to the provisions of Art 1801. According to the provision of law, the decision of the majority shall prevail and in case of a tie, the matter shall be decided by the partners owning the controlling interest. The conflict between A and B shall be resolved by putting the question to a vote of all of the partners. In case of a tie, C, who owns the controlling interest in the partnership shall decide. 5. since the obligation of 12,000 in the instant case is a partnership obligations arising from a contract, what is applicable here is the rule enunciated in the civil code that of the partners shall be liable pro rata with all their property after all of the partnership assets have been exhausted. Consequently, Corpuz may demand payment of the remaining 3,000 from the partnership. He can then compel A, and demand C to pay the balance of 9,000 still unpaid in the portion of 1 is to 2 is to 3 (1:2:3). In other words, A shall be liable for 1/6 of 9,000 or 1,500; B for 2/6 or 1/3 of 9,000 and C for 3/6 or of 9,000 or 4,500.

CORPORATIONS: 1. The factors or information I would consider as relevant in dealing with the problem are: a. the speculative nature of each or both of the businesses b. the amount of additional capital intended to be invested in each or in both of the businesses c. the tax angle d. the proximity of the places of operation of the businesses e. whether existing laws would allow the joinder of the diverse purposes of the proposed corporations 1.b) I will advise against the joining of the two businesses, the incorporation business and the clothing business for the following reasons: a. under the law a corporation engaged in transportation cannot engaged in transportation cannot engage in any other business alien to transportation b. the operation of a transportation business opens the operator to the risk of liability to passengers injured or killed in accidents. This liability might encroach on the investment in the clothing business if joined with the transportation business. 2. XYZ corporation by reason of its being a juridical person, cannot possibly experience physical suffering, mental anguish, fright, serious anxiety, wounded feelings, moral shock damages, because the above consequence can be suffered, inflicted or experienced by natural persons only. Hence, XYZ corporation cannot recover moral damages for the sufferings of its president. 2b) On the other hand, a corporation may have established a reputation of its own, and created goodwill in the course of its business operations over the years. These are its assets, accruing to it as a juridical person, Hence, if they get besmirched, the corporation has a cause of action against the offender. I submit therefore, that ABC corporation may file a counterclaim for moral damages due to its besmirched reputation and goodwill. 3. While a corporation has a personality separate and distinct from the stockholders composing it, this veil of corporate fiction may be disregarded, and the stockholders and the corporation considered as one person in the following instances: a. when the stockholders created the corporation to evade taxes, violate laws, commit fraud, evade just obligations b. when the corporation is owned by the stockholder and his dummies and/or the immediate members of his family.

4. the country where the corporation was incorporated determines the nationality of a corporation. This is called as the domiciliary test. In times of war or national emergency, another test is used the control test. Under this test, if the controlling stock of a corporation is owned by citizens of a particular country which is at war with the Philippines, then that corporation although organized in the Philippines is a foreign corporation. Foreign corporation classified under the domiciliary test are subject to the laws of the country of their creation on the following matters: 1. creation, formation, organization or dissolution of corporation 2. relations, liabilities, responsibilities and duties of members, stockholders or officers of corporation to each other or to the corporation 5. Yes, a corporation composed entirely of aliens may be organized in the Philippines. The corporation law, in general, only requires a majority of the incorporators to be residents not necessarily citizens of the Philippines. However, in the nationalized corporations (retail trade, agriculture, mining, transportation, shipping) no aliens or some but not all can form the corporation depending on whether it is totally or partially nationalized

6. a. GLOBAL can secure a lease on the land. As a corporation with a Malaysian nationality, GLOBAL cannot own the land b, Yes, GLOBAL can manage the hotel beach resort. There is no law prohibiting it from managing a resort c. GLOBAL may be allowed to operate restaurants within the beach resort. This is part of the operation of the resort. 7. Neither E or F can sit as a director of the corporation. E cannot be a director because he ceased to be a stockholder by the sale of all his stocks to F. A director is required to be owner of at least one share of stock in a corporation, and the moment he totally disposes of his stocks, he automatically terminates his directorship. F cannot be a director because he was not elected as such. Neither can he claim appointment as such to replace E, because he was never appointed to the position by the remaining members of the board his basis of claim being that he acquired all of the shares of E, a director. The acquisition by a person of all of the stocks of an incumbent director of a corporation will not make him (the transferee) a director of that corporation. 8. My comments to the provisions stated above are:

a) the name of the corporation should contain the word incorporated or corporation. The suggested change is: