Professional Documents
Culture Documents
Corporation is one of the types of - They may enter into joint venture,
business organizations. It is also the but generally they cannot enter into
most important in economic a partnership, but there are
development. exceptions allowed by the SEC: the
3 exceptions must go hand in hand
2
theoretical because of disinterested - profits obtained cannot be distributed as
in management, wide-scale ownership dividends but are used merely for the
and inaccessible place of meeting; furtherance of their purpose or purposes.
7. "Double taxation" may be imposed
on corporate income; Stock (Section 51)
8. Corporation are subject to many Two (2) requisites must be complied with,
legal controls and restrictions.
1. a capital stock divided into
A corporation is a person, therefore shares, and
protected by the due process clause
2. authorized to distribute dividends
and equal protection clause of the
or allotments as surplus profits to its
Constitution
stockholders on the basis of the
shares held by each of them.
3
- Created by a special law, they have - Restrictions to transfer shares
their own character
- Only those indicated can own
- They are not immune from suit unless shares
provided by the law of their creation
- Article must provide that there will
- Primarily governed by the law creating be no public offering
them
Open corporation
- Their subsidiaries are entirely different
or independent from that of the other - openly admit investors
- Those formed or organized for the - If incorporated under the laws of the
government or a portion of the State or Philippines it is a domestic
any of its political subdivision and corporation
which have for their purpose the ME Gray vs. CA
general good and welfare
- Parent or Holding/ subsidiaries and
Private Corporation
affiliates
- Immediate benefit, aim or advantage - Affiliates- no majority vote
of private individuals
SMC 12%
- Those formed for some private
purpose, benefit, aim or end
CBP
- Distinction: public for governmental HERSHEY CBPl 12%
purpose 12%
Corporation Sole
Affiliate is subject to common control by the
- Exemption to the rule because it is 12 % owners
composed only of one person
De jure
- An incorporator may also be a juridical
person - cannot be attached by the state
even in a quo warranto proceeding
Close corporation
De facto
- There is exclusivity of shares of stock
- Section 96-105
4
- exists by virtue of colorable it has no being and cannot transact
compliance business. Promoters cannot act for a
projected corporation
- Attached directly only by the state in a
quo warranto proceeding - Metro Manila - paid up capital
requirement is 10 M
Corporation by estoppel
- Non- stock- mere mention of the
- So defectively formed, but still operating capital
considered corporation, but only in
relation to those who cannot deny their - Mention the authorized capital
existence section 20 and 21
- Restrictions
- Mandatory in close
FORMATION AND ORGANIZATION
- Not mandatory in ordinary
3 stages
- Non-stock
1. Creation
- If value is not more than 100,000
2. Re-organization or quasi-
A corporation cannot use any other
reorganization
name unless it has been amended
3. Dissolution/winding-up
Section 19
Purpose clause
- If confusingly similar it will not be
- Defining the scope of authority of the allowed to be registered
corporate enterprise or undertaking.
- Verification slip from the records
Both confirmed and limited
officer
4 limitations of purpose clause
Section 19. Commencement
1. Lawful of corporate existence. - A private
corporation formed or organized
2. Specific or stated concisely under this Code commences to have
corporate existence and juridical
3. More than one, the primary and personality and is deemed
secondary must be specified incorporated from the date the
Securities and Exchange
4. Lawfully combined Commission issues a certificate of
incorporation under its official seal;
- Provision that states, cannot be issued and thereupon the incorporators,
less than par, exception is treasury stockholders/members and their
shares because it can be issued less successors shall constitute a body
than par politic and corporate under the name
stated in the articles of incorporation
- A corporation commences only upon for the period of time mentioned
issuance of the certificate, prior thereto therein, unless said period is
5
extended or the corporation is sooner - that the complainant corporation
dissolved in accordance with law. (n) acquired a prior right over the use of
such corporate name
- Words corporation or inc. either in full
or abbreviated form must be included - identical, deceptively or confusingly,
patently deceptive
Section 18. Corporate name. -
No corporate name may be allowed by Principal Office
the Securities and Exchange
Commission if the proposed name is - statement of principal office is
identical or deceptively or confusingly required
similar to that of any existing
corporation or to any other name - city and municipality not only
already protected by law or is patently province must be specified
deceptive, confusing or contrary to
existing laws. When a change in the - principal office NOT operations
corporate name is approved, the office
Commission shall issue an amended
certificate of incorporation under the - necessary because it will establish
amended name. (n) the residence of corporations
6
- determining what point in time the - Yes, there is no nationality
juridical personality will cease to exist requirement only residence, as long
as majority are residents of the Phil
- enter into contract only when it has
juridical personality Define incorporators <sec.5>
7
non-stock corporation are called as may be stated in the articles of
members. (4a) incorporation which are not violative
of the provisions of this Code:
May a corporation be a corporator? Provided, That preferred shares of
stock may be issued only with a
- YES. There is nothing to prevent a stated par value. The board of
corporation from being a stockholder directors, where authorized in the
articles of incorporation, may fix the
- Incorporator must subscribe to 1 share terms and conditions of preferred
shares of stock or any series
- There are those that are exclusively thereof: Provided, That such terms
reserved to Filipinos and conditions shall be effective
upon the filing of a certificate thereof
- An incorporator maybe a corporator as with the Securities and Exchange
long as he is a stockholder Commission.
10
provision in the by-laws fixing their - To comply with statutory
compensation, the directors shall not requirements particularly those
receive any compensation, as such which provide for certain limitations
directors, except for reasonable per
on foreign ownership and shares like
diems: Provided, however, That any
such compensation other than per overseas employment agencies
diems may be granted to directors by requiring to own at least 75% of the
the vote of the stockholders shares of stock thereof.
representing at least a majority of the
outstanding capital stock at a regular - To better insure return on investment
or special stockholders' meeting. In no which can be affected through the
case shall the total yearly issuance of redeemable shares or
compensation of directors, as such preferred shares, i.e., granting the
directors, exceed ten (10%) percent of holders thereof, preference as to
the net income before income tax of
dividends and/or distribution of
the corporation during the preceding
year. (n) assets in case of liquidation; and,
- carry the right to vote - Unless denied they are still entitled
- Even common shares may be denied If they are reissued will they be
the right to vote of founders shares denied the right to vote?
issued <sec.7>
- Once reissued they shall become
outstanding stocks again and
Section 7. Founders' shares. -
Founders' shares classified as such in purchasers shall be entitled to all the
the articles of incorporation may be rights and privileges as the other
given certain rights and privileges not holders have
enjoyed by the owners of other stocks,
provided that where the exclusive right Section 57 treasury shares have no
to vote and be voted for in the election voting and dividend rights. Why not?
of directors is granted, it must be for a
limited period not to exceed five (5) Section 57. Voting right for
years subject to the approval of the treasury shares. - Treasury shares
Securities and Exchange Commission. shall have no voting right as long as
The five-year period shall commence such shares remain in the Treasury.
from the date of the aforesaid approval (n)
by the Securities and Exchange
Commission. (n) - Answer: commissioner vs. manning
page 62 first par.
Do you include non-voting shares in
passing a valid corporate act? Although authorities may
differ on the exact legal and
- Even non-voting shares are entitled to accounting status of so-called
vote under section 6 treasury shares, they are more or
Redeemable shares less in agreement that treasury
shares are stocks issued and fully
- Discretionary/optional paid for and reacquired by the
corporation either by purchase,
- Obligatory or mandatory donation, forfeiture or other means.
Generally a corporation can reacquire Treasury shares are therefore
its own shares if it has unrestricted issued shares but being in the
retained earnings treasury they do not have the status
of outstanding shares.
Exception: redeemable shares may be Consequently, although a treasury
reacquired irrespective of retained share, not having been retired by the
earnings corporation re-acquiring it, may be
re-issued or sold again, such
Treasury shares shares, as long as it is held by the
14
corporation as a treasury share, - Example: right of first refusal
participates neither in dividends,
because dividends cannot be declared - The restriction must be contained in
by the corporation to itself, nor in the articles of incorporation
meetings of the corporation as voting - If provided in by-laws but not in the
stock, for otherwise equal distribution articles of incorporation then it will
of voting powers among stockholders not be binding
will be effectively lost and the directors
will be able to perpetrate their control - Restrictions and preferences are
of the corporation, though it still mandatorily required in close
represents a paid for interest in the corporations
property of the corporation. The
- If it does not provide restrictions it is
foregoing essential features of a
not a close corporation
treasury stocks are lacking in the
questioned shares. - Specified persons- close
In this case, and under the corporations
terms of the trust agreement, the - If not one of those specified you are
shares of stock of Reese not included because there is
participated in dividends which the exclusivity in close corporations
trustee received and the said shares
were voted upon by the trustee in all - Should also be in the by-laws not
corporation meetings. They were not, only in the articles of incorporation
therefore, treasury shares.
No transfer clause
When the law speaks of outstanding
Execution clause
rights it does not include treasury
shares Acknowledgment
Treasury shares may be reissued
Treasurer affidavit part of the articles
- They are actually assets of the of incorporation
corporation Section 23-27 minimum
- Once re-issued they become qualifications, but there may be
outstanding stocks again additional
15
Section 17. Grounds when effect that such articles or
articles of incorporation or amendment amendment is in accordance with
may be rejected or disapproved. - The law. (n)
Securities and Exchange Commission
may reject the articles of incorporation - But the grounds in section 17 are
or disapprove any amendment thereto not exclusive
if the same is not in compliance with
the requirements of this Code: When will the corporation
Provided, That the Commission shall commence to exist?
give the incorporators a reasonable
time within which to correct or modify - Section 19
the objectionable portions of the
articles or amendment. The following Section 19. Commencement
are grounds for such rejection or of corporate existence. - A private
disapproval: corporation formed or organized
under this Code commences to have
1. That the articles of incorporation or corporate existence and juridical
any amendment thereto is not personality and is deemed
substantially in accordance with the incorporated from the date the
form prescribed herein; Securities and Exchange
Commission issues a certificate of
2. That the purpose or purposes of the incorporation under its official seal;
corporation are patently and thereupon the incorporators,
unconstitutional, illegal, immoral, or stockholders/members and their
contrary to government rules and successors shall constitute a body
regulations; politic and corporate under the name
stated in the articles of incorporation
3. That the Treasurer's Affidavit for the period of time mentioned
concerning the amount of capital stock therein, unless said period is
subscribed and/or paid is false; extended or the corporation is
sooner dissolved in accordance with
4. That the percentage of ownership of law. (n)
the capital stock to be owned by
citizens of the Philippines has not been A corporation de jure can come into
complied with as required by existing
existence only upon the issuance of
laws or the Constitution.
the certificate of registration by the
No articles of incorporation or SEC? TRUE OR FALSE?
amendment to articles of incorporation
of banks, banking and quasi-banking - TRUE
institutions, building and loan
associations, trust companies and - EXCEPTION: CORPORATION
other financial intermediaries, SOLE <sec. 112>
insurance companies, public utilities,
educational institutions, and other Section 112. Submission of
corporations governed by special laws the articles of incorporation. - The
shall be accepted or approved by the articles of incorporation must be
Commission unless accompanied by a verified, before filing, by affidavit or
favorable recommendation of the affirmation of the chief archbishop,
appropriate government agency to the bishop, priest, minister, rabbi or
16
presiding elder, as the case may be, guaranty corporation- HOME
and accompanied by a copy of the OWNERS
commission, certificate of election or
letter of appointment of such chief Cagayan Fishing vs. Sandika
archbishop, bishop, priest, minister,
rabbi or presiding elder, duly certified - Corporations are created by law
to be correct by any notary public.
- Commence to exist upon issuance
From and after the filing with the by the CONCERNED government
Securities and Exchange Commission corporation or agency
of the said articles of incorporation,
verified by affidavit or affirmation, and - Prior there to it has no being
accompanied by the documents
mentioned in the preceding paragraph, - The transfer of the property was not
such chief archbishop, bishop, priest, valid, it likewise did not have the
minister, rabbi or presiding elder shall right to transfer
become a corporation sole and all
temporalities, estate and properties of De jure
the religious denomination, sect or
church theretofore administered or - Strict or substantial compliance
managed by him as such chief
archbishop, bishop, priest, minister, De facto
rabbi or presiding elder shall be held in
trust by him as a corporation sole, for - 4 requisites must go hand in hand
the use, purpose, behalf and sole take out anyone of them there can
benefit of his religious denomination, be no de facto corporation
sect or church, including hospitals,
schools, colleges, orphan asylums, 1. There is a valid statute under which
parsonages and cemeteries thereof. the corporation could have been
(n)
created as a de jure corporation.
- CORPORATION SOLE- upon filing of 2. An attempt, in good faith, to form a
the verified articles of incorporation, corporation according to the
once filed it is vested with a judicial requirements of law, which goes far
capacity enough to amount to a colorable
General rule section 19 compliance with the law;
17
- YES. Governed by the same law, rules faith, therefore anybody can
and regulations question its existence
18
Assuming there was no law? Would this apply to foreign
corporation?
- YES, it may still be sued as a school
for the past 32 years the school - YES, it may apply
represented itself as possessed of
- Georg Grotjahn vs. Isnami
juridical personality
21
La Campana Coffee Factory, Inc. vs. wrong, to perpetuate the violation of
KKM a statutory or other positive legal
duty or dishonest and unjust act in
- Two corporations managed by the contravention of plaintiffs legal
same family, workers were made rights; and,
interchangeably
3. The aforesaid control and breach of
Emilio Cano vs. CIR duty must proximately cause the
injury or unjust loss complained of.
- Sued in there official capacity
- The absence of one of the elements
- Reverse of Soriano vs. CA (signed in
prevents piercing the corporate
their official capacity)
veil. In applying the instrumentality
Tesco vs. WCC or alter ego doctrine, the courts are
concerned with reality and not form,
- The two corporations where located in with how the corporation operated
the same office and the individual defendants
relationship to that operation.
Claparols vs. CIR
There must facts and circumstances
- Same as NAFLU and A.C. Ransom
before warrant piercing the veil of
Concept builders vs. NLRC corporate fiction
24
stock or incur, create or increase any no-par stock allotted to each stock-
bonded indebtedness unless approved holder if such increase is for the
by a majority vote of the board of purpose of making effective stock
directors and, at a stockholder's dividend therefor authorized;
meeting duly called for the purpose,
two-thirds (2/3) of the outstanding (4) Any bonded indebtedness to be
capital stock shall favor the increase or incurred, created or increased;
diminution of the capital stock, or the
incurring, creating or increasing of any (5) The actual indebtedness of the
bonded indebtedness. Written notice corporation on the day of the
of the proposed increase or diminution meeting;
of the capital stock or of the incurring,
creating, or increasing of any bonded (6) The amount of stock represented
indebtedness and of the time and at the meeting; and
place of the stockholder's meeting at
which the proposed increase or (7) The vote authorizing the increase
diminution of the capital stock or the or diminution of the capital stock, or
incurring or increasing of any bonded the incurring, creating or increasing
indebtedness is to be considered, of any bonded indebtedness.
must be addressed to each
stockholder at his place of residence Any increase or decrease in
as shown on the books of the the capital stock or the incurring,
corporation and deposited to the creating or increasing of any bonded
addressee in the post office with indebtedness shall require prior
postage prepaid, or served personally. approval of the Securities and
Exchange Commission.
A certificate in duplicate must
be signed by a majority of the directors One of the duplicate
of the corporation and countersigned certificates shall be kept on file in
by the chairman and the secretary of the office of the corporation and the
the stockholders' meeting, setting other shall be filed with the
forth: Securities and Exchange
Commission and attached to the
(1) That the requirements of this original articles of incorporation.
section have been complied with; From and after approval by the
Securities and Exchange
(2) The amount of the increase or Commission and the issuance by
diminution of the capital stock; the Commission of its certificate of
filing, the capital stock shall stand
(3) If an increase of the capital stock, increased or decreased and the
the amount of capital stock or number incurring, creating or increasing of
of shares of no-par stock thereof any bonded indebtedness
actually subscribed, the names, authorized, as the certificate of filing
nationalities and residences of the may declare: Provided, That the
persons subscribing, the amount of Securities and Exchange
capital stock or number of no-par stock Commission shall not accept for
subscribed by each, and the amount filing any certificate of increase of
paid by each on his subscription in capital stock unless accompanied by
cash or property, or the amount of the sworn statement of the treasurer
capital stock or number of shares of of the corporation lawfully holding
25
office at the time of the filing of the What provision may be amended,
certificate, showing that at least altered or repealed
twenty-five (25%) percent of such
increased capital stock has been Can you change name, address for
subscribed and that at least twenty-five example she married or changed
(25%) percent of the amount
address?
subscribed has been paid either in
actual cash to the corporation or that - NO. you cannot change that
there has been transferred to the
corporation property the valuation of Fait accompli, are beyond the
which is equal to twenty-five (25%)
powers or authority of the
percent of the subscription: Provided,
further, That no decrease of the capital corporation to change, alter or
stock shall be approved by the modify. These would include the
Commission if its effect shall prejudice following:
the rights of corporate creditors.
- Names of the incorporators and
Non-stock corporations may
incur or create bonded indebtedness, - The incorporating directors or
or increase the same, with the trustees,
approval by a majority vote of the
board of trustees and of at least two- - The name of the treasurer originally
thirds (2/3) of the members in a or first elected by the subscribers or
meeting duly called for the purpose. members to act as such until his
successor has been duly elected
Bonds issued by a corporation and qualified,
shall be registered with the Securities
and Exchange Commission, which - The number of shares and amount
shall have the authority to determine originally subscribed and paid out of
the sufficiency of the terms thereof.
the original authorized capital stock
(17a)
of the corporation,
The vote must be cast at the meeting
- The date and place of execution of
called for that purpose
the articles of incorporation,
Written assent would not suffice
- The signatories and
When do amendments become valid acknowledgment thereof.
and effective? - All other provisions or matters stated
- Only upon the approval of the SEC or contained in the articles are
TRUE OR FALSE? subject to amendment.
The provisions of this Title shall - All of them involved are institutions
primarily govern close corporations: of learning, it was the case in order
Provided, That the provisions of other to avoid confusion that would arise
Titles of this Code shall apply later on.
27
BOARD OF DIRECTORS/TRUSTEES - Corporations must sit and act as a
body
Section 23
- Will be bound by corporate officers if
Section 23. The board of they acted within the 5 classification
directors or trustees. - Unless page 150
otherwise provided in this Code, the
corporate powers of all corporations Ramirez vs. Orientalist co.
formed under this Code shall be
exercised, all business conducted and - What was the position of Fernandez
all property of such corporations in this case? TREASURER
controlled and held by the board of
directors or trustees to be elected from - Why did the court rule that actions of
among the holders of stocks, or where Fernandez bound the corporation
there is no stock, from among the when he is not even a board of
members of the corporation, who shall
hold office for one (1) year until their director?
successors are elected and qualified.
if a man is found acting for a
(28a)
corporation with the external indicia
Every director must own at least of authority, any person not having
one (1) share of the capital stock of the notice of want of authority, may
corporation of which he is a director, usually rely upon those
which share shall stand in his name on appearances; and if it be found that
the books of the corporation. Any the directors had permitted the
director who ceases to be the owner of
agent to exercise that authority and
at least one (1) share of the capital
stock of the corporation of which he is thereby held him out as a person
a director shall thereby cease to be a competent to bind the corporation,
director. Trustees of non-stock or had acquiesced in a contract and
corporations must be members retained the benefit supposed to
thereof. A majority of the directors or have been conferred by it, the
trustees of all corporations organized corporation will be bound,
under this Code must be residents of
notwithstanding the actual authority
the Philippines.
may never have been granted.
- Controlled by the board of directors
- Contracts must be made by the
- Authority are however restricted to the director and not the stockholders
day to day
- Actions of the stockholders in such
- Stockholders may have all the profit matters is only advisory and not in
but will turn over the management to any way binding in the corporation
the governing board
Barreto vs. La previsora Filipina
- But unless the law provides the power
- Everything emanates from the board
may be delegated
of directors
General rule
28
- Stockholders action is merely advisory - As long as you are listed in the
except their approval or vote is books as owner of one share
necessary to prove a valid corporate
act - Under the old law he must be the
beneficial owner and legal owner
Qualifications: thereof but in the new law it is not
required as long as it stands in his
- No citizenship requirement, at least name he is qualifies
majority must be residents
1 A-100t/S B (own in the trust of X) is B
- Can have a governing board qualified to be a director?
consisting solely of foreigners
2
- But we have to take into consideration
partly nationalized industries and other 3-10
laws which prohibits or limits foreign
2 transferring there voting rights in favor
ownership
of VT
- Anti-dummy act
Other rights will accrue in favor of them, but
- Utilization development of natural not the voting rights
resources 60% must be owned by
voting rights must be recorder in the books
Filipino citizens, therefore they only
of the corporation that it is transferred
own 40%---10 members they can only
have 4 seats, but not entirely correct PNB-IFL- wholly owned subsidiary of PNB
because the law may provide
otherwise; educational institutions PNB will assign to PNB-IFL nominal shares
restricted to Filipinos, but there are and PNB-IFL now will be able to be
exceptions when created by religious nominated
and charitable institutions. Gen. Rule:
- By-laws may provide additional
- Term of one year who will serve as
qualifications and disqualifications
such until there successors are
- To qualify as a director he must own at elected and qualified
least 1 share
Exception:
Should the stockholder be the
- Non-stock corporation can serve for
equitable or beneficial owner in order
a term of 3 years
to qualify as a director?
- Educational non-stock- term of the
- NO, it is not necessary, as long as you
governing board can be 5 years
are listed in the books as owner of one
share May this term exceed one year?
Lee vs. CA
29
- Yes, they may serve in a hold over =1MS
capacity until their successors have
1&2 is absent, 3&4 ayaw tumakbo and
been duly elected and qualified
hindi nagvote 6-10, tumakbo and
Detective and protective bureau vs. ninominate nila yung sarili nila and cast all
Cloribel their shares on themselves
- In the by-laws, managing director must Who wins? Or who gets elected?
be elected from among themselves
- No vote requirement, the one who
- Must be duly elected and qualified gets the most number of votes gets
elected, section24.
How are the directors elected?
What is cumulative voting?
1-100T/S
- Process of multiplying the number of
2-100T/S
shares to the number of director to
3-100T/S be elected
- Where the officer or agent is clothed - General manager usually has the
with actual or apparent authority power to hire but the SC said the
contract must be reasonable
- Otherwise it will not bind the
corporation - The contract here is so onerous that
it would throw the corporation into
Yao Ka Sin Trading case already insolvency
asked in the bar
Francisco vs. GSIS
- Only bind the corporation to the extent
of authority confined to him or virtue of - GSIS cannot evade the binding
customs, usage and policy effect of the telegram
- Must pass first the controller and - Only 15 months later that the
counsel corporation said there was a mistake
What if the notice requirement is not - The silence coupled with the
complied with? unconditional acceptance of the
other subsequent remittances is
Lopez Realty vs. Fotencha binding to the corporation
- Notice requirement must be complied Board of Liquidators vs. Kalaw
with hence it should have been with
force and effect, but according to the Settled jurisprudence has it
SC, it may be ratified expressly if there that where similar acts have been
is a subsequent meeting called for that approved by the directors as a
purpose matter of general practice, custom
and policy, the general manager
- Impliedly through acts may bind the company without
- Asuncion was aware of the formal authorization of the board of
corporations obligation directors. In varying language,
32
existence of such authority is - Implied ratification is through:
established, by proof of the course of silence or acquiescence,
business, the usages and practices of acceptance benefits and lastly
the company and by the knowledge recognition or adoption
which the board of directors has, or
must be presumed to have, of acts and - An unauthorized act may
doings of its subordinates in and about nevertheless be binding either by
the affairs of the corporation. So also, express or implied by estoppels
xx authority to act for and bind a - By virtue of silence the board had
corporation may be presumed from impliedly accepted the act
acts of recognition in other instances
where the power was in fact - By recognition or adoption
exercised. xx Thus, when, in the
- By virtue of payment of obligations
usual course of business of a
arising therefore- Lopez realty
corporation, an officer has been
allowed in his official capacity to May directors or trustees be disqualified to
manage its affairs, his authority to act as such?
represent the corporation may be
implied from the manner in which he - YES, crime, etc. disqualifications in
has been permitted by the directors to book
manage its business.
- Possess or dispossess any of the
In the case at bar, the practice qualifications or disqualifications ,
of the corporation has been to allow its cease to hold at least one share
general manager to negotiate and
May directors be ousted from office?
execute contracts in its copra trading
activities for and in NACOCOs behalf - At least 2/3 of members
without prior board approval. If the by- representing outstanding capital
laws were to be literally followed, the stock. Again notice requirement
board should give its stamp of prior must be complied with
approval on all corporate contracts.
But that Board itself, by its acts and 1-200 1-5 same family
through acquiescence, practically laid
2-200
aside the by-law requirement of prior
approval. 3-200
7-50
- Express ratification is made through a
formal board action 8-40
33
9-5 directors or trustees if so stated in
the notice of the meeting. (n)
10-5 outstanding
director Other than by removal or expiration
of term they do not have the power
Meetings called by the president or the
secretary ordered by the president When will the vacancies be filled
up?
It depends if the removal is without
cause they cannot do so because Is notice required, to fill up
removal without cause shall not vacancies due to removal?
deprive the minority stockholders or
members of the right of representative What if the vacancy is due to an
increase, can it be filled up in the
If with cause they can even if it will same meeting where in the number
prejudice the rights of the minority, is increased?
provided of course additional
requirements by-laws and articles of Election due to removal-in the same
incorporation meeting notice is not required
Who will fill up the vacancy created Election due to increase in number-
due to the ouster of a member of the it must be so stated in the meeting
board of directors <section 29>
Section 30
Section 29. Vacancies in the
office of director or trustee. - Any Section 30.Compensation
vacancy occurring in the board of of directors. - In the absence of any
directors or trustees other than by provision in the by-laws fixing their
removal by the stockholders or compensation, the directors shall not
members or by expiration of term, may receive any compensation, as such
be filled by the vote of at least a directors, except for reasonable per
majority of the remaining directors or diems: Provided, however, That any
trustees, if still constituting a quorum; such compensation other than per
otherwise, said vacancies must be diems may be granted to directors
filled by the stockholders in a regular by the vote of the stockholders
or special meeting called for that representing at least a majority of
purpose. A director or trustee so the outstanding capital stock at a
elected to fill a vacancy shall be regular or special stockholders'
elected only or the unexpired term of meeting. In no case shall the total
his predecessor in office. yearly compensation of directors, as
such directors, exceed ten (10%)
Any directorship or trusteeship percent of the net income before
to be filled by reason of an increase in income tax of the corporation during
the number of directors or trustees the preceding year. (n)
shall be filled only by an election at a
regular or at a special meeting of - Generally not entitled to receive
stockholders or members duly called compensation because they render
for the purpose, or in the same it gratuitously
meeting authorizing the increase of
34
- Unless the by-laws allows - The SC ruled that the 10% ceiling
will not likewise apply if they acted in
- Stockholders may also grant pursuant a capacity other than as such
to a majority vote directors
- Must not exceed net income of 10% Government vs. El Hogar
tax of the preceding year
- Judicial intervention is not proper
- Acting in special capacity
- The appropriates remedy is to those
- In, sum directors may receive
who can make or unmake the by-
compensation when
laws
1. there is a provision in the by-laws to
Liability of corporate officers
that effect
- Obligations incurred by those acting
2. When the stockholders, by a majority
for and in behalf of the corporations
vote of the outstanding capital stock
are not theres BUT there are
grant the same; and,
exceptions even if they are acting for
3. If the director renders extra-ordinary or and in behalf of the corporation
unsual service
Tramat vs. CA
Central Cooperative Exchange vs.
- General rule was applied in the case
Tibe
- Ong acted as officers and acted
- By-laws may allow, stockholders may
within the scope of his authority
also allow such
- Court laid down 4 instances when
What do you understand by the phrase
even if acting within the scope of his
as such directors
authority he is held solidarily liable
Western Institute vs. Salas
1. He assents (a) to a patently unlawful
- Compensation was granted without by- act of the corporation, or (b) for bad
laws authority faith, or gross negligence in directing
its affairs, or (c) for conflict of
- Prohibition is not a sweeping rule interest, resulting in damages to the
corporation, its stockholders or other
- Members of the board may receive
persons;
when they receive in a special capacity
2. He consents to the issuance of
- Mere act of the board will suffice
watered stocks or who, having
Is the 10% ceiling applicable to other knowledge thereof, does not
officers? forthwith file with the corporate
secretary his written objection
- NO. the phrase as such director was thereto;
used twice <Section 30>
35
3. He agrees to hold himself personally subject to judicial review.
and solidarily liable with the Montelibano vs. Bacolod Murcia
corporation; Milling
- Wrong done against his person as a - Depend on how, when and what
stockholder reason
3. The stockholder bringing the suit must - Not allowed under the OLD law
allege in his complaint that he is suing
on a derivative cause of action on How may executive committee
behalf of the corporation and all other created and constituted?
stockholders similarly situated,
- Section 35
otherwise, the case is dismissible. This
is because the cause of action actually Section 35. Executive
devolves on the corporation and not to committee. - The by-laws of a
a particular stockholder. corporation may create an executive
committee, composed of not less
4. The corporation should be made a than three members of the board, to
party, either as party-plaintiff or be appointed by the board. Said
defendant, in order to make the courts committee may act, by majority vote
judgment binding upon it, and thus, of all its members, on such specific
bar future litigation of the same issues. matters within the competence of
the board, as may be delegated to it
42
in the by-laws or on a majority vote of - BOD cannot act by proxy it would be
the board, except with respect to: (1) abdication of powers
approval of any action for which
shareholders' approval is also Purpose clauses necessary because
required; (2) the filing of vacancies in it confers and also limits the actual
the board; (3) the amendment or authority of the corporation
repeal of by-laws or the adoption of
new by-laws; (4) the amendment or CORPORATE POWERS AND
repeal of any resolution of the board
AUTHORITY
which by its express terms is not so
amendable or repealable; and (5) a Corporate authority may be
distribution of cash dividends to the
classified into three classes namely:
shareholders.
1. Those expressly granted or
- Said committee may act and bind the
authorized by law inclusive of the
corporation by the majority vote of all
corporate charter or articles of
its members except with respect to
incorporation;
those matters provided for in sec. 35
these are: 2. Those impliedly granted as are
essential or reasonably necessary to
1. Approval of any action for which
the carrying out of the express
shareholders approval is also required
powers;
2. The filing of vacancies in the board;
3. Those that are incidental to its
3. Amendment or repeal of by-laws or the existence.
adoption of new by-laws;
Section 36 to 45- POWER
4. Amendment or repeal of any resolution GRANTED BY LAW
of the board which by its express
terms is not so amenable or Section 36. Corporate powers and
repealable; and, capacity. - Every corporation incorporated
under this Code has the power and
5. Distribution of cash dividends to the capacity:
shareholders.
1. To sue and be sued in its
May the board alone create an corporate name;
executive committee without any
2. Of succession by its corporate
authority provided for the by-laws? name for the period of time stated in
the articles of incorporation and the
- NO board of directors must sit and act
certificate of incorporation;
as a body to have a valid transaction
3. To adopt and use a corporate
May a non-member of the board of
seal;
directors be a member of the executive
committee? 4. To amend its articles of
incorporation in accordance with the
- NO, all of them must be members of provisions of this Code;
the board of directors
43
5. To adopt by-laws, not contrary to corporation may extend or shorten its term
law, morals, or public policy, and to as stated in the articles of incorporation
amend or repeal the same in when approved by a majority vote of the
accordance with this Code; board of directors or trustees and ratified at
a meeting by the stockholders representing
6. In case of stock corporations, to at least two-thirds (2/3) of the outstanding
issue or sell stocks to subscribers and capital stock or by at least two-thirds (2/3)
to sell stocks to subscribers and to sell of the members in case of non-stock
treasury stocks in accordance with the corporations. Written notice of the
provisions of this Code; and to admit proposed action and of the time and place
members to the corporation if it be a of the meeting shall be addressed to each
non-stock corporation; stockholder or member at his place of
residence as shown on the books of the
7. To purchase, receive, take or grant, corporation and deposited to the addressee
hold, convey, sell, lease, pledge, in the post office with postage prepaid, or
mortgage and otherwise deal with served personally: Provided, That in case
such real and personal property, of extension of corporate term, any
including securities and bonds of other dissenting stockholder may exercise his
corporations, as the transaction of the appraisal right under the conditions
lawful business of the corporation may provided in this code. (n)
reasonably and necessarily require,
subject to the limitations prescribed by Section 38. Power to increase or
law and the Constitution; decrease capital stock; incur, create or
increase bonded indebtedness. - No
8. To enter into merger or corporation shall increase or decrease its
consolidation with other corporations capital stock or incur, create or increase
as provided in this Code; any bonded indebtedness unless approved
by a majority vote of the board of directors
9. To make reasonable donations, and, at a stockholder's meeting duly called
including those for the public welfare for the purpose, two-thirds (2/3) of the
or for hospital, charitable, cultural, outstanding capital stock shall favor the
scientific, civic, or similar purposes: increase or diminution of the capital stock,
Provided, That no corporation, or the incurring, creating or increasing of
domestic or foreign, shall give any bonded indebtedness. Written notice of
donations in aid of any political party or the proposed increase or diminution of the
candidate or for purposes of partisan capital stock or of the incurring, creating, or
political activity; increasing of any bonded indebtedness
and of the time and place of the
10. To establish pension, retirement, stockholder's meeting at which the
and other plans for the benefit of its proposed increase or diminution of the
directors, trustees, officers and capital stock or the incurring or increasing
employees; and of any bonded indebtedness is to be
considered, must be addressed to each
11. To exercise such other powers as stockholder at his place of residence as
may be essential or necessary to carry shown on the books of the corporation and
out its purpose or purposes as stated deposited to the addressee in the post
in the articles of incorporation. (13a) office with postage prepaid, or served
personally.
Section 37. Power to extend or
shorten corporate term. - A private
44
A certificate in duplicate must be signed by a other shall be filed with the Securities and
majority of the directors of the corporation Exchange Commission and attached to the
and countersigned by the chairman and the original articles of incorporation. From and
secretary of the stockholders' meeting, after approval by the Securities and
setting forth: Exchange Commission and the issuance
by the Commission of its certificate of filing,
(1) That the requirements of this the capital stock shall stand increased or
section have been complied with; decreased and the incurring, creating or
increasing of any bonded indebtedness
(2) The amount of the increase or authorized, as the certificate of filing may
diminution of the capital stock; declare: Provided, That the Securities and
Exchange Commission shall not accept for
(3) If an increase of the capital stock, filing any certificate of increase of capital
the amount of capital stock or number stock unless accompanied by the sworn
of shares of no-par stock thereof statement of the treasurer of the
actually subscribed, the names, corporation lawfully holding office at the
nationalities and residences of the time of the filing of the certificate, showing
persons subscribing, the amount of that at least twenty-five (25%) percent of
capital stock or number of no-par stock such increased capital stock has been
subscribed by each, and the amount subscribed and that at least twenty-five
paid by each on his subscription in (25%) percent of the amount subscribed
cash or property, or the amount of has been paid either in actual cash to the
capital stock or number of shares of corporation or that there has been
no-par stock allotted to each stock- transferred to the corporation property the
holder if such increase is for the valuation of which is equal to twenty-five
purpose of making effective stock (25%) percent of the subscription:
dividend therefor authorized; Provided, further, That no decrease of the
capital stock shall be approved by the
(4) Any bonded indebtedness to be Commission if its effect shall prejudice the
incurred, created or increased; rights of corporate creditors.
(5) The actual indebtedness of the Non-stock corporations may incur or create
corporation on the day of the meeting; bonded indebtedness, or increase the
same, with the approval by a majority vote
(6) The amount of stock represented at of the board of trustees and of at least two-
the meeting; and thirds (2/3) of the members in a meeting
duly called for the purpose.
(7) The vote authorizing the increase
or diminution of the capital stock, or Bonds issued by a corporation shall be
the incurring, creating or increasing of registered with the Securities and
any bonded indebtedness. Exchange Commission, which shall have
the authority to determine the sufficiency of
Any increase or decrease in the capital stock the terms thereof. (17a)
or the incurring, creating or increasing of any
bonded indebtedness shall require prior Section 39. Power to deny pre-
approval of the Securities and Exchange emptive right. - All stockholders of a stock
Commission. corporation shall enjoy pre-emptive right to
subscribe to all issues or disposition of
One of the duplicate certificates shall be kept shares of any class, in proportion to their
on file in the office of the corporation and the respective shareholdings, unless such right
45
is denied by the articles of incorporation or an After such authorization or approval by the
amendment thereto: Provided, That such pre- stockholders or members, the board of
emptive right shall not extend to shares to be directors or trustees may, nevertheless, in
issued in compliance with laws requiring its discretion, abandon such sale, lease,
stock offerings or minimum stock ownership exchange, mortgage, pledge or other
by the public; or to shares to be issued in disposition of property and assets, subject
good faith with the approval of the to the rights of third parties under any
stockholders representing two-thirds (2/3) of contract relating thereto, without further
the outstanding capital stock, in exchange for action or approval by the stockholders or
property needed for corporate purposes or in members.
payment of a previously contracted debt.
Nothing in this section is intended to restrict
Section 40. Sale or other disposition the power of any corporation, without the
of assets. - Subject to the provisions of authorization by the stockholders or
existing laws on illegal combinations and members, to sell, lease, exchange,
monopolies, a corporation may, by a majority mortgage, pledge or otherwise dispose of
vote of its board of directors or trustees, sell, any of its property and assets if the same is
lease, exchange, mortgage, pledge or necessary in the usual and regular course
otherwise dispose of all or substantially all of of business of said corporation or if the
its property and assets, including its goodwill, proceeds of the sale or other disposition of
upon such terms and conditions and for such such property and assets be appropriated
consideration, which may be money, stocks, for the conduct of its remaining business.
bonds or other instruments for the payment of
money or other property or consideration, as In non-stock corporations where there are
its board of directors or trustees may deem no members with voting rights, the vote of
expedient, when authorized by the vote of the at least a majority of the trustees in office
stockholders representing at least two-thirds will be sufficient authorization for the
(2/3) of the outstanding capital stock, or in corporation to enter into any transaction
case of non-stock corporation, by the vote of authorized by this section.
at least to two-thirds (2/3) of the members, in
a stockholder's or member's meeting duly Section 41. Power to acquire own
called for the purpose. Written notice of the shares. - A stock corporation shall have the
proposed action and of the time and place of power to purchase or acquire its own
the meeting shall be addressed to each shares for a legitimate corporate purpose
stockholder or member at his place of or purposes, including but not limited to the
residence as shown on the books of the following cases: Provided, That the
corporation and deposited to the addressee corporation has unrestricted retained
in the post office with postage prepaid, or earnings in its books to cover the shares to
served personally: Provided, That any be purchased or acquired:
dissenting stockholder may exercise his
appraisal right under the conditions provided 1. To eliminate fractional shares arising out
in this Code. of stock dividends;
46
3. To pay dissenting or withdrawing representing not less than two-thirds (2/3)
stockholders entitled to payment for their of the outstanding capital stock at a regular
shares under the provisions of this Code. (a) or special meeting duly called for the
purpose. (16a)
Section 42. Power to invest corporate
funds in another corporation or business or Stock corporations are prohibited from
for any other purpose. - Subject to the retaining surplus profits in excess of one
provisions of this Code, a private corporation hundred (100%) percent of their paid-in
may invest its funds in any other corporation capital stock, except: (1) when justified by
or business or for any purpose other than the definite corporate expansion projects or
primary purpose for which it was organized programs approved by the board of
when approved by a majority of the board of directors; or (2) when the corporation is
directors or trustees and ratified by the prohibited under any loan agreement with
stockholders representing at least two-thirds any financial institution or creditor, whether
(2/3) of the outstanding capital stock, or by at local or foreign, from declaring dividends
least two thirds (2/3) of the members in the without its/his consent, and such consent
case of non-stock corporations, at a has not yet been secured; or (3) when it
stockholder's or member's meeting duly can be clearly shown that such retention is
called for the purpose. Written notice of the necessary under special circumstances
proposed investment and the time and place obtaining in the corporation, such as when
of the meeting shall be addressed to each there is need for special reserve for
stockholder or member at his place of probable contingencies. (n)
residence as shown on the books of the
corporation and deposited to the addressee Section 44. Power to enter into
in the post office with postage prepaid, or management contract. - No corporation
served personally: Provided, That any shall conclude a management contract with
dissenting stockholder shall have appraisal another corporation unless such contract
right as provided in this Code: Provided, shall have been approved by the board of
however, That where the investment by the directors and by stockholders owning at
corporation is reasonably necessary to least the majority of the outstanding capital
accomplish its primary purpose as stated in stock, or by at least a majority of the
the articles of incorporation, the approval of members in the case of a non-stock
the stockholders or members shall not be corporation, of both the managing and the
necessary. (17 1/2a) managed corporation, at a meeting duly
called for the purpose: Provided, That (1)
Section 43. Power to declare where a stockholder or stockholders
dividends. - The board of directors of a stock representing the same interest of both the
corporation may declare dividends out of the managing and the managed corporations
unrestricted retained earnings which shall be own or control more than one-third (1/3) of
payable in cash, in property, or in stock to all the total outstanding capital stock entitled
stockholders on the basis of outstanding to vote of the managing corporation; or (2)
stock held by them: Provided, That any cash where a majority of the members of the
dividends due on delinquent stock shall first board of directors of the managing
be applied to the unpaid balance on the corporation also constitute a majority of the
subscription plus costs and expenses, while members of the board of directors of the
stock dividends shall be withheld from the managed corporation, then the
delinquent stockholder until his unpaid management contract must be approved by
subscription is fully paid: Provided, further, the stockholders of the managed
That no stock dividend shall be issued corporation owning at least two-thirds (2/3)
without the approval of stockholders of the total outstanding capital stock
47
entitled to vote, or by at least two-thirds (2/3) Upon whom service of summons be
of the members in the case of a non-stock made?
corporation. No management contract shall
be entered into for a period longer than five - Section 11. Service upon domestic
years for any one term. private juridical entity- when the
defendant is a corporation,
The provisions of the next preceding
partnership or association organized
paragraph shall apply to any contract
whereby a corporation undertakes to manage under the laws of the Philippines
or operate all or substantially all of the with a juridical personality, service
business of another corporation, whether may be made upon the president,
such contracts are called service contracts, managing partner, general manager,
operating agreements or otherwise: Provided, corporate secretary, treasurer, or in
however, That such service contracts or
house counsel.
operating agreements which relate to the
exploration, development, exploitation or Delta motor vs. Mangosing
utilization of natural resources may be
entered into for such periods as may be - strict compliance is necessary
provided by the pertinent laws or regulations.
(n) - should be served to those named in
the statute
Section 45. Ultra vires acts of
corporations. - No corporation under this - secretary of a dept are not those
Code shall possess or exercise any corporate included in the statute
powers except those conferred by this Code
or by its articles of incorporation and except E.B. Villarosa vs. Benito
such as are necessary or incidental to the
exercise of the powers so conferred. (n) - decision En Banc repeals all other
pronouncement
Section 36
- section 13 Rule 14 was repealed
Where should the corporation be
sued? - the old rules was ambiguous and
broad and at all time illogical
- principal office is important because it
establishes the residence of the the particular revision under Section
corporation and determining service of 11 of Rule 14 was explained by
summons, venue of action retired Supreme Court Justice
Florenz Regalado, thus:
- it can be sued in the city or
municipality where its principal office is xxx the then section 13 of
found this Rule allowed service
upon a defendant corporation
Principal office is also important for
to be made on the president,
venue of meetings
manager, secretary, cashier,
Non-stock corporation may provide in agent or any of its directors.
its by-laws that the venue of meeting The aforesaid terms were
be anywhere in the Philippines obviously ambiguous and
48
susceptible of broad and - section 16
sometimes illogical
interpretations, especially the - special 37,38,120
word agent of the corporation. Power to adopt by-laws
The Filoil case, involving the
litigation lawyer of the - section 46-48
corporation who precisely
appeared to challenge the Power to issue or sell stocks and to
validity of service of summons admit members
but whose very appearance for
- stock of stockholders and provision
that purpose was seized upon
governing non-stock
to validate the defective service,
is an illustration of the need for Power to acquire or alienate real or
this revised section with limited personal property
scope and specific terminology.
Thus the absurd result in the - is there any limitation? YES
Filoil case necessitated the
- Two specific limitation
amendment permitting service
only on the in-house counsel of 1. Section 36, as lawful transactions of
the corporation who is in effect business of the corporation may
an employee of the corporation, reasonably and necessarily require
as distinguished from an
independent practitioner. 2. Constitution and law
49
- Alienable public land performed outside of the scope of
the powers expressly conferred if
- Converts the property to a private land they are necessary to promote
automatically once converted it can the interest or welfare of the
now be registered corporation. Thus, it has been held
Power to make donation that although not expressly
authorized to do so a corporation
- Limitation Section 36 par.9 may become a surety where the
particular transaction is
Provided, That no corporation, domestic or reasonably necessary or proper
foreign shall give donations in aid of any to the conduct of its business,
political party or candidate or for purposes of and here it is undisputed that the
partisan political activity. establishment local post office is a
- These are circumstances, however, reasonable and proper adjunct to
under which a donation by a the conduct of the business of
corporation may be to its benefit as a appellant company. Indeed, such
means of increasing its business or post office is a vital improvement in
promoting patronage. Thus, paragraph the living condition of its employees
9 of section 36 expressly authorizes a and laborers who came to settle in
corporation to make donations. The its mining camp which is far
only limitations imposed are the removed from the postal facilities or
following: means of communication accorded
to people living in a city or
1. The donation must be reasonable; municipality.
52
- In order that the existing stockholders the outstanding capital stock
may maintain their proportionate right either
as not to dilute their right
a. In exchange for property
Power to deny pre-emptive rights needed for corporate purpose
or,
Section 39. Power to deny
pre-emptive right. - All stockholders b. In payment of a previously
of a stock corporation shall enjoy pre- contracted debt
emptive right to subscribe to all issues
or disposition of shares of any class, in - The exceptions, however will not
proportion to their respective apply to stockholders of a close
shareholdings, unless such right is corporation by virtue of a
denied by the articles of incorporation subsequent and specific provision of
or an amendment thereto: Provided, the Code which provides that the
That such pre-emptive right shall not
pre-emptive right of a stockholder in
extend to shares to be issued in
compliance with laws requiring stock a close corporation shall extend to
offerings or minimum stock ownership all stock to be issued, including
by the public; or to shares to be issued reissuance of treasury shares,
in good faith with the approval of the whether for money, property or
stockholders representing two-thirds personal services or in payment of a
(2/3) of the outstanding capital stock, corporate debt, unless the articles of
in exchange for property needed for
incorporation provide otherwise, if
corporate purposes or in payment of a
previously contracted debt. not entirely absolute, in that it
extends to all issuance and
May it be denied? How? disposition of shares
53
not really deny such pre-emptive Section 102. Pre-emptive
rights. right in close corporations. - The
pre-emptive right of stockholders in
Section 102, will not apply to close close corporations shall extend to all
corporations stock to be issued, including
reissuance of treasury shares,
The right of pre-emptive rights is absolute in whether for money, property or
close corporations personal services, or in payment of
corporate debts, unless the articles
All issues or depositing shares of any class of incorporation provide
form part of ACS otherwise.
54
- When the shares, left unsubscribed If 1-5 became 200K each, may 6-
are re-offered, he cannot therefore 10 demand the exercise their pre-
claim. DILUTION OF INTEREST emptive right?
- 1) RESOLUTION 2)
EXAMPLE:
AUTHORIZATION 3)
ACS 2M RATIFICATION 4) PRIOR WRITTEN
NOTICE 5) SALE SUBJECT TO
SUBSCRIBED 1M PROVISIONS OF EXITING LAWS
6) DISSENTING STOCKHOLDERS
PAID UP 1M
HAVE THE RIGHT TO EXERCISE
1 100K THEIR APPRAISAL RIGHT
58
to accomplish the purpose of its corporate assets are being
incorporation, the vote of approval of misapplied or wasted.
the stockholders is necessary.
If shares are reacquired, what
Gokongwei vs. SEC happens?
Like tables and chairs? Can tables What is the effect of declaration
and chairs make surplus profits? of dividends with regards to the
assets of a company?
- No, they do not make surplus, bonds,
etc. - As compared to stock dividends, the
declaration of cash or property
Where should dividends come dividends have the effect of reducing
from? corporate assets to the extent of
- Stock dividends are declared as stocks dividends declared.
coming from corporation - Neither would stock dividends
Who declares dividends to be increase the proportionate interest of
the stockholders of the corporation
declared? Do stockholders have
although it will have the effect of
any say?
increasing the subscribed and paid-
- Board of Directors, if stock approval of up capital of the corporation. It gives
2/3 outstanding capital stock the stockholders nothing in the way
of distribution of assets but merely
ACS-1M SUB-1M P.U.-1M divides his existing shares into
1M-U.R.E. (surplus profits of the corporation) smaller units.
1-100k
60
- Earnings belong to the corporation 1M RE
until declared or given
1 100K
Revocation
2 100K
- No revocation of dividend may be has
TO
unless it has not been officially
communicated to the stockholders or 10 100K
is in the form of stock dividends which
is revocable at any time prior to 1M
distribution.
May they be compelled?
Stock dividends- no reduction, you
- NO. You cannot declare if it does not
capitalize your restricted retained
come from unrestricted retained
earnings, what is issued is a piece
earnings.
of paper. The restricted earnings
remain in the corporation 1. 1M-U.R.E. (is it true there is no way
to compel?)
Cash and property- reduces
corporate assets 2. 2M-U.R.E.
SUB-1M TO 10% TO
ACS 2M 1M
61
- YES. They are entitled however if they 1M
are declared delinquent, the amount
Insofar as 1 and Y who has a
due them shall first be applied to his
delinquency plus expenses. better right? Already declared, but
not yet paid?
Delinquency occurs, you are called
- Right to receive vest upon
to pay, but you failed to pay. In case
of stock dividend, the delinquent declaration. Who ever owns at the
stock holder will not be entitled time of declaration owns the
thereto until he has paid his dividends
subscription in full. - Unless there is a stipulation to the
Are non-stockholders entitled to contrary
receive dividends? TRUST FUND DOCTRINE
- No, tock dividends are civil fruits of the - The power to declare it if paid-up
original investment, and to the owners capital is not maintained or is
of the shares belong the civil fruits. impaired
How did the court decide dividends - Trust fund must be kept intact for the
in the case of Neilsen protection of creditors who have the
right to rely on such subscription and
- Stock dividends cannot be issued to a
the paid-up capital for the
person who is not a stockholder in
satisfaction of their claims
payment of services rendered.
- Cannot accumulate surplus
- Whether cash, property or stock, only
unreasonably
stockholders may receive dividends.
Dividends are fruits of investments. - Basis is the paid-up capital
They come from the U.R.E. or surplus
profits of the corporation. - Entitled to dividends
10 100K
62
Directors even if acting in behalf of the substantially all of the business of
corporation, may still be held solidarily another corporation, whether such
liable contracts are called service
contracts, operating agreements or
Power to enter into management otherwise: Provided, however, That
such service contracts or operating
contract
agreements which relate to the
- New provision exploration, development,
exploitation or utilization of natural
resources may be entered into for
Section 44. Power to enter
such periods as may be provided by
into management contract. - No
the pertinent laws or regulations. (n)
corporation shall conclude a
management contract with another
The requirement for a valid
corporation unless such contract shall
management contract are as
have been approved by the board of
follows:
directors and by stockholders owning
at least the majority of the outstanding
1. Resolution of the board of directors
capital stock, or by at least a majority
2. Approval by the stockholders
of the members in the case of a non-
holding or representing a majority of
stock corporation, of both the
the outstanding capital stock or
managing and the managed
majority of the members in case of
corporation, at a meeting duly called
non-stock corporation of both the
for the purpose: Provided, That (1)
managing and the managed
where a stockholder or stockholders
corporation
representing the same interest of both
3. The approval of the stockholders or
the managing and the managed
members must be made at the
corporations own or control more than
meeting called for that purpose
one-third (1/3) of the total outstanding
4. The contract shall not be for a period
capital stock entitled to vote of the
longer than 5 years for any one
managing corporation; or (2) where a
term, except those which relate to
majority of the members of the board
exploration, development or
of directors of the managing
utilization of natural resources which
corporation also constitute a majority
may be entered into for such periods
of the members of the board of
as may be provided by pertinent
directors of the managed corporation,
laws and regulations
then the management contract must
be approved by the stockholders of the
Every corporate act emanates
managed corporation owning at least
two-thirds (2/3) of the total outstanding from the BOARD
capital stock entitled to vote, or by at
least two-thirds (2/3) of the members Is the voting requirements of a
in the case of a non-stock corporation. majority stockholder ABSOLUTE?
No management contract shall be
entered into for a period longer than - Not only a majority but 2/3 of the
five years for any one term. outstanding capital stock or 2/3 of
the members in a non-stock
The provisions of the next corporation would be required for
preceding paragraph shall apply to any the approval of a management
contract whereby a corporation
contract in the following instances:
undertakes to manage or operate all or
63
1. Where the stockholders representing - If not illegal per se merely voidable.
the same interest of both the Can be ratified expressly or
managing and managed corporation impliedly or even stopped as
own or control more than 1/3 of the equitable grounds
total outstanding capital stock of the
managing corporation; and - Ultra-vires acts which are not illegal
per se may become binding and
2. Where a majority of the members of enforceable either by satisfaction,
the board of directors of the managing estoppels or equitable grounds
corporation also constitute a majority
of the directors of the managed Consequences of ultra-vires
corporation acts?
66
5. It must be reasonable. - Rules governing equity, considering
the fact that there was always lack
- Must not be inconsistent with existing
of quorum
laws. Not be inconsistent with articles
of incorporation - Section 29 BOD if still constituting a
quorum may fill up a vacancy other
By-laws
than by removal, etc.
- None filing would not affect the status Gokongwei vs. SEC
of the corporation, Loyola grand villas
case - Section 48 allows a corporation to
amend it by-laws
- The word must is not always
imperative - Section 47 of the code, the by-laws
may provide for the qualification and
- Stockholders are conlusively
disqualification
presumed to know the provisions of
the by-laws - It cannot be said Gokongwei has a
vested rights
How about 3rd persons?
- Prevent directors from taking
- NO. unless there is actual knowledge advantage of position to promote his
of the same they are not presumed to individual interest to the damage of
know of the provisions of the by-laws others
Fleischer vs. Botika Nolasco - The validity or reasonableness of a
by-laws is a question of law
- Shares of stock are personal
properties - Subject to the limitations that
reasonableness of a by-law is a
- Shares of stock may transfer to whom
mere matter of judgment
ever he wishes
- Rule of the majority and not the
- The by-laws is contrary to law
tyranny of the minority
Articles of incorporation
May the by-laws be amended
- May provide reasonable restriction altered or appealed?
67
2. By the board of directors alone when thereof, duly certified under oath by
delegated by 2/3 of the outstanding the corporate secretary and a
capital stock or 2/3 of the members in majority of the directors or trustees,
shall be filed with the Securities and
a non-stock corporation.
Exchange Commission the same to
- This delegated power, however, is be attached to the original articles of
incorporation and original by-laws.
considered revoked whenever a
majority of the outstanding capital The amended or new by-laws
stock or members shall so vote at a shall only be effective upon the
regular or special meeting. issuance by the Securities and
Exchange Commission of a
If it is to be amended what is the certification that the same are not
proceeding? inconsistent with this Code. (22a
and 23a)
- Section 48 2nd paragraph provides:
Baretto vs. La Previsora
Section 48. Amendments to
by-laws. - The board of directors or - Any corporate act emanates from
trustees, by a majority vote thereof, the board
and the owners of at least a majority of
the outstanding capital stock, or at - Directors themselves cannot amend
least a majority of the members of a the by-laws if they were not granted
non-stock corporation, at a regular or the same
special meeting duly called for the
purpose, may amend or repeal any by- Section 48
laws or adopt new by-laws. The
owners of two-thirds (2/3) of the The power granted is not subject
outstanding capital stock or two-thirds to revocation T or F?
(2/3) of the members in a non-stock
corporation may delegate to the board - FALSE
of directors or trustees the power to
amend or repeal any by-laws or adopt If the by-laws are amended when
new by-laws: Provided, That any will they become valid?
power delegated to the board of
directors or trustees to amend or - Upon issuance of the SEC that they
repeal any by-laws or adopt new by- are not inconsistent
laws shall be considered as revoked
whenever stockholders owning or What if the SEC failed to act
representing a majority of the
within 10 months without fault
outstanding capital stock or a majority
of the members in non-stock attributable to the corporation?
corporations, shall so vote at a regular
T or F any amendment of the by-
or special meeting.
laws will never become valid until
Whenever any amendment or it gives its stamp of approval
new by-laws are adopted, such even after 1 year
amendment or new by-laws shall be
attached to the original by-laws in the - TRUE. Articles of incorporation and
office of the corporation, and a copy by-laws are different
68
MEETINGS What if the notice requirement is
not complied with?
Meetings
What happened to any act passed
- Meetings of stockholders 1.
in a meeting when notice
Date fixed in the by-laws or by-law
requirement was not required
- Meetings of director or trustees with?
69
the meeting which shall be within the Is there any exception?
Philippines.
- Section 28 only instance
T or F the by-laws of a stock
corporation may validly provide that Section 28. Removal of
meetings shall be held anywhere in directors or trustees. - Any director
the Philippines? or trustee of a corporation may be
removed from office by a vote of the
- FALSE. Non-stock corporations lang stockholders holding or representing
at least two-thirds (2/3) of the
pwede provided nakalagay sa by-laws
outstanding capital stock, or if the
and provided proper notice is given corporation be a non-stock
corporation, by a vote of at least
Corporation can do only such
two-thirds (2/3) of the members
things as the law allows it to do, entitled to vote: Provided, That such
DOCTRINE OF LIMITED CAPACITY removal shall take place either at a
regular meeting of the corporation or
San Miguel office located in Ortigas at a special meeting called for the
Center. May stockholders meeting purpose, and in either case, after
be held in PICC center? previous notice to stockholders or
members of the corporation of the
- YES. Metro Manila, one single city intention to propose such removal at
the meeting. A special meeting of
Must be called by the proper party the stockholders or members of a
corporation for the purpose of
Who calls? removal of directors or trustees, or
any of them, must be called by the
- President until and unless there is a secretary on order of the president
provision , secretary on order of the or on the written demand of the
president stockholders representing or holding
at least a majority of the outstanding
What if there is nobody who can capital stock, or, if it be a non-stock
call? corporation, on the written demand
of a majority of the members entitled
- The petitioner, stockholder may to vote. Should the secretary fail or
petition the court refuse to call the special meeting
upon such demand or fail or refuse
What if there is a person who can to give the notice, or if there is no
call, but he fails or neglects to call secretary, the call for the meeting
may be addressed directly to the
the meeting? May a stockholder
stockholders or members by any
petition to authorize a meeting? stockholder or member of the
corporation signing the demand.
- Ponce case only applies when there is Notice of the time and place of such
NO person authorized to call the meeting, as well as of the intention
meeting. If there is a person, but to propose such removal, must be
neglects his duty. Ponce will not apply. given by publication or by written
notice prescribed in this Code.
Writ of injunction may never be Removal may be with or without
issued ex parte cause: Provided, That removal
70
without cause may not be used to Date not complied with, notice,
deprive minority stockholders or place, not complied with and the
members of the right of representation person who called not authorized,
to which they may be entitled under
what happens to any resolution
Section 24 of this Code. (n)
called?
Cases of removal or ouster of a
- Section 51, any meeting shall be
director
valid provided all the stockholders
Mandamus would be appropriate are present or duly represented and
remedy if there is a person authorized provided it is within the power of the
but refuses corporation. 3RD paragraph of 324
73
- Generally revocable, unless coupled management in situations where it is
with interest needed.
The voting trust agreement filed Being still the beneficial owner
with the corporation shall be subject to they may transfer these rights
examination by any stockholder of the
corporation in the same manner as Is the right granted to a voting
any other corporate book or record:
trust agreement absolute? (to
Provided, That both the transferor and
the trustee or trustees may exercise inspect)
the right of inspection of all corporate
- NO.
books and records in accordance with
the provisions of this Code. - The voting trust agreement filed with
the corporation shall be subject to
Any other stockholder may
transfer his shares to the same trustee examination by any stockholder of
or trustees upon the terms and the corporation in the same manner
conditions stated in the voting trust as any other corporate book or
agreement, and thereupon shall be record. Provided, that both the
bound by all the provisions of said transfer and the trustee or trustees
agreement. may exercise the right of inspection
No voting trust agreement shall of all corporate books and records in
be entered into for the purpose of accordance with the provisions of
circumventing the law against this Code.
monopolies and illegal combinations in
restraint of trade or used for purposes Legal title is transferred to the
of fraud. voting trustee
76
notwithstanding the fact that the parties Z did not pay on the date called and was
refer to it as a purchase or some other declared a delinquent share
contract. (n)
Corporation paid 100T/S therefore
Under the old law the 4th mode is the corporation reacquired the
PURCHASE shares again, what are they called?
Purchase - Treasury shares
78
- Section 65, they will be considered as paid, is entitled to exercise all the
watered stocks rights of a stockholder and the
corresponding liability that attach
Section 65. Liability of directors thereunder. Thus, the Code
for watered stocks. - Any director or provides:
officer of a corporation consenting to
the issuance of stocks for a Section 72. Rights of unpaid
consideration less than its par or shares. - Holders of subscribed
issued value or for a consideration in shares not fully paid which are not
any form other than cash, valued in
excess of its fair value, or who, having delinquent shall have all the rights of
knowledge thereof, does not forthwith a stockholder. (n)
express his objection in writing and file
the same with the corporate secretary, Is the issuance of a certificate of
shall be solidarily, liable with the stock necessary to consider the
stockholder concerned to the subscriber a stockholder?
corporation and its creditors for the
difference between the fair value - NO, shall be considered a
received at the time of issuance of the stockholder even without a
stock and the par or issued value of certificate of stock
the same. (n)
Instances when he may not be able
- Subscribers may be compelled to pay to exercise his rights as such
the value stockholder
Issuance of a certificate of stock is - Declared delinquent
another thing
- When he exercises his appraisal
What are the requisites for the right
issuance of a valid certificate of stock?
Are certificate of stocks
1. It must be signed by the president or transferrable?
vice-president and countersigned by
the secretary or assistant secretary; - YES
82
How may shares of stock be - Petitioner failed to establish a clear
transferred? legal right and alleged ownership is
without merit
- Endorsement of stock certificate by
owner or attorney-in-fact with delivery - Did not acquire ownership by virtue
of the contract of pledge
Embassy farms vs. CA
- In a contract of pledge there must be
- Must be endorsed by owner or foreclosure
attorney-in-fact coupled with delivery
- In the case there was no attempt to
- Endorsed not delivered foreclose
- Proper mode and manner must be - Petitioner must have a prima facie
complied with right
Razon vs. IAC Nava vs. Peers Marketing
- Delivered not endorsed - A stock subscription is a subsisting
liability from the time the
- Reverse of Embassy Farms
subscription is made
- Endorsement alone is not sufficient nor
- The subscriber is as much bound to
delivery without endorsement is not
pay his subscription as he would be
allowed
to pay any other debt
- Endorsement plus delivery is
- No stock certificate was issued.
mandatory
Without stock certificate, which is
Is there any other mode of transferring the evidence of ownership of
stock? corporate stock, the assignment of
corporate shares is effective only
- Notarized deed between the parties to the
transaction
- Deed of assignment
Exception to the general rule
Rural bank of Salinas vs. CA
Rural Bank of Lipa vs. CA
- If denied or refused without good
cause, mandamus will lie - By notarized deed
Tay vs. CA - Certificate of stocks already issued
must be coupled with delivery,
- Mandamus may issue if petition has a
exception (TAN vs. SEC)
clear legal right
Stock certificate has already been
- Never issued in doubtful cases
issued it must be coupled with the
delivery
83
After certificate of stock is issued, may Why are they non-negotiable when
it be effectively transferred even they may be transferred?
without endorsement or delivery of the
stock certificate? - Transferees pays it without prejudice
to all the rights and defenses as the
- Person sought to be a stockholder is true and lawful owner may have
an officer and has custody under the law except insofar as such
rights and defenses are subject to
Endorsement and delivery is not the limitations imposed by the
necessary (TAN vs. SEC) principles governing estoppels
Tan vs. SEC (FULL KNOWLEDGE, HE Delos Santos vs. Republic
IS ESTOPPED)
- Why is he, not considered as the
- Persons sought to be stockholder is owner of shares? When it has been
officer and has custody of the book said that when endorsed by the
(estopped) owner it is considered as strict
General Rule for valid transfer certificate? Because certificate of
stocks are non-negotiable
- Certificate of stock must be endorsed
- Although a stock-certificate is
by owner or attorney-in-fact coupled
sometimes regarded as quasi-
with delivery
negotiable, in the sense that it may
Exceptions be transferred by endorsement,
coupled with delivery, it is well
- Section 63 uses the word may settled that the instrument is non-
negotiable, because the holder
- Showing that there may be other
thereof takes it without prejudice to
modes of transferring shares
such rights or defenses as the
Is there a time frame or fixed period as registered owner or creditor may
when transfer can be made? have under the law, except insofar
as such rights or defenses are
- NO, (WON vs. WACK WACK) subject to the limitations imposes by
the principles governing estoppels.
Won vs. Wack Wack
Unauthorized issuance of stock
- Valid between contracting parties even
certificates
if not recorded in corporation books
84
Stock certificate now in possession
of D. A knew of what happened and
went to the corporation and
complains. Who will have a better
title?
ENDORSEMENT FORM
- the corporation may be compelled to
C armed with the endorsement form recognize both, A as stockholder
certificate, sold to D (innocent (non-negotiable) D, reliance that the
purchaser for value), will D acquire stock certificate is valid and existing
title? and owned by C
- NO, subject to such rights and Forged transfers
defenses as the true and lawful owner
may have - If the corporation should issue a new
certificate in pursuance of a forged
What if C now goes to the corporation transfer, the corporation incurs no
and presents the form? liability to the person in whose favor
it is issued and it may demand its
- Then the corporation shall cancel the old
return for cancellation. The
certificate and issues a new one, now
corporation in such case has been
in the name of C, now registered in the
guilty of no misrepresentation. On
name of C, will C acquire title?
the other hand, it is the duty of the
A found out what happened and goes purchaser to determine that the
to the corporation who has a better title indorsement of the owner is
C or A? genuine. However, if the new
certificate issued to the purchaser
- A, A cannot be deprived of his right by comes into the hands of a bona fide
virtue of an unauthorized transfer purchaser for value, the corporation
will be stopped from denying validity
Corporation can compel C to deliver
thereof, since by issuing such new
the new stock certificate because he
certificate it represents that the
made a representation that the
person named therein is a
certificate where good.
stockholder of the corporation. The
Armed with the new certificate issued corporation is thus forced to
to C, C delivers to D a purchaser in recognize both the original certificate
good faith and for value will D acquire and new certificate-the original,
title? because the true owner could not be
deprived of his title by a forged
- D will acquire title took the shares not by transfer, and the new, because of its
virtue of a forged or unauthorized representation that the person
transfer, but on the reliance that the named therein is the owner of
stock certificate is valid and owned by shares in the corporation. But if the
C recognition of both stockholders
would result in an over issue of
85
shares, then only the original and true damages, attorneys fees and cost
owner can be recognized as a of suit. What may the corporation
stockholder. The bona fide purchaser do?
of the new certificate will however
have a right of damages against the - NO defense, no valid defense,
corporation. The corporation, in turn, because it was represented to other
would have a right of action against parties that the certificate of stocks
the person who made false is valid, subsisting, etc.
representations and in whose favor it 2nd situation, what cause of action
issued a new certificate. The true may the corporation have?
owner of the shares which were Remedy?
wrongfully transferred would of course
have a right to compel the corporation - Third party complaint against C, but
to issue him a certificate in lieu of the what if he is a purchaser for value?
original one which was wrongfully 4th party claim against B
cancelled.
When may certificate of stocks be
Authorized capital stock 1M shares issued?
- The court erred in holding the plaintiff Why is stock watering illegal?
as the owner of 250 shares of stock;
1. The corporation is deprived of its
the plaintiffs rights consist in equity in
capital thereby hurting its business
500 shares and upon payment of the
prospects, financial capability and
unpaid portion of the subscription price
responsibility;
he becomes entitled to the issuance of
certificate for said 500 shares in his 2. Stockholders who paid their
favor. subscriptions in full, or promised to
pay the same, are injured and
- No certificate of stock until the full
prejudiced by the reduction of their
amount has been paid.
87
proportionate interest in the 5. As to creditors - They may enforce
corporation; and, payment of the difference in the
price, or the water in the stock,
3. Present and future creditors are solidarily against the responsible
deprived of the corporate assets for directors/officers and the
the protection of their interest. stockholders concerned; and
- Corporation is prejudiced 6. As against transferees of the
- Stockholders, dilution of interest watered stock His right is the
same as that of his transferor. If,
- Creditors are prejudiced, virtue of right however, a certificate of stock has
to look upon corporations properties been issued and duly indorsed to a
for the satisfaction of their claims bona fide purchaser, without
knowledge, actual or constructive,
What is the effect of issuance of
the latter cannot be held liable, at
watered stocks least as against the corporation,
1. As to the corporation - when a since he took the shares on reliance
corporation is guilty of ultra-vires or of the misrepresentation made by
illegal acts which constitute an injury to the corporation that the stock
or fraud upon the public, or which will certificate is valid and subsisting.
tend to injure or defraud the public, the This is because a corporation is
State may institute a quo-warranto prohibited from issuing certificates of
proceeding to forfeit its charter for the stock until the full value of the
misuse or abuse of its franchise. subscriptions have been paid and
could not, therefore, deny the
2. As between the corporation and the validity of the stock certificate it
subscriber- The subscription is void. issued as against a purchaser in
Such being the case, the subscriber is good faith. Thus, Ballentine states
liable to pay the full par or issued value that whether there is any liability on
thereof, to render it valid and effective. the part of the transferee of watered
stock is made to depend upon
3. As to the consenting stockholders -
whether he acquired the same
They are stopped from raising any
without notice, either as purchaser
objection thereto;
or donee. If he had knowledge
4. As to dissenting stockholders - In view thereof, he is subject to the same
of the dilution of their proportionate liability as his transferor.
interest in the corporation, they may
What is the nature of the liability of
compel the payment of the water in
the corporate directors consenting to
the stock solidarily against the
the issuance of watered stocks and
responsible and consenting directors
the extent of their liabilities?
and officers inclusive of the holder of
the watered stocks; - Solidarily liable with the holder of the
watered stocks to the extent of the
water from said shares of stocks
88
Will all the directors be liable? What if There is a denial of pre-emptive rights
you objected will you also be liable? and directors A,B,C,D,E decided to
issue the remaining 50M and
- If you do not issue a written objection, subscribed for 10M each at 2 per share.
you are still liable
Is there stock watering if the fair
- Even passive directors may be liable market value is 12.00?
- Those having knowledge thereof, but - No stock watering
did not interpose their objection shall
be liable - The basis is the par value
89
When are unpaid subscriptions due - General rule is they are not liable to
and payable? pay interest because the code says
unless requires in the by-laws
- Section 67. Payment of balance of - Aside from the mandate of the law
subscription. - Subject to the that subscribers to shares of stock
provisions of the contract of must pay the full value of their
subscription, they may likewise be
subscription, the board of directors of
required to pay interest on all unpaid
any stock corporation may at any time subscriptions if so imposed in the
declare due and payable to the contract or in the corporate by-laws
corporation unpaid subscriptions to the at such rate as may be indicated
capital stock and may collect the same thereat or the legal rate if not so
or such percentage thereof, in either fixed. Unless so required or
case with accrued interest, if any, as it provided, however, subscribers to
shares of stock, not fully paid, are
may deem necessary. not liable to pay interest on their
unpaid subscriptions. The code thus
Payment of any unpaid subscription or provides:
any percentage thereof, together with
the interest accrued, if any, shall be Section 66. Interest on
made on the date specified in the unpaid subscriptions. - Subscribers
contract of subscription or on the date for stock shall pay to the corporation
stated in the call made by the board. interest on all unpaid subscriptions
Failure to pay on such date shall from the date of subscription, if so
render the entire balance due and required by, and at the rate of
payable and shall make the interest fixed in the by-laws. If no
stockholder liable for interest at the rate of interest is fixed in the by-
legal rate on such balance, unless a laws, such rate shall be deemed to
different rate of interest is provided in be the legal rate. (37)
the by-laws, computed from such date
until full payment. If within thirty (30) Until a call is made, they are not due
days from the said date no payment is and payable, but still subject to the
made, all stocks covered by said provisions of the contracts
subscription shall thereupon become Procedures in case of sale of
delinquent and shall be subject to sale
delinquent stocks
as hereinafter provided, unless the
board of directors orders otherwise.
Section 68. Delinquency sale. - The board
(38)
of directors may, by resolution, order the
sale of delinquent stock and shall
Remedies of the corporation to enforce
specifically state the amount due on each
payment of unpaid subscription subscription plus all accrued interest, and
the date, time and place of the sale which
1. By board action in accordance with the shall not be less than thirty (30) days nor
procedure laid down in sections 67 to more than sixty (60) days from the date the
69 of the code stocks become delinquent.
2. By a collection case in court as
provided for in section 70 Notice of said sale, with a
copy of the resolution, shall be sent
Are subscribers of shares of stocks not to every delinquent stockholder
fully paid, liable to pay interest? either personally or by registered
90
mail. The same shall furthermore be corporation in accordance with the
published once a week for two (2) provisions of this Code. (39a-46a)
consecutive weeks in a newspaper of
general circulation in the province or Who is the winning bidder in a
city where the principal office of the delinquency sale?
corporation is located.
- Bidder who shall offer to pay the full
Unless the delinquent amount of the balance on the
stockholder pays to the corporation, on subscription together with accrued
or before the date specified for the interest, cost of advertisement and
sale of the delinquent stock, the expenses of sale, for the smallest
balance due on his subscription, plus number of shares or fraction of a
accrued interest, costs of share.
advertisement and expenses of sale,
or unless the board of directors X Co. has 1M authorized capital
otherwise orders, said delinquent stock stock
shall be sold at public auction to such
bidder who shall offer to pay the full 500 thousand is already subscribed
amount of the balance on the
subscription together with accrued A subscribed to 100 thousand
interest, costs of advertisement and shares, 50 thousand is already paid
expenses of sale, for the smallest leaving 50 thousand unpaid
number of shares or fraction of a
share. The stock so purchased shall The corporation is at a loss of 250
be transferred to such purchaser in the thousand, the board decides to
books of the corporation and a make a call for the payment of the
certificate for such stock shall be unpaid subscriptions, however A
issued in his favor. The remaining could not paid, hence declared
shares, if any, shall be credited in favor delinquent and decides to sell his
of the delinquent stockholder who shall share at a public auction
likewise be entitled to the issuance of
a certificate of stock covering such 55 thousand is to be paid, remaining
shares. balance plus cost and expenses
99
liabilities and the result of its records and minutes has
operations. improperly used any information
secured through any prior
At the regular meeting of stockholders examination of the records or
or members, the board of directors or minutes of such corporation or of
trustees shall present to such any other corporation, or was not
stockholders or members a financial acting in good faith or for a
report of the operations of the legitimate purpose in making his
corporation for the preceding year, demand.
which shall include financial
statements, duly signed and certified What is the stock and transfer?
by an independent certified public Where should stock and transfer be
accountant. kept? Can it be kept elsewhere?
103
Telecommunications- special Assuming you are a stockholder of
franchise, it is a legislative grant PNB, and then it was privatized,
may you already have the right to
Gonzales vs. PNB inspect?
- Provisions of the old law was - No, unless its charter has been
unqualified, when it granted altered or repealed it is still subject
stockholders the right to inspect to the same law
- However, whole seemingly enlarging
the right of inspection, the new code 3 stages in the life of a corporation
has prescribed limitations to the same.
It is now expressly required as a - Formation or birth
condition for such examination that the - We now discuss the union of the
one requesting it must not have been corporation
guilty of using improperly any - The last would be its death or
information secured through a prior dissolution
examination and that the person
asking for such examination must be MERGER AND CONSOLIDATION
acting in good faith and for a legitimate
purpose in making his demand Merger and consolidation
- Admittedly, he sought to be a
stockholder in order to pry into - In corporate parlance it is called
transactions entered into by the spin-off
respondent bank even before he - Almost a year ago San Miguel
became a stockholder. His obvious separated its brewery business
purpose was to arm himself with - San Miguel Corporation is now a full
materials he can use against the time holding company; it can later on
respondent bank for acts done by the absorb the company
latter when the petitioner was a total - Corporations are granted by the
stranger to the same. code to merge or consolidate
- Bank was created by a special law, it - most common type of corporate
has its own charter and primarily recognition
governed by the law creating them - not the same in every case
- The bank is only subject to the - but most common in the weal
inspection of the Central Bank and any financial or insolvent condition, aim
information pertaining to the bank is is to bring it back to its financial
confidential and shall not be revealed capability
to any person other than the President - also a method of recapitalization
of the Philippines, the Secretary of
Finance and the Board of Directors, o purchase and sale of corporate
nor shall any information relative to the assets is another form of
funds in its custody, its current corporate reorganization
accounts or deposits belonging to
private individuals, corporations or How do you value the assets of the
other entities except by order of a
merging corporation, do you
Court of Competent Jurisdiction, hence
consider goodwill?
inspection sought to by the petitioner is
First secure favorably
violative of the provisions of its charter
and is even subject to penal sanctions recommendation of government
agency
104
Section 79. Effectivity of merger or A B
consolidation. - The articles of merger or of
consolidation, signed and certified as herein A transfers all assets, properties,
above required, shall be submitted to the rights, obligations, liabilities to B
Securities and Exchange Commission in
quadruplicate for its approval: Provided, B issues shares of stocks in
That in the case of merger or exchange of the transfer
consolidation of banks or banking
institutions, building and loan A is then dissolved and B
associations, trust companies, insurance SURVIVES
companies, public utilities, educational
institutions and other special corporations o Parties to a merger are called
governed by special laws, the favorable constituent corporation
recommendation of the appropriate
government agency shall first be Consolidation
obtained. If the Commission is satisfied that
the merger or consolidation of the - The uniting or amalgamation of two
corporations concerned is not inconsistent or more existing corporations to form
with the provisions of this Code and existing a new corporation
laws, it shall issue a certificate of merger or of - In merger there is a surviving
consolidation, at which time the merger or corporation, the others are
consolidation shall be effective. dissolved, while in consolidation, all
constituent are dissolved and a new
If, upon investigation, the one organized
Securities and Exchange Commission
has reason to believe that the A B
proposed merger or consolidation is
contrary to or inconsistent with the
provisions of this Code or existing
laws, it shall set a hearing to give the C
corporations concerned the
opportunity to be heard. Written notice Like all other corporate acts, it
of the date, time and place of hearing emanates from the board
shall be given to each constituent
corporation at least two (2) weeks 1. The board of directors or trustees of
before said hearing. The Commission each constituent corporations shall
shall thereafter proceed as provided in approve a plan of merger or
this Code. (n) consolidation setting forth the
matters required in section 76;
Merger 2. Approval of the plan by the
stockholders representing 2/3 of
- A union effected by absorbing one or the outstanding capital stock or
more existing corporations by another 2/3 of the member in non-stock
which survives and continues the corporations of each of such
combined business corporations at separate corporate
- It is the uniting of two or more meetings called for the purpose;
corporations by the transfer of property 3. Prior notice of such meeting, with a
to one of them which continue in copy or summary of the plan of
existence, the other or the others merger or consolidation shall be
being dissolved and merged therein. given to all stockholders or members
105
at least two (2) weeks prior to the 3. The surviving corporation or the
scheduled meeting, either personally consolidated corporation will
or registered mail stating the purpose possess all the rights, privileges,
thereof; immunities and powers and shall be
4. Execution of the articles of merger or subject to all the duties and liabilities
consolidation by each constituent of a corporation organized under the
corporations to be signed by the Code;
president or vice-president and 4. The surviving or consolidated
certified by the corporate secretary corporation shall possess all the
or assistant secretary setting forth rights, privileges, immunities and
the matters required in section 78; franchises of the constituent
5. Submission of the articles of corporations, and all property and all
merger or consolidation in receivables due, including
quadruplicate to the SEC subject to subscriptions to shares and other
the requirement of section 79 that if it choses in action, and every other
involve corporations under the direct interest of, or belonging to or due to
supervision of any other government the constituent corporations shall be
agency or governed by special laws deemed transferred to and vested in
the favorable recommendation of the such surviving or consolidated
government agency concerned shall corporation without further act and
first be secured and; deed; and,
6. Issuance of the certificate of merger 5. The rights of creditors or any lien on
or consolidation by the SEC at which the property of the constituent
time the merger or consolidation shall corporations shall not be impaired
be effective. If the plan, however, is by the merger or consolidation.
believed to be contrary to law, the SEC
shall set a hearing to give the Is there a liquidation process in case
corporations concerned an opportunity of merger or consolidation?
to be heard upon proper notice and
thereafter, the Commission shall - None, there is nothing to distribute
proceed as provided in the Code.
Associated Bank vs. CA
Although merger and consolidation is
an express power granted to - By virtue of a specific provision in
corporation, it is subject to limitations, the merger agreement
as maybe proscribed by law - Although the subject promissory
note names CBTC as the payee, the
What would be the effect of merger or reference to CBTC in the note shall
consolidation? <sec. 80> be construed, under the very
provision of the merger agreement,
1. There will only be a single corporation. as a reference to petitioner bank, as
In case of merger, the surviving if such reference (was a) direct
corporation or the consolidated reference to the latter for all intents
corporation in case of consolidation; and purposes
2. The termination of the corporate - Section 80 par. 4 states:
existence of the constituent
corporations, except that of the The surviving or the
surviving corporation or the consolidated corporation shall
consolidated corporation; thereupon and thereafter possess all
the rights, privileges, immunities and
106
franchises of each of the constituent o Hardest part is the financial act,
corporations; and all property, real or regarding how many shares
personal, and all receivables due on would be issued, probability of
whatever account, including collection and the like
subscriptions to shares and other o In merger and consolidation,
choses in action, and all and every there is due diligence and an
other interest of, or belonging to, or economist is usually hired
due to each constituent corporation,
shall be deemed transferred to and APPRAISAL RIGHT
vested in such surviving or
consolidated corporation without Define appraisal
further act or deed; and
- Right to withdraw from the
- Without further acts, meaning it is corporation and demand payment of
automatic the fair value of his shares after
dissenting from certain corporate
When do merger and consolidation acts involving fundamental changes
become effective? What if the SEC in corporate structure <sec. 81>
fails to act on it without fault
attributable to the corporation What property? When may this right
involved? be exercises?
107
May it be exercised by a stockholder depreciation in anticipation of such
who dissents to the act of a business corporate action.
other than a primary purpose?
If within a period of sixty (60)
X Co. inc days from the date the corporate
action was approved by the
Principal office is in Quezon city, it was stockholders, the withdrawing
changed to Paranaque stockholder and the corporation
cannot agree on the fair value of the
A objects and makes a written shares, it shall be determined and
demand. May he exercise his right of appraised by three (3) disinterested
appraisal? persons, one of whom shall be
named by the stockholder, another
- It is not available in all amendments of by the corporation, and the third by
the corporation the two thus chosen. The findings of
- It must be changing or restricting the the majority of the appraisers shall
rights of any stockholder be final, and their award shall be
paid by the corporation within thirty
What if the principal office is changed (30) days after such award is made:
from QC to TAWI-TAWI, will it change Provided, That no payment shall be
or affect the rights of A? made to any dissenting stockholder
unless the corporation has
- To some it may change or restrict the unrestricted retained earnings in its
rights to others it may not books to cover such payment: and
Provided, further, That upon
How is the right exercised? payment by the corporation of the
agreed or awarded price, the
- According to section 82 of the code: stockholder shall forthwith transfer
his shares to the corporation. (n)
Section 82. How right is
X Co.
exercised. - The appraisal right may be
exercised by any stockholder who
Principal Office- QC, it was changed
shall have voted against the proposed
to Manila
corporate action, by making a written
demand on the corporation within thirty
(30) days after the date on which the A objects and makes a written
vote was taken for payment of the fair demand for payment of fair value of
value of his shares: Provided, That shares. Can he make a demand of
failure to make the demand within payment of shares?
such period shall be deemed a waiver
of the appraisal right. If the proposed True or False, no stockholder in a
corporate action is implemented or stock corporation can ever demand
affected, the corporation shall pay to if the principal office is amended,
such stockholder, upon surrender of changing it from QC to Manila
the certificate or certificates of stock
representing his shares, the fair value - False, a stockholder in a close
thereof as of the day prior to the date corporation may for any reason
on which the vote was taken, compel the close corporation that he
excluding any appreciation or be paid the fair value of his shares
108
Can he exercise his appraisal rights in stockholder, another by the
the first place? He hasnt even paid his corporation, and the third by the two
subscription in full. thus chosen. The findings of the
majority of the appraisers shall be
May a stockholder who hasnt paid his final, and their award shall be paid
subscription in full exercise his by the corporation within thirty (30)
appraisal rights? days after such award is made:
Provided, That no payment shall be
- Yes, he can exercise his appraisal made to any dissenting stockholder
rights, by reconciling the provisions of unless the corporation has
section 72, section 82 and section 86 unrestricted retained earnings in its
books to cover such payment: and
Section 72. Rights of unpaid Provided, further, That upon
shares. - Holders of subscribed shares payment by the corporation of the
not fully paid which are not delinquent agreed or awarded price, the
shall have all the rights of a stockholder shall forthwith transfer
stockholder. (n) his shares to the corporation. (n)
118
6. Corporations vested with public corporation wherein only directors
interest meetings may provide for greater
quorum requirement and in
Classification of directors stockholders meeting which may not
be altered or increased, as provide
- Ordinary stock- no such right for in section 25, following the
- Close corporation-yes there is such a doctrine of limited capacity
right
The articles of a close corporation
Section 97 is a permissive provision may likewise provide that the
business of the corporation shall be
managed by the stockholders rather
Section 97. Articles of
than by the board of directors.
incorporation. - The articles of
However the same must contain the
incorporation of a close corporation
continuing provisions required in
may provide:
paragraph 2 of section 97, that is:
1. For a classification of shares or
1. No meeting of stockholders need
rights and the qualifications for owning
be called to elect directors;
or holding the same and restrictions on
2. Unless the context clearly
their transfers as may be stated
requires otherwise, the
therein, subject to the provisions of the
stockholders of the corporation
following section;
shall be deemed to be directors;
and;
2. For a classification of directors into
3. The stockholders of the
one or more classes, each of whom
corporation shall be subject to all
may be voted for and elected solely by
liabilities of directors.
a particular class of stock; and
Liability of stockholders acting as
3. For a greater quorum or voting
requirements in meetings of directors in a close corporation are
stockholders or directors than those more extensive since they are
provided in this Code. personally liable for corporate torts
unless the corporation has obtained
After classification what then? a reasonable adequate liability
insurance, unlike a ordinary stock
corporation, wherein directors
- After classification, qualification and
thereof are only liable for corporate
then restriction as provided for under
torts only if they have been negligent
the 3 qualifying conditions in section
or acted fraudulently in the
96
performance of their functions.
Cumulative voting is restricted in close
Restrictions
corporations if will be elected solely by
a particular class
- In ordinary stock corporations, the
restrictions must appear in the
In a close corporation, the articles of
articles of incorporation as well as
incorporation may provide for a greater the certificate of stocks
quorum and voting requirement in - In a close corporation, the
meetings of both stockholders or
restrictions must appear in the
directors to increase the veto power of
articles of incorporation, the by-laws
minority stockholders, unlike in a stock
119
and the certificate of stocks. Since they cannot be compelled,
Otherwise, the same shall not be may they admit?
binding on any purchaser thereof in
good faith - Yes, provided all the stockholders
consented or instead of consenting
What if the stockholders do not want to they decide to amend their articles
exercise their right or option to of incorporation
purchase may it be sold to any - Will have to amend the articles of
person? incorporation to accommodate other
purchasers of share
- Yes, any third person, section 98 - Will cease to be a close corporation
provides: if it amends and becomes in excess
of 20
Section 98. Validity of
restrictions on transfer of shares. - o Unless all the stockholders
Restrictions on the right to transfer consent they may
shares must appear in the articles of
incorporation and in the by-laws as What if the other stockholders object
well as in the certificate of stock; to register? What will be the remedy
otherwise, the same shall not be of the transferee?
binding on any purchaser thereof in
good faith. Said restrictions shall not - His remedy is rescission. The effect
be more onerous than granting the of rescission is mutual restitution
existing stockholders or the
corporation the option to purchase the How about the stockholder, what is
shares of the transferring stockholder his recourse?
with such reasonable terms, conditions
or period stated therein. If upon the - He may compel the close
expiration of said period, the corporation to purchase his shares
existing stockholders or the at their fair value for any reason,
corporation fails to exercise the provided the corporation has
option to purchase, the transferring sufficient assets in its books to cover
stockholder may sell his shares to the debts and liabilities exclusive of
any third person. capital
- In a close corporation, there is a
o ordinary stock corporations are withdrawing stockholder, unlike in an
liable only if acted in Bad faith, ordinary stockholder where there is
fraud or negligence in none, they may only do so in the
performance of duty exercise of appraisal rights
What if there are already 20 Section 105. Withdrawal of
stockholders and they want to add 2 stockholder or dissolution of
more, may it compel? corporation. - In addition and without
prejudice to other rights and
- In ordinary stock corporations, they remedies available to a stockholder
may compel by mandamus under this Title, any stockholder of
- In close corporations, may not be a close corporation may, for any
compelled to admit because it reason, compel the said
breaches the qualifying conditions corporation to purchase his
shares at their fair value, which
120
shall not be less than their par or 1. Before or after such action is
issued value, when the corporation taken, written consent thereto is
has sufficient assets in its books to signed by all the directors; or
cover its debts and liabilities
exclusive of capital stock: Provided, 2. All the stockholders have actual or
That any stockholder of a close implied knowledge of the action and
corporation may, by written petition to make no prompt objection thereto in
the Securities and Exchange writing; or
Commission, compel the dissolution of
such corporation whenever any of acts 3. The directors are accustomed to
of the directors, officers or those in take informal action with the express
control of the corporation is illegal, or or implied acquiescence of all the
fraudulent, or dishonest, or oppressive stockholders; or
or unfairly prejudicial to the corporation
or any stockholder, or whenever 4. All the directors have express or
corporate assets are being misapplied implied knowledge of the action in
or wasted. question and none of them makes
prompt objection thereto in writing.
Agreements may also be entered in a
close corporation <sec.100> Pre-emptive rights in a close
corporation is absolute
- They can even agree to be partners in
management Section 102. Pre-emptive
- Pre-incorporation right in close corporations. - The
- Manner in which the business of the pre-emptive right of stockholders in
corporation shall be managed close corporations shall extend to all
stock to be issued, including
Board resolution reissuance of treasury shares,
whether for money, property or
- Ordinary stock corporations- sit and personal services, or in payment of
act as a body at a duly constituted corporate debts, unless the articles
meeting, they may do so by virtue of of incorporation provide otherwise.
the E-Commerce Act through
teleconference or video conference Why is it said to be absolute?
131
- Section 116 provides: 4. That the religious society or
religious order, or diocese, synod, or
Section 116. Religious district organization desires to
societies. - Any religious society or incorporate for the administration of
religious order, or any diocese, synod, its affairs, properties and estate;
or district organization of any religious
denomination, sect or church, unless 5. The place where the principal
forbidden by the constitution, rules, office of the corporation is to be
regulations, or discipline of the established and located, which place
religious denomination, sect or church must be within the Philippines; and
of which it is a part, or by competent
authority, may, upon written consent 6. The names, nationalities, and
and/or by an affirmative vote at a residences of the trustees elected by
meeting called for the purpose of at the religious society or religious
least two-thirds (2/3) of its order, or the diocese, synod, or
membership, incorporate for the district organization to serve for the
administration of its temporalities or for first year or such other period as
the management of its affairs, may be prescribed by the laws of the
properties and estate by filing with the religious society or religious order, or
Securities and Exchange Commission, of the diocese, synod, or district
articles of incorporation verified by the organization, the board of trustees to
affidavit of the presiding elder, be not less than five (5) nor more
secretary, or clerk or other member of than fifteen (15). (160a)
such religious society or religious
order, or diocese, synod, or district Is it required to indicate its term of
organization of the religious existence?
denomination, sect or church, setting
forth the following: - Likewise to exist in perpetuity, the
law does not require to indicate its
1. That the religious society or term of existence
religious order, or diocese, synod, or
district organization is a religious When will it acquire juridical
organization of a religious personality?
denomination, sect or church; - Only a corporation sole may come
into existence without SEC approval,
2. That at least two-thirds (2/3) of its
section 19 will thus govern, Vested
membership have given their written
consent or have voted to incorporate, with judicial capacity upon issuance
at a duly convened meeting of the of the certificate by the SEC
body;
o However it is not accurate
3. That the incorporation of the according to atty. Ladia
religious society or religious order, or because there are those that
diocese, synod, or district organization can issue for example
desiring to incorporate is not forbidden cooperatives- BUREAU OF
by competent authority or by the
COOPERATIVES which
constitution, rules, regulations or
discipline of the religious register, home insurance
denomination, sect, or church of which guaranty corporation- HOME
it forms a part; OWNERS
132
How may religious societies be continuation of its business is
dissolved? concerned.
