Corporation Law Finals Richard Allan A.

Lim
Act Board Stockholders/Members Derivative Individual Representative
Approval of Majority 2/3 of Outstanding Suit instituted Stockholder Stockholder Stockholder
Merger or Capital Stock or inthenameof and
Consolidation Members Corporation
Plan Real partyin Corporation Stockholder Stockholder
Amendment of Majority 2/3 of Outstanding interest and all those
Capital Stock or similarly
Merger or
Members situated
Consolidation
Who has cause Corporation Stockholder Stockholder
Plan
ofaction and all those
Approval of Majority 2/3ofthememberswho similarly
Distribution havevotingrights situated
PlanofAssetsin Presence of Yes No Yes
case of Representative
Dissolution of Relief/Recover Corporation Stockholder
Stockholder
NonStock ybelongsto and all those
Corporation similarly
Voluntary Majority 2/3ofoutstandingcapital situated
Dissolution stockormembers Jurisdictionisnow undercourts ofgeneral jurisdictioncalled
without specialcommercialcourts(AMNo.001103SC)
prejudice to Sec.76
Creditors - Constituent corporation refers to the merging or
Voluntary Majority 2/3ofoutstandingcapital consolidatingcorporations
Dissolution with signed stockormembers. - Covers the approval of the plan by the Board of
Directors/Trustees
Prejudice to
- Formerger,theremaybeaneedtoamendthearticlesof
Creditors
incorporationforhesurvivingcorporation
DerivativeSuit
- Wheneverthecorporationrefusestosueoristhepartysued,
Sec.80
oneormorestockholdersinthenameandinbehalfofthe
- Par1:Twocorporationsconsolidatedintoone
corporationmaybringsuit
- Givesrisetothesurvivingcorporation
- Inthiscase
o Plan/AgreementofMergerorConsolidation
o Corporationrealpartyininterest
o ArticlesofMerger/Consolidation
o Noneedforauthorizationofcorporation
o CertificateorMerger/Consolidation
o Numberofsharesimmaterial
- Par 2: Ceasing of existence of constituent corporation,
o Corporationmustbeimpleaded
exceptsurvivingorconsolidatingcorporation
- Requisitesforfilingofderivativesuit
o Presupposesaseparatepriorexistence
o Partysuingmustbeshareholderattheinstitutionof
o Forconsolidatingcompany,nopriorexistencebut
thesuit
thereisforsurvivingcorporation
o Intracorporate remedies exhausted but failed or
- Doesnotneedapprovalofthecorporatecreditorssinceitis
refused
filed with the SEC who will determine if it will be
o Cause of action actually devolves on the
prejudicial to corporate creditors before certificate of
corporation
mergerorconsolidationisissued
IndividualSuit
- ReaddeLeon,p.589forrightsofshareholder
RepresentativeSuit Sec.81
- When a wrong has been committed against a group of - ComparedtoSec.39,Sec.81prevailsbecauseitisaspecial
stockholdersormembers provision,andwithrespecttoSec.16
- Mayalsobefiledwhentherearequestionsoflawandfact - Sec.42wasnotincludedduetoinadvertence
involvedarecommontoallofthestockholdersormembers
and that the parties are so numerous that it would be Sec.82
impracticabletoimpleadallofthem - Fair value, the intrinsic value of the shares based on
- May be brought in cases where the right of minority appraisal before the date the vote on the value may be
shareholders are deprived such as right to vote and higherorlowerthanparvalue
attendmeetings - Todeterminefairvalue

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 Corporation Law Finals
o There must be an agreement between the
corporationandtheshareholder
o If there is disagreement, fair value shall be
appraisedby3disinterestedpersons
Onechosenbystockholder
Onechosenbythecorporation
Thirdchosenbythe2previouspeople
o Suchdecisionisfinalandpaymentshallbemade
within 30 days after award (decision of the 3
persons)
o Ifstockholderandcompanyagreed without need
fordisinterestedpersonstoappraise,shallbepaid
withinreasonabletime(whichis30daysfromthe
award)
Sec.83
- Demandsuspendsalltherightsoftheshareholder,except
therighttobepaidthefairvalueoftheshares
- Ifpaidwithinthe30dayperiod,nodividendsshallbegiven
totheshareholder.Butifnot,theshareholdershallbepaid
dividends
Sec.83
- Extinguishmentofpayment
o Stockholder withdraws demand and corporation
consents
o Proposed corporate action by corporation is
abandonedorrescinded
o Proposed corporate action is disapproved by the
SECwhenitsapprovalisnecessary
o SEC determines that shareholder not entitled to
appraisalrights(notadissentingshareholder)
Sec.85
Whopaysappraisalfees
- Corporation
a. Offerlowerthanfairvalue
b. Action for recovery of fair value by stockholder
andrefusaltoreceivepaymentisjustified
Ex.OfferP100/Share
AppraisalP120/Share
- Shareholder
a. Offerisapproximatelythesameasfairvalue
b. Action for recovery of fair value by stockholder
andrefusaltoreceivepaymentisjustified
Ex.OfferP100/Share
AppraisalP90/Share
Sec.86
- Within10daysfromdemandofpayment
- Ifthereisfailuretosurrender,thenthereisterminationof
righttofairvalue
- Transfereeisnotadissentingshareholder
- The dividends shall go the transferee once certificate is
surrenderedandcancelled.
For personal use only. Unauthorized distribution prohibited
Richard Allan A. Lim
Sec.87
- InconnectionwithSec.3
- Theymayhaveincomeandcapitalstockbutthesameisnot
distributedasdividends
- Theincomeisanincident toitsoperations,butitcannot
haveforitspurposemakingprofits,anditisