Professional Documents
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Board of Directors of the constituent corporations must prepare and approve a plan of merger or
consolidation.
2/3 vote of OCS of the constituent corporations.
Execution of the Articles of Merger/Consolidation, to be signed by the Pres/VP and certified by the
secretary / assistant secretary.
Submission to the SEC for approval.
The separate existence of the constituent corporations shall cease, except that of the surviving or
consolidated corporation.
(3)
The surviving or consolidated corporation shall possess all rights, privileges, immunities and
powers and shall be subject to all the duties and liabilities of a corporation organized under the
Corporation Code.
(4)
The surviving or consolidated corporation shall thereupon and thereafter possess all the rights,
privileges, immunities and franchises of each of the constituent corporations;
(5)
All property (real or personal) and all receivables due on whatever account (including subscriptions
to shares and other choses in action), and all and every other interest of, or belong to, or due to
each constituent corporation, shall be deemed transferred and vested in such surviving or
consolidated corporation without further act or deed.
(6)
The surviving or consolidated corporation shall be responsible and liable for all the liabilities and
obligations of each of the constituent corporations in the same manner as if such surviving or
consolidated corporation had itself incurred such liabilities or obligations; and any pending claim,
action or proceeding brought by or against any of such constituent corporations may be prosecuted
by or against the surviving or consolidated corporation. (Note: The merger or consolidation
does not impair the rights of creditors or liens upon the property of any such constituent
corporations.)
WHAT ARE THE RULES GOVERNING MERGER OR CONSOLIDATION INVOLVING A FOREIGN CORPORATION
LICENSED IN THE PHILIPPINES? (Sec. 132)
a foreign corporation authorized to transact business in the Philippines may merge or consolidate
with any domestic corporation if such is permitted under Philippine law and by the law of its
incorporation.
WHEN IS A SALE OR OTHER DISPOSITION DEEMED TO COVER SUBSTANTIALLY ALL THE CORPORATE
PROPERTY AND ASSETS?
If by the sale the corporation would be rendered incapable of continuing the business or accomplishing the
purpose for which it was incorporated. (Sec. 40)
WHAT ARE THE REQUIREMENTS? (Sec. 40)
(1)
Majority vote of BOD + 2/3 vote of OCS or members at a meeting duly called for the purpose;
(2)
Note, however, that after such approval by the SHs, the BOD may nevertheless, in its discretion, abandon such sale or
other disposition without further action or approval by the SHs. This, of course, is subject to the rights of third parties under
any contract relating thereto.
WHEN IS SH APPROVAL NOT NECESSARY FOR THE ABOVE DISPOSITION?
(1) If the disposition is necessary in the usual and regular course of business; or
(2) If the proceeds of the disposition be appropriated for the conduct of its remaining business (Sec. 40)
IS THE APPRAISAL RIGHT AVAILABLE TO DISSENTING STOCKHOLDERS?
Yes. However, it must be stressed that this right is generally available only to dissenting stockholders of
the selling corporation, not the purchasing corporation. (It can be argued, though, that in instances wherein the
purchase constitutes an investment in a purpose other than its primary purpose, stockholders' approval of such
investment is necessary, and anyone who objects thereto will have the appraisal right under Sec. 42.)
Exchange of stocks
In this method, all or substantially all the stockholders of the "acquired" corporation are made
stockholders of the acquiring corporation. With the exchange, the acquired corporation becomes a
subsidiary of the acquiring corporation. Although this method does not combine the 2 businesses under a
single corporation as in merger and sale of assets, from the point of view of the acquiring (parent)
corporation, there is hardly any difference between owing the acquired corporation's business directly and
operating it through a controlled subsidiary. In fact, the parent corporation would have the power to buy all
the subsidiary's assets and dissolve it, achieving the same result as in the other methods of combination.
(Campos & Campos)
Definition
Purpose
Distribution of Profits
Non-Stock Corporations
All other private corporations (3)
One where no part of its income is distributable as dividends to its members, trustees or
officers. (87)
May be formed or organized for charitable, religious, educational, professional, cultural,
fraternal, literary, scientific, social, civic service, or similar purposes like trade, industry,
agricultural and like chambers, or any combination thereof. (88)
Whatever incidental profit made is not distributed among its members but is used for
furtherance of its purpose. AOI or by-laws may provide for the distribution of its assets among
its members upon its dissolution. Before then, no profit may be made by members.
Composition
Scope of right to vote
Members
Each member, regardless of class, is entitled to one (1) vote UNLESS such right to vote has
been limited, broadened, or denied in the AOI or by-laws. (Sec. 89)
Voting by proxy
Cannot be denied. (Sec. 58)
Voting by mail
Not possible.
Who exercises Corporate Members of the corporation
Powers 23
Governing Board
Board of Trustees, which may consist of more than 15 trustees unless otherwise provided by
the AOI or by-laws. (Sec, 92)
Term of directors or Board classified in such a way that the term of office of 1/3 of their number shall expire every
trustees
year. Subsequent elections of trustees comprising 1/3 of the board shall be held annually, and
trustees so elected shall have a term of 3 years. (Sec. 92)
Non-Stock Corporations
Election of officers
Officers may directly elected by the members UNLESS the AOI or by-laws provide
otherwise. (Sec. 92)
Place of meetings
Generally, the meetings must be held at the principal office of the corporation, if practicable.
If not, then anyplace in the city or municipality where the principal office of the corporation is
located. (Sec. 51)
Transferability of interest Generally non-transferable since membership and all rights arising therefrom are personal.
or membership
However, the AOI or by-laws can provide otherwise. (Sec. 90)
Distribution of assets in See Sec. 94.
case of dissolution
WHAT ARE THE RULES FOR DISTRIBUTION OF ASSETS OF NON-STOCK
CORPORATIONS? (Sec. 94-95)
1. All liabilities and obligations of the corporation shall be paid, satisfied, and discharged, or
adequate provision shall be made therefor.
2. Assets held by the corporation upon a condition requiring return,
transfer or conveyance, and which condition occurs by reason of the
dissolution, shall be returned, transferred or conveyed in accordance
with such requirements.
3.
4.
5.
Close Corporations
(Sec. 96-105)
WHAT ARE THE REQUISITES OF A CLOSE CORPORATION? (Sec. 96)
A close corporation, within the meaning of the Corporation Code, is one whose articles of incorporation
provide that:
(1)
All the corporation's issued stock of all classes, exclusive of treasury shares, shall be
held of record by not more than a specified number of persons not exceeding 20;
(2)
All the issued stock of all classes shall be subject to one or more specified
restrictions on transfer permitted by Title XII of the Code; and
(3)
The corporation shall not list in any stock exchange or make any public offering of
any of its stock of any class.
Notes:
A narrow distribution of ownership does not, by itself, make a close corporation. (San Juan
Structural and Steel Fabricators v. CA, 296 SCRA 631)
A corporation shall not be deemed a close corporation when at least 2/3 of its voting stock or
voting rights is owned or controlled by another corporation which is not a close corporation.
Mining
Oil
Stock Exchange
Bank
Insurance
Public Utilities
Educational Institutions
Corporations declared vested with public interest
DISSOLUTION
Modes of Dissolution
This is effected by majority vote of the BOD and a 2/3 vote of the OCS or members. (Note the
special notice requirements.) The copy of the resolution authorizing the dissolution shall be
certified by a majority of the BOD and countersigned by the secretary of the corporation. THE
SEC shall thereupon issue the certificate of dissolution.
(b)
(2)
(3)
Publication of order
Before the date fixed by the SEC, the SEC order shall be published and posted
accordingly.
(4)
Newspaper:
Posting:
A corporation may be dissolved by the SEC upon filing of a verified complaint and after
proper notice and hearing on grounds provided by existing laws, rules and regulations.
(b) Quo Warranto proceedings (See Sec. 5b, PD 902-A and Rule 66, Rules of
Court. Previously, the SEC had exclusive jurisdiction over quo warranto proceedings involving
corporation. Under the Securities Regulation Code or RA 8799, however, the jurisdiction of the
SEC over all cases enumerated under Sec. 5 of PD 902-A have been transferred to the
Regional Trial Courts.
The grounds for involuntary dissolution of a corporation under quo warranto proceedings are:
(1)
(2)
When the corporation has offended against a provision of an act for its
creation or renewal;
When it has forfeited its privileges and franchises by non-user;
(3)
(4)
(2)
Illegal;
Fraudulent;
Dishonest;
Oppressive or unfairly prejudicial to the corporation
or any other SH;
Effects of Dissolution
Corporation ceases to be a juridical person and consequently can no longer continue transacting its
business.
Corporate existence continues for 3 years following dissolution for the ff. purposes only:
(a) winding up of affairs; and
(b) liquidation of corporate assets.
Corporation can no longer continue its business, except for winding up.
NOTE that the subsequent dissolution of a corporation may not remove or impair any right or remedy in favor of
or against, nor any liability incurred by, any corporation, its stockholders, members, directors, trustees or officers.
(Sec. 145)
Loss of juridical personality
NATIONAL ABACA V. PORE (2 SCRA 989; 1961)
Plaintiff National Abaca Corporation filed a complaint against Pore for the recovery of a sum of money advanced to her for
the purchase of hemp. She moved to dismiss the complaint by citing the fact that National Abaca had been abolished by EO 372
dated Nov. 24, 1950. Plaintiff objected to such by saying that it shall nevertheless be continued as a corporate body for a period of
3 years from the effective date of said order for the purpose of prosecuting and defending suits by or against it and to enable the
Board of Liquidators to close its affairs.
Can an action commenced within 3 years after the abolition of plaintiff corporation be continued by the same after the expiration of
said period?
The Corp. Law allows a corporation to continue as a body for 3 years after the time when it would have been dissolved for
the purposes of prosecuting and defending suits by or against it. But at any time during the 3 years, the corporation should convey
all its property to trustees so that the latter may be the ones to continue on with such prosecution, with no time limit on its hands.
Since the case against Pore was strong, the corp.'s amended complaint was admitted and the case was remanded to the lower
court.
CLEMENTE V. CA (242 SCRA 717)
The termination of the life of a juridical entity does not by itself cause the extinction or diminution of the right and liabilities of
such entity nor those of its owners and creditors. If the 3-year extended life has expired without a trustee or receiver having been
expressly designated by the corporation itself within that period, the board of directors or trustees itself may be permitted to so
continue as "trustees" by legal implication to complete the corporate liquidation. In the absence of a board of directors or trustees,
those having any pecuniary interest in the assets, including not only the shareholders but likewise the creditors of the corporation,
acting for and in its behalf, might make proper representations with the SEC, which has primary and sufficiently broad jurisdiction in
matters of this nature, for working out a final settlement of the corporate concerns.
Executory contracts
The prevailing view is that executory contracts are not extinguished by dissolution. Sec. 145 of the Code
states that "No right or remedy in favor of or against any corporation.nor any liability incurredshall be
removed or impaired either by the subsequent dissolution of said corp. or by any subsequent amendment or
repeal of this Code or of any part thereof."
Liquidation
2.
Conveyance of all corporate assets to trustees who will take charge of liquidation.
If this method is used, the 3-year limitation will not apply provided the designation of the
trustees is made within said period. There is no time limit within which the trustee must finish
liquidation, and he may sue and be sued as such even beyond the 3-year period unless the
trusteeship is limited in its duration by the deed of trust. (See Nat'l Abaca Corp. v. Pore, supra)
3.
Liquidation is conducted by the receiver who may be appointed by the SEC upon its decreeing
the dissolution of the corp.
As with the previous method, the three-year rule shall not apply. However, the mere
appointment of a receiver, without anything more, does not result in the dissolution of the
corporation nor bar it from the exercise of its corporation rights.
(4)
No corporation shall distribute any of its assets or property except upon lawful dissolution
and after payment of all its debts and liabilities. (Sec. 122)
In cases of decrease of capital stock, and as otherwise allowed by the Corporation Code
An indebtedness of a corp. to the government for income and excess profit taxes is not extinguished by the dissolution of
the corp. The hands of government cannot, of course, collect taxes from a defunct corporation, it loses thereby none of its rights to
assess taxes which had been due from the corporation, and to collect them from persons, who by reason of transactions with the
corporation hold property against which the tax can be enforced and that the legal death of the corporation no more prevents such
action than would the physical death of an individual prevent the government from assessing taxes against him and collecting them
from his administrator, who holds the property which the decedent had formerly possessed. Thus, petitioners can be held
personally liable for the corporation's taxes, being successors-in-interest of the defunct corporation.
Distribution of assets of non-stock corporations
WHAT ARE THE RULES FOR DISTRIBUTION OF ASSETS OF NON-STOCK CORPORATIONS? (Sec. 94-95)
(1)
All liabilities and obligations of the corporation shall be paid, satisfied, and discharged, or
adequate provision shall be made therefor.
(2)
Assets held by the corporation upon a condition requiring return, transfer or conveyance, and
which condition occurs by reason of the dissolution, shall be returned, transferred or conveyed in
accordance with such requirements.
(3)
Assets received and held by the corporation subject to limitations permitting their use only for
charitable, religious, benevolent, education or similar purposes, but not subject to condition (2)
above, shall be transferred or conveyed to one or more corporations, societies or organization
engaged in activities in the Philippines substantially similar to those of the dissolving corp.
according to a plan of distribution adopted pursuant to Sec. 95 of the Code.
(4)
Assets other than those mentioned in preceding paragraphs shall be distributed in accordance
with the AOI or by-laws.
(5)
In any other case, assets may be distributed to such persons, societies, organizations or
corporations, whether or not organized for profit, as may be specified in a plan of distribution
adopted pursuant to Sec. 95.
* The plan of distribution of assets may be adopted by a majority vote of the Board of trustees and
approval of 2/3 of the members having voting rights present or represented by proxy at the meeting
during which said plan is adopted.
It must be noted that the plan of distribution of assets must not be inconsistent with the provisions of Title
XI of the Code.
FOREIGN CORPORATIONS
WHAT IS A FOREIGN CORPORATION? (Sec. 123)
A corporation formed and organized under laws other than those of the Philippines, regardless of the
citizenship of the incorporators and stockholders. Such corporation must have been organized and must
operate in a country which allows Filipino citizens and corporations to do business there.
In times of war:
(1)
Wholly-owned subsidiary; or
(2)
Branch office; or
(3)
100% EQUITY:
70%-30% EQUITY:
Advertising
60%-40% EQUITY:
Other industries.
Application under oath setting forth the information specified in Sec. 125;
Duly executed certificate under oath by authorized official/s of the jurisdiction of the company's
incorporation, attesting to the fact that the laws of the country of the applicant allow Filipino citizens
and corporations to do business therein, and that the applicant is an existing corporation in good
standing;
Statement under oath of the president or any other person authorized by the corporation showing
that the applicant is solvent and in good financial condition, and setting forth the assets and liabilities
of the corporation within 1 year immediately prior to the application.
Once the licensee ceases to do business in the Philippines, these deposited securities shall be returned, upon the licensee's
application and proof to the satisfaction of the SEC that the licensee has no liability to Philippine residents or the Philippine
government.
Note: Foreign banking and insurance corporations are the exceptions to this requirement.
The Supreme Court held that a foreign corp. which does not do business in the Phil. and is unlicensed but is widely known
in the Phil. through the use of its products here has legal right to maintain an action to protect its reputation, corporate name and
goodwill. The right to use the corporate name is a property right which the corp. may assert and protect in any of the courts of the
world.
LE CHEMISE LACOSTE V. FERNANDEZ (129 SCRA 377; 1984)
A foreign corporation not doing business in the Phil. needs no license to sue in the Phil. for trademark violations.
Where a violation of our unfair trade laws which provide a penal sanction is alleged, lack of capacity to sue of injured
foreign corp. becomes immaterial (because a criminal offence is essentially an act against the State).
NOTE: Sec. 160 of R.A. 8293 (Intellectual Property Code) provides that any foreign national or
juridical person who meets the requirements of Sec. 3 of the Act (i.e., is a national or is
domiciled in a country party to any convention, treaty or agreement relating to intellectual
property rights or the repression of unfair competition, to which the Philippines is also a party, or
extends reciprocal rights to Philippine nationals by law) and does not engage in business in the
Philippines may bring a civil or administrative action for opposition, cancellation, infringement,
unfair competition, or false designation of origin and false description, whether or not it is
licensed to do business in the Philippines under existing laws.
What Constitutes Transacting Business
WHAT IS CONSIDERED AS NOT DOING BUSINESS, AND THEREFORE NOT SUBJECT TO THE LICENSING
REQUIREMENT?
Mere investment as a shareholder and the exercise of the rights as such investor;
Appointing a representative or distributor in the Philippines who transacts business in his own
name and for his own account
Example:
Legal capacity to sue may be understood in two senses: (1) That the plaintiff is prohibited or otherwise incapacitated by
law to institute suit in the Phil. Courts, or (2) although not otherwise incapacitated in the sense just stated, that it is not a real party in
interest.
The Court finds that the Laras were transacting with MLF fully aware of its lack of license to do business in the Phils., and
in relation to those transactions had made payments and the spouses are estopped to impugn MLF's capacity to sue them. The
rule is that a party is estopped to challenge the personality of a corp after having acknowledged the same by entering into a contract
with it. The principle is applied to prevent a person contracting with a foreign corporation from later taking advantage of its
noncompliance with the statutes, chiefly in cases where such person has received the benefits of the contract.
PACIFIC VEGETABLE OIL V. SINGSON (G.R. No. 7917; April 29, 1955)
This is an action instituted by the plaintiff, a foreign corporation, against the defendant to recover a sum of money for
damages suffered by the plaintiff as a consequence of the failure of the defendant to deliver copra which he sold and bound himself
to deliver to the plaintiff. Defendant filed a motion to dismiss on the ground that the plaintiff failed to obtain a license to transact
business in the Phil and, consequently, it had no personality to file an action.
Has appellant transacted business in the Philippines in contemplation of law?
Contrary to the findings of the trial court, the copra in question was actually sold by the defendant to the plaintiff in the US,
the agreed price to be covered by an irrevocable letter of credit to be opened at the Bank of California, and delivery to be made at
the port of destination. It follows that the appellant corporation has not transacted business in the Phil in contemplation of Sec. 68
and 69 which require any foreign corporation to obtain a license before it could transact business, or before it could have personality
to file a suit in the Phil.. It was never the purpose of the Legislature to exclude a foreign corporation which happens to obtain an
isolated order of business from the Phil., from securing redress in the Phil. Courts, and thus, in effect, to permit persons to avoid
their contracts made with such foreign corp.. The lower court erred in holding that the appellant corporation has no personality to
maintain the present action.
AETNA CASUALTY & SURETY CO. VS. PACIFIC STAR LINE (80 SCRA 635; 1977)
Aetna as subrogee of I. Shalom sued Pacific Star Line (PSL), the common carrier for the loss of Linen & Cotton piece
goods due to pilferage and damage amounting to US$2,300.00. PSL contends that Aetna has no license to transact insurance
business in the Philippines as gathered from the Insurance Commission and SEC . It also argues that since said company has filed
13 other civil suits, they should be considered as doing business here and not merely having entered into an isolated transaction.
Based on rulings in Mentholatum and Eastboard Navigation, the Supreme Court held that Aetna is not transacting business
in the Philippines for which it needs to have a license. The contract was entered into in New York and payment was made to the
consignee in the New York branch. Moreover, Aetna was not engaged in the business of insurance in the Philippines but was merely
collecting a claim assigned to it by consignee. Because it was not doing business in the Philippines, it was not subject to Sec. 6869 of the Corporation Law and therefore was not barred from filing the instant case although it had not secured a license to transact
insurance business in the Philippines.
TOPWELD MANUEL VS. ECED (138 SCRA 120; 1985)
Topweld entered into 2 separate contracts with foreign entities: a license and technical assistance agreement with IRTI,
and a distributor agreement with ECED, SA. When Topweld found out that the foreign corporations were looking into replacing
Topweld as licensee and distributor, the latter went to court to ask for a writ of preliminary injunction to restrain the foreign
corporations from negotiating with 3rd parties as violative of RA 5445 (4).
Although IRTI and ECED were doing business in the Philippines, since they had not secured a license from BOI, the
foreign corporations were not bound by the requirement on termination and Topweld could not invoke the same against the former.
Moreover, it was incumbent upon Topweld to know whether or not IRTI and ECED were properly authorized to engage in such
agreements. The Supreme Court held that both parties were guilty of violating RA 5445. Being in pari delicto, Topweld was not
entitled to the relief prayed for.
ANTAM CONSOLIDATED VS. CA (143 SCRA 289; 1986)
Stokely Van Camp Inc. filed a complaint against Banahaw, Antam, Tambunting and Unicorn for the collection of a sum of
money for failure to deliver 500 tons of crude coconut oil. Antam et al asked for dismissal of case on ground that Stokely was a
foreign corporation not licensed to do business in the Philippines and therefore had no personality to maintain the suit.
The SC held that the transactions entered into by Stokely with Antam et al (3 transactions, either as buyer or seller) were
not a series of commercial dealings which signify an intent on the part of the respondent to do business in Philippines but constitute
an isolated transaction. The records show that the 2nd and 3rd transactions were entered into because Antam wanted to recover the
loss it sustained from the failure of the petitioners to deliver the crude oil under the first transaction and in order to give the latter a
chance to make good on their obligation. There was only one agreement between the parties, and that was the delivery of the 500
tons of crude coconut oil.
How Courts Acquire Jurisdiction over Foreign Corporations
As a rule, jurisdiction over a foreign corporation is acquired by the courts through service of summons on its resident agent.
If there is no assigned resident agent, the government official designated by law can receive the summons on their behalf and
transmit the same to them by registered mail within 10 days. This will complete the service of the summons. Summons can also be
served on any of the corporation's officers or agents within the Philippines. (See Sec. 128; Rule 14, Sec. 12, Rules of Court. Note
that while Sec. 128 presupposes that the foreign corporation has a license, Rule 14 does not make such an assumption.)
Note that if there is a designated agent, summons served upon the government official is not deemed a valid process.
v
Johnlo Trading case holds that the service on the attorney of an FC who was also charged with the duty of
settling claims against it is valid since no other agent was duly appointed.
Service on Officers or Agents of an foreign corporations domestic subsidiary will only vest jurisdiction if there
is sufficient ground to disregard the separate personalities.
GENERAL CORPORATION OF THE PHILIPPINES VS UNION INSURANCE (87 Phil. 313; 1950)
General Corporation and Mayon investment sued Union Insurance and Firemens Fund Insurance (FFI) for the payment of
12 marine insurance policies. The summons was served on Union which was then acting as FFIs settling agent in the country. At
that time, it was not yet registered and authorized to transact business in the Philippines.
Issue: Did the trial court acquire valid jurisdiction over FFI?
Yes. The service of summons for FFI on its settling agent was legal and gave the court jurisdiction upon FFI. Section 14,
Rule 7 of ROC embraces Union in the phrase, or agents within the Philippines. The law does not make distinctions as to
corporations with or without authority to do business in the Philippines. The test is whether a foreign corporation was actually doing
business here. Otherwise, a foreign corporation doing business illegally because of its refusal or neglect to obtain the
corresponding authority to do business may successfully though unfairly plead such neglect or illegal act so as to avoid service and
thereby impugn the jurisdiction of the courts.
All claims which have accrued in the Philippines have been paid, compromised and settled;
(2)
All taxes, imposts, assessments, and penalties, if any, lawfully due to the Philippine Government or
any of its agencies or political subdivisions have been paid; and
(3)
The petition for withdrawal of license has been published once a week for 3 consecutive weeks in
a newspaper of general circulation in the Philippines.
Failure to file its annual report or pay any fees as required by the Corporation Code;
(2)
(3)
Failure, after change of resident agent or of his address, to submit to the SEC a statement of
such change;
(4)
Failure to submit to the SEC an authenticated copy of any amendment to its AOI or by-laws or of
any articles of merger or consolidation within the time prescribed by the Code;
(5)
A misrepresentation of any material matter in any application, report, affidavit or other document
submitted by such corporation pursuant to Title XV;
(6)
Failure to pay any and all taxes, imposts, assessments or penalties, if any, lawfully due to the
Philippine government or any of its agencies or political subdivisions;
(7)
Transacting business in the Philippines outside of the purpose/s for which such corporation is
authorized under its license;
(8)
Transacting business in the Philippine as agent of or acting for and in behalf of any foreign
corporation or entity not duly licensed to do business in the Philippines; or
(9)
Any other ground as would render it unfit to transact business in the Philippines.