- The rights of the lessor and the
- Go to the general rules governing lessee over the improvements which
dissolution, because the rules under the latter constructed on the leased
special corporations do not provide for premises are governed by Article
such rule 1678 of the Civil Code. The
provision gives the lessee the right
DISSOLUTION to remove the improvements if the
lessor chooses not to pay one half of
What is dissolution? the value thereof. However, in the
case at bar the law will not apply
- Extinguishment of the corporate because the parties herein have
franchise and the termination of stipulated in the contract their own
corporate existence terms and conditions concerning the
improvements before the termination
3 modes of dissolution of the lease. Petitioner PNB as
assignee of PBM succeeded to the
1. By expiration of its term; obligation of the latter under the
2. By voluntary surrender of its primary contract of lease. It could not
franchise (voluntary dissolution); possess rights more than what PBM
3. By revocation of its corporate franchise had as lessee under the contract.
(involuntary dissolution) Hence, petitioner was duly bound to
remove the improvements before
Philippine National Bank vs. CFI the expiration of the period of lease.
Its failure to do so when the lease
was terminated was tantamount to a
- When the period of corporate life
waiver of its rights and interest over
expires, the corporation ceases to be a
the improvements on the leased
body corporate for purposes of
premise.
continuing the business for which it is
organized. But it shall nevertheless be
o 3 modes of dissolution, 3
continued as a body corporate for
three years after the time when it modes of voluntary
would have be dissolved, for the dissolution and 3 modes of
purpose of prosecuting and defending liquidation and winding up-
suits by or against it and for enabling it FREQUENTLY ASKED IN
gradually to settle and close its affairs THE FINALS
to dispose of and convey its property
and to divide its assets. There is no What are the 3 modes of voluntary
need for the institution of a proceeding dissolution?
for quo warranto to determine the time
and date of the dissolution of a 1. Voluntary dissolution where no
corporation because the period of creditors are affected; <sec.118>
corporate existence is provided in the 2. Voluntary dissolution where creditors
articles of incorporation. When such are affected; <sec. 119>
period expires and without any 3. Shortening of corporate term. <sec.
extension having been made pursuant 120>
to law, the corporation is dissolved
automatically insofar as the Voluntary dissolution where no
creditors are affected <sec.118>
133
- The formal and procedural other steps, administrative or judicial
requirements necessary are the is necessary. (Daguhoy Enterprises
following: vs. Ponce)
- Since it is the State which grants its
1. Majority vote of the board of directors right to exist, it is only through the
or trustees; State which can allow the
2. Sending of notice of each stockholders termination of its existence; without
or member either by registered mail or consent of the State, it will not be
personal delivery at least thirty (30) dissolved.
days prior to the meeting (scheduled
by the board for the purpose of Voluntary dissolution where creditors
submitting the board action to dissolve are affected <sec.119>
the corporation for approval of the
stockholder or members.); - By virtue of a petition, when there
3. Publication of the notice of time, place are creditors affected
and subject of the meeting for three (3) - The following formalities would thus
consecutive weeks in a newspaper be required:
published in the place where the
principal office of said corporation is 1. Affirmative vote of the stockholders
located or in a newspaper of general representing at least 2/3 of the
circulation in the Philippines; outstanding capital stock or at least
4. Resolution adopted by the affirmative 2/3 of the members at a meeting
vote of the stockholders owning at duly called for that purpose;
least 2/3 of the outstanding capital 2. Petition for dissolution shall be filed
stock or 2/3 of the members at the with the SEC signed by a majority of
meeting duly called for the purpose; its board of directors or trustees or
5. A copy of the resolution authorizing the other officers having the
dissolution must be certified by a management of its affairs, verified
majority of the board of directors or by the president or secretary or one
trustees and countersigned by the of its directors or trustees, setting
corporate secretary; forth all claims and demands against
6. Issuance of a certificate of dissolution it.
by the SEC. 3. Issuance of an order by the SEC
reciting the purpose of the petition
Should this be strictly complied with? and fixing the date on or before
which objections thereto may be
- Yes, compliance with the requirements filed by any person, which date shall
and formalities prescribed above is not be less than thirty days nor more
mandatory such that failure to comply than sixty days after entry of the
therewith will have no effect on the order.
legal existence of the corporation. 4. Before such date, a copy of the
order must be published once a
Will dissolution be effective and valid week for three (3) consecutive
by a mere resolution of the BOD and weeks in a newspaper of general
stockholders? circulation published in the city or
municipality where the principal
- No, a mere resolution by the office is situated or in a newspaper
stockholders or the BOD of a of general circulation in the
corporation to dissolve the same does Philippines.
not affect the dissolution but that some
134
5. Posting of the same order for three (3) Section 120. Dissolution by
consecutive weeks in three (3) public shortening corporate term. - A
places in such city or municipality. voluntary dissolution may be
6. Upon five (5) days notice, given after effected by amending the articles of
the date on which the right to file incorporation to shorten the
objections has expired, the SEC shall corporate term pursuant to the
hear the petition and try any issue provisions of this Code. A copy of
made by the objections filed. the amended articles of
7. Judgment dissolving the corporation incorporation shall be submitted to
and directing of its assets as justice the Securities and Exchange
requires and the appointment of a Commission in accordance with this
receiver (if necessary in its discretion) Code. Upon approval of the
to collect such assets and pay the amended articles of incorporation of
debts of the corporation. the expiration of the shortened term,
as the case may be, the corporation
o The foregoing are also shall be deemed dissolved without
mandatory requirements any further proceedings, subject to
the provisions of this Code on
Is the appointment of a receiver liquidation. (n)
mandatory?
o Intra-corporate- special
- No, it is merely permissive or commercial courts
discretionary on the part of the court.
The code uses the word may; the law Another way of dissolving a
intended to let the shareholders have corporation is through involuntary
the control of the assets of the dissolution
corporation upon dissolution and
winding up. Section 121. Involuntary
- The directors may also undertake dissolution. - A corporation may be
liquidation and winding up of its dissolved by the Securities and
corporate affairs, and sound business Exchange Commission upon filing of
judgment, on how they will wind up a verified complaint and after proper
notice and hearing on the grounds
Dissolution by shortening of corporate provided by existing laws, rules and
term <sec.120> regulations. (n)
138
- Even a cursory reading of the dividends but also in the distribution
provision would convey the idea of corporate assets upon liquidation
clearly manifested in the limitation but or termination of the corporate
not for the purpose of continuing the existence. If such is the intent, the
business for which it was established, contract of subscription must so
that the 3-year period allowed by the indicate lest they are placed on
law is only for the purpose of winding equal footing with common
up its affairs. shareholders
- Preference may be participating or
Gonzales vs. Sugar Regulatory non-participating
Administration
Dissolved corporations are granted
- Instead of applying the corporation a period of 3 years to liquidate
code, the court applied the
constitutional provision Section 122. Corporate
- Cannot be read as permitting to liquidation. - Every corporation
destroy the substantive rights whose charter expires by its own
- Such would collide with the non- limitation or is annulled by forfeiture
impairment of contracts clause of the or otherwise, or whose corporate
constitution existence for other purposes is
- Complainants will have the right to terminated in any other manner,
follow the assets of the corporation in shall nevertheless be continued as a
the hands of SRA or any other agency body corporate for three (3) years
for that matter after the time when it would have
been so dissolved, for the purpose
After dissolution what next? of prosecuting and defending suits
by or against it and enabling it to
- Liquidation and winding up should settle and close its affairs, to dispose
follow of and convey its property and to
distribute its assets, but not for the
What is the definition of liquidation and purpose of continuing the business
winding up? for which it was established.
- Collection of all corporate assets, the At any time during said three
payments of all its debts and (3) years, the corporation is
settlement of its obligations and the authorized and empowered to
ultimate distribution of the corporate convey all of its property to trustees
assets, if any of it remains, to all for the benefit of stockholders,
stockholders in accordance with their members, creditors, and other
proportionate stockholdings in the persons in interest. From and after
corporation or in accordance with their any such conveyance by the
respective contracts of subscription. corporation of its property in trust for
the benefit of its stockholders,
Preference upon liquidation members, creditors and others in
interest, all interest which the
corporation had in the property
- If there are preferred shares, the
terminates, the legal interest vests in
preference granted to such should be
the trustees, and the beneficial
complied with
interest in the stockholders,
- Preferred shares may give the holder
thereof, preference only in the
139
members, creditors or other persons in - The corporation may opt to convey
interest. all corporate assets to a trustees
who will take charge of liquidation
Upon the winding up of the - If this method is used, the three year
corporate affairs, any asset period limitation imposed by section
distributable to any creditor or 122 will not apply provided the
stockholder or member who is designation of the trustee is made
unknown or cannot be found shall be within that period
escheated to the city or municipality
where such assets are located. 3. By appointment of a receiver
140
- Should the corporation, therefore, finds - If there is a trustee, assignee or
it difficult to finish its liquidation, it may, liquidator, it can continue
at any time during the three year prosecuting suit even beyond the 3
period, convey all its assets and year period fixed by law because he
receivables to a trustee to prosecute becomes the legal owner of the
and defend suits by or against the rights, assets and properties
corporation begun before the conveyed to him
expiration of said period
- The effect of the conveyance is to Gelano vs. CA
make the trustees the legal owners of
the property conveyed, subject to the - Trustee as used in the corporation
beneficial interest therein of creditors statute must be understood in its
and stockholders general concept which could include
the counsel to whom was entrusted
Sumera vs. Valencia in the instant case, the prosecution
of the suit filed by the corporation.
- Thus it was held that when a The purpose in the transfer of the
corporation is dissolved and the assets of the corporation to a trustee
liquidation of the assets is placed in upon its dissolution is more for the
the hands of receiver or assignee, the protection of its creditors and
period of 3 years prescribed by law is stockholders. Debtors like the
not applicable and the assignee may petitioners herein may not take
institute all actions leading to the advantage of the failure of the
liquidation of the corporation even after corporation to transfer its assets to a
the expiration of 3 years. trustee, assuming it has any to
- If the corporation carries out the transfer which petitioner has failed to
liquidation of its assets through its own show, in the first place. To sustain
officers and continues and defends the petitioners contention would be to
actions brought by or against it, its allow them to enrich themselves at
existence shall terminate at the end of the expense of another, which all
three years from the time of enlightened legal systems condemn.
dissolution; but if a receiver or - The counsel who prosecuted and
assignee is appointed, with or without defended the interest of the
a transfer of its properties within 3 corporation may be considered as a
years, the legal interest passes to the trustee at least with respect to the
assignee, the beneficial interest matter in litigation only
remaining in the members,
stockholders, creditors and other May a corporation that is already
interested persons and said assignee dissolved, transfer and assign its
may bring an action, prosecute that assets and properties to a new
which has already been commenced corporation which will continue the
for the benefit of the corporation, or business of the dissolved one?
defend the latter against any other
action already instituted or which may - Yes, provided all the stockholders
be instituted even outside of the period gave their consent (Chung Ka Bio
of three years fixed for the offices of vs. IAC)
the corporation.
Republic vs. Marsman Development
Board of Liquidators vs. Kalaw Company & Chung Ka Bio vs. IAC
141
- During the three year period granted to absence of a BOD or BOT, those
a corporation to liquidate or wind up its having any pecuniary interest in the
affairs, the BOD is not normally assets, including not only the
permitted to undertake any activity shareholders but likewise the
outside the usual liquidation of the creditors of the corporation, acting
corporation. There is, however, nothing for and in its behalf, might make
to prevent the stockholders from proper representations with the
conveying their respective SEC, which has primary and
shareholdings toward the creation of a sufficiently broad jurisdiction in
new corporation to continue the matters of this nature, for working
business of the old. This is because out a final settlement of the
winding up is the sole activity of the corporate concerns (Clemente vs.
dissolved corporation that does not CA)
intend to incorporate a new. If it does,
however, it is not unlawful for the old o According to atty. Ladia the
board of directors to negotiate and ruling of the Supreme Court
transfer the assets of the dissolved in the case of Clemente vs.
corporation to the new corporation CA is wrong, opinion is further
intended to be created as long as the discussed after the Clemente
stockholders have given their consent Case
(Republic vs. Marsman Development
Company) Clemente vs. CA
- Winding up is the sole activity of a
dissolved corporation that does not - Who owns the properties?
intend to incorporate anew. If it does, SOCIEDAD ANONIMA
however, it is not unlawful for the old - The termination of the life of a
board of directors to negotiate and juridical entity does not by itself
transfer the assets of the dissolved cause the extinction or diminution of
corporation to the new corporation the rights and liabilities of such entity
intended to be created as long as the or those of its owners and creditors.
stockholders have given their consent If the three year extended life has
(Chung Ka Bio vs. IAC) expired without a trustee or receiver
having been expressly designated
What happens to the remaining assets by the corporation within that period,
and properties of the dissolved the board of directors o trustees
corporation if liquidation and winding itself, following the rationale of the
up as provided in section 122 is not Supreme Courts decision in Gelano
complied with, as a result of which the vs. CA may be permitted to do so
3 year period has elapsed continue as trustees by legal
implication to complete the
- If the three year extended life has liquidation. Still in the absence of a
expired without a trustee or receiver BOD or BOT, those having any
having been expressly designated by pecuniary interest in the assets,
the corporation within that period, the including not only the shareholders
board of directors o trustees itself, but likewise the creditors of the
following the rationale of the Supreme corporation, acting for and in its
Courts decision in Gelano vs. CA may behalf, might make proper
be permitted to do so continue as representations with the SEC, which
trustees by legal implication to has primary and sufficiently broad
complete the liquidation. Still in the jurisdiction in matters of this nature,
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for working out a final settlement of the interest, all interest which the
corporate concerns corporation had in the property
terminates, the legal interest vests in
o the ruling is wrong according the trustees, and the beneficial
to atty. Ladia interest in the stockholders,
members, creditors or other persons
According to atty Ladia: What happens in interest.
to a corporation that is already
dissolved, that has not been able to Upon the winding up of the
appoint a trustee with in the 3 year corporate affairs, any asset
period? distributable to any creditor or
stockholder or member who is
- a corporation dissolved which failed to unknown or cannot be found shall
exercise its rights granted in section be escheated to the city or
122 after the 3 year period has municipality where such assets
elapsed, ceases to exist for all intents are located.
and purposes, it can no longer sue or
be sued Except by decrease of capital
- according to 122 of the code, the stock and as otherwise allowed by
property should be escheated, this Code, no corporation shall
accordingly: distribute any of its assets or
property except upon lawful
Section 122. Corporate dissolution and after payment of all
liquidation. - Every corporation whose its debts and liabilities. (77a, 89a,
charter expires by its own limitation or 16a)
is annulled by forfeiture or otherwise,
or whose corporate existence for other FOREIGN CORPORATIONS
purposes is terminated in any other
manner, shall nevertheless be Definition
continued as a body corporate for
three (3) years after the time when it - Section 123. Definition and rights of
would have been so dissolved, for the foreign corporations. - For the
purpose of prosecuting and defending purposes of this Code, a foreign
suits by or against it and enabling it to corporation is one formed, organized
settle and close its affairs, to dispose or existing under any laws other
of and convey its property and to than those of the Philippines and
distribute its assets, but not for the whose laws allow Filipino citizens
purpose of continuing the business for and corporations to do business in
which it was established. its own country or state. It shall have
the right to transact business in the
At any time during said three (3) Philippines after it shall have
years, the corporation is authorized obtained a license to transact
and empowered to convey all of its business in this country in
property to trustees for the benefit of accordance with this Code and a
stockholders, members, creditors, and certificate of authority from the
other persons in interest. From and appropriate government agency. (n)
after any such conveyance by the
corporation of its property in trust for What if the law of the state of the
the benefit of its stockholders, foreign corporation does not allow
members, creditors and others in
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Filipino citizens to do business in their incorporation and by-laws, certified
country? in accordance with law, and their
translation to an official language of
- The phrase and whose laws allow the Philippines, if necessary. The
Filipino citizens and corporations to do application shall be under oath and,
business in its own country or state is unless already stated in its articles
not, however, an accurate inclusion in of incorporation, shall specifically set
the definition as ay corporation forth the following:
registered or organized under the laws
of another state is necessarily a 1. The date and term of
foreign corporation whether or not the incorporation;
state of its incorporation allow Filipino
citizens or corporations to do business 2. The address, including the street
in that forum. number, of the principal office of the
- The said phrase was inserted by the corporation in the country or state of
framers of the law only as a condition incorporation;
precedent to the grant of a license of a
foreign corporation to do business in 3. The name and address of its
the Philippines. resident agent authorized to accept
summons and process in all legal
Composed of 100% Americans; proceedings and, pending the
organized under the laws other than establishment of a local office, all
the Philippines notices affecting the corporation;
- Treaties for part of the law of the land - Even if Lacoste did business in the
- Quoting the Paris Convention and the Philippines it can bring action
case of Vanity Fair Mills Inc. vs. T. because the case involves a
Eaton Co. this court further said: violation of our penal code
- Such was a violation of article 189 of
By the same token, the the RPC, if prosecution follows after
petitioner should be given the the completion of the preliminary
same treatment in the investigation being conducted by the
Philippines as we make Special Prosecutor the information
available to our own citizens. shall be in the name of the People of
We are obliged to assure to the Philippines and no longer the
nationals of countries of the petitioner which is only an aggrieved
Union an effective protection party since a criminal offense is
against unfair competition on essentially an act against the State.
the same way that they are It is the latter which is principally the
obligated to similarly protect injured party although there is a
Filipino Citizen and firms private right violated
- The records show that the goodwill
- The ruling in the aforecited case is in and reputation of the petitioners
consonance with the Convention of the products bearing the trademark
Union of Paris for the protection of Lacoste date back even before 1964
Industrial Property to which the when Lacoste clothing apparels
Philippines became a party. Article 8 were forst marketed in the
thereof provides that a trade name Philippines. To allow Hemandas to
shall be protected in all the countries continue using the trademark
of the Union without the obligation of Lacoste for the simple reason that
filing or registration, whether or not it he was the first registrant in the
forms part of the trademark Supplemental Register of a
trademark used in international
Le Chemiste Lacoste vs. Fernandez commerce and not belonging to him
is to render nugatory the very
- The French company may gain access essence of the law on trademarks
to our courts, in the first place it was and trade names
not doing business in the Philippines
- The marketing of its products in the Atlantic Mutual Insurance Co. vs.
Philippines is done through an Cebu Stevedoring Co.
exclusive distributor, Rustan
Commercial Corporation. The latter is - The law denies to a foreign
an independent entity which buys and corporation the right to maintain suit
then markets not only products of the unless it has previously complied
petitioner but also many other products with a certain requirement, then
bearing equally well-known and such compliance, or the fact that the
established trademarks and trade- suing corporation is exempt there
names from, becomes a necessary
averment in the complaint
153
- These are matters peculiarly within the public in general are governed not
knowledge of appellants alone, and it by Philippine laws but the law under
would be unfair to impose upon which the foreign corporation was
appellee the burden of asserting and formed or organized
proving the contrary. It is enough that
foreign corporations are allowed by Section 129. Law applicable.
law to seek redress in our courts under - Any foreign corporation lawfully
certain conditions: the interpretation of doing business in the Philippines
the law should not go so far as to shall be bound by all laws, rules and
include, in effect, an inference than regulations applicable to domestic
those conditions have been met from corporations of the same class,
the mere fact that the party suing is a except such only as provide for the
foreign corporation creation, formation, organization or
dissolution of corporations or those
Olympia Business Machines Co. vs. E. which fix the relations, liabilities,
Razon responsibilities, or duties of
stockholders, members, or officers
- How do you distinguish this case with of corporations to each other or to
Atlantic? the corporation. (73a)
- In Atlantic it dismissed the case, while
in Olympia it did not Will the pre-emptive rights of a
foreign corporation be governed by
Time Inc. vs. Reyes the same section of the code? Is the
pre-emptive rights of a stockholder
- We fail to see how these doctrines can in a domestic corporation same as
be a propos in the case at bar, since the pre-emptive of a stockholder of a
the petitioner is not maintaining any foreign corporation.
suit but is merely defending one
against itself; it did not file any - No
complaint but only a corollary
defensive petition to prohibit the lower M.E. Grey vs. Insular Lumber
court from further proceeding with a Company
suit that it had no jurisdiction to
entertain - PNB vs. Gonzales, will this apply to
a foreign corporation? How do you
What law govern foreign corporation distinguish this case from a
doing and transacting business in the Philippine law?
Philippines with a license - Since it concerns the rights of
stockholders it is the law of New
- Laws of the Republic of the Philippines York that should govern
save and except that would normally
be those matters which concern its Is the license to do business of a
formation, organization or dissolution, foreign corporation subject to
or those fixing the relationship, suspension or revocation? What are
liabilities, responsibilities, or duties of the grounds?
the stockholders, members or officers
of the foreign corporation or their - Section 134 provides:
relations to each other.
- In effect, intra-corporate or internal Section 134. Revocation of
matters not affecting creditors or the license. - Without prejudice to other
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grounds provided by special laws, the 9. Any other ground as would render
license of a foreign corporation to it unfit to transact business in the
transact business in the Philippines Philippines. (n)
may be revoked or suspended by the
Securities and Exchange Commission SEC does not have the sole
upon any of the following grounds: authority to suspend or revoke the
license of a foreign corporation
1. Failure to file its annual report or doing business in the Philippines,
pay any fees as required by this Code; other government agencies like the
Central Bank , the Insurance
2. Failure to appoint and maintain a Commission may also do so within
resident agent in the Philippines as their respective dominion, despite
required by this Title; the provision of section 134
If the SEC believes that revocation
3. Failure, after change of its resident is warranted, section 135 provides
agent or of his address, to submit to that:
the Securities and Exchange
Commission a statement of such Section 135. Issuance of
change as required by this Title; certificate of revocation. - Upon the
revocation of any such license to
4. Failure to submit to the Securities transact business in the Philippines,
and Exchange Commission an the Securities and Exchange
authenticated copy of any amendment Commission shall issue a
to its articles of incorporation or by- corresponding certificate of
laws or of any articles of merger or revocation, furnishing a copy thereof
consolidation within the time to the appropriate government
prescribed by this Title; agency in the proper cases.
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- The reason for suspending actions for rehabilitation play or suspension of
claims against the corporation is not payments accompanied by a
really to enable the management proposal for rehabilitation (with or
committee or the rehabilitation receiver without rehabilitation)
to substitute the defendant in any
- corporation has sufficient assets to
pending action against it before any
court, tribunal or body. The real cover its liabilities, but sees the
justification is to enable the possibility; is or without rehabilitation
management committee or plans; normally would attach the
rehabilitation receiver to effectively rehabilitation plan
exercise his powers free from any - For purpose of economic
Judicial or extra-judicial interference development
that might unduly hinder or prevent the
rescue of the debtor company. To 3. Suspension of payments when the
allow such other actions to continue corporation has no sufficient assets
would only add to the burden of the to its liabilities
management committee pr
May it still be revived?
rehabilitation receiver, whose time,
effort and resources would be wasted - Yes, it may still be revived
in defending claims against the
corporation instead of being directed How can a corporation with more
towards restructuring and liabilities than assets continue its
rehabilitation.(PAL vs. Spouses Sadic operations profitably?
and Kurangking)
- Even if the distressed company has
- To enable the receiver to effectively no sufficient assets and liabilities it
exercise his or her power free form can go for suspension
any judicial or extra-judicial that may
- It asked for a management
disturb
committee without a receiver plan
3 types of suspension of payments (Victorius Milling case)
- where deferment of payment of claims - Their liability was almost wiped out
against a distress company; ask the they became stockholders instead of
court to be given time to the payment creditors
of liability by postponing the payment
- After 5 years those who converted
- When it has sufficient assets and sold it back to the corporation,
liabilities but forces the impossibility of thereby making profits
meeting them when they respectively
fall due Amendment is for the economic
development of the country
2. Suspension of receiver with a
management committee with a
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What if walang amendment, e mas without a lien, no creditor may
maraming liabilities kesa assets enforce his lien while rehabilitation is
going (Alemar case)
Suspension order- all actions for
claims against the corporation are - No preference shall be given
accordingly suspended at whatever
RCBC vs. IAC
stage the proceedings maybe
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trading and other fraudulent or manipulative by SEC. Prior to such sale, information on
devices and practices which create the securities, in such form and with such
distortions in the free market. substance as the Commission may
prescribe, shall be made available to each
BROKER - person who buys and sells prospective purchaser. (Sec 8)
securities for the account of others.
EXCEPT: Exempt Securities under Sec 9
DEALER - person who buys and sells a) Any security issued or
securities for his/her own account in the guaranteed by the Government of
ordinary course of business. the PH, or by any political
subdivision or agency thereof, or by
NOTE: No person shall engage any person controlled or supervised
in the business of buying or selling by, and acting as an instrumentality
securities in the Philippines as a of said Government.
broker or dealer, or act as a b) Any security issued or
salesman, or an associated person guaranteed by the government of
of any broker or dealer unless any country with diplomatic relations
registered as such with the with the PH, or by any state,
Commission. (Sec 28) province or political subdivision
thereof on the basis of reciprocity:
SECURITES - shares, participation or Provided, that the SEC may require
interests in a corporation or in a commercial compliance with the form and
enterprise or profit-making venture and content of disclosures the
evidenced by a certificate, contract, Commission may prescribe.
instrument, whether written or electronic in c) Certificates issued by a
character. It includes: receiver or by a trustee in
CODE: COFDIPS bankruptcy duly approved by the
a) Certificates of assignments, proper adjudicatory body.
certificates of participation, trust d) Any security or its derivatives
certificates, voting trust certificates or the sale or transfer of which, by law,
similar instruments; is under the supervision and
b) Other instruments as may in the future regulation of the Office of the
be determined by the Commission; Insurance Commission, Housing and
c) Fractional undivided interests in oil, Land Use Regulatory Board, or the
gas or other mineral rights; Bureau of Internal Revenue.
d) Derivatives like option and warrants; e) Any security issued by a bank
e) Investment contracts, certificates of except its own shares of stock.
interest or participation in a profit
sharing agreement, certificates of AND Exempt Transactions under Sec 10
deposit for a future subscription; a) A judicial sale, or sale by an
f) Proprietary or non proprietary executor, administrator, guardian or
membership certificates receiver or trustee in insolvency or
incorporations; and bankruptcy.
g) Shares of stock, bonds, debentures, b) By or for the account of a
notes, evidences of indebtedness, pledge holder, or mortgagee or any
asset-backed securities; other similar lien holder selling or
offering for sale or delivery in the
GR: Securities shall not be sold or offered for ordinary course of business and not
sale or distribution within the PH, without a for the purpose of avoiding the
registration statement filed with and approved provisions of this Code, to liquidate a
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bona fide debt, a security pledged in such exchange shall be deemed the
good faith as security for such debt. price at which the securities issued
c) An isolated transaction in which and delivered in such exchange are
any security is sold, offered for sale, sold.
subscription or delivery by the owner h) Brokers transactions,
thereof, or by his representative for the executed upon customers orders,
owners account, such sale or offer for on any registered Exchange or other
sale, subscription or delivery not being trading market.
made in the course of repeated and i) Subscriptions for shares of
successive transactions of a like the capital stock of a corporation
character by such owner, or on his prior to the incorporation thereof or
account by such representative and in pursuance of an increase in its
such owner or representative not being authorized capital stock under the
the underwriter of such security. Corporation Code, when no expense
d) Distribution by a corporation, is incurred, or no commission,
actively engaged in the business compensation or remuneration is
authorized by its AOI, of securities to paid or given in connection with the
its stockholders or other security sale or disposition of such securities,
holders as a stock dividend or other and only when the purpose for
distribution out of surplus. soliciting, giving or taking of such
e) Sale of capital stock of a subscriptions is to comply with the
corporation to its own stockholders requirements of such law as to the
exclusively, where no commission or percentage of the capital stock of a
other remuneration is paid or given corporation which should be
directly or indirectly in connection with subscribed before it can be
the sale of such capital stock. registered and duly incorporated, or
f) Issuance of bonds or notes its authorized capital increased.
secured by mortgage upon real estate j) The exchange of securities by
or tangible personal property, where the issuer with its existing security
the entire mortgage together with all holders exclusively, where no
the bonds or notes secured thereby commission or other remuneration is
are sold to a single purchaser at a paid or given directly or indirectly for
single sale. soliciting such exchange.
g) Issue and delivery of any k) The sale of securities by an
security in exchange for any other issuer to fewer than twenty (20)
security of the same issuer pursuant to persons in the Philippines during any
a right of conversion entitling the twelve-month period.
holder of the security surrendered in l) The sale of securities to any
exchange to make such conversion: number of the following qualified
Provided, That the security so buyers: (i) Bank; (ii) Registered
surrendered has been registered under investment house; (iii)insurance
this Code or was, when sold, exempt company; (iv) Pension fund or
from the provisions of this Code, and retirement plan maintained by the
that the security issued and delivered Government of the Philippines or
in exchange, if sold at the conversion any political subdivision thereof or
price, would at the time of such managed by a bank or other persons
conversion fall within the class of authorized by the Bangko Sentral to
securities entitled to registration under engage in trust functions; (v)
this Code. Upon such conversion the investment company or; (vi) Such
par value of the security surrendered in other person as the Commission
163
may by rule determine as qualified FRAUDULENT TRANSACTIONS AND
buyers, on the basis of such factors as OTHER MARKET MANIPULATIONS
financial sophistication, net worth,
knowledge, and experience in financial 1. Wash Sale (Sec 24.1(a)(i)) any
and business matters, or amount of transaction in a security which involves no
assets under management. change in the beneficial ownership thereof.
2. Matched Order (Sec 24.1(a)(ii))
PROTECTION OF SHAREHOLDERS order or orders for the purchase or sale of
INTEREST security with the knowledge that a
simultaneous order or orders of
1. Tender Offers (Sec 19) substantially the same size, time and price
2. Proxy solicitation (Sec 20) for the sale or purchase of such security
3. Internal record keeping and has, or will be entered by or for the same or
accounting (Sec 22) different parties.
OPTION TRADING
Put a transferrable option or offer to
deliver a given number of shares of stock at a
stated price on any given time during the
stated period.
Call a transferrable option to buy a
specified number of share at a stated price
Straddle a combination of put and
call.
SETTLEMENT OFFERS
At any time, during an investigation or
proceeding under this Code, parties being
investigated and/or charged may propose in
writing an offer of settlement with the
Commission. The Commission may only
agree to a settlement offer based on its
findings that such settlement is in the public
interest. Any agreement to settle shall have
no legal effect until publicly disclosed. Such
decision may be made without a
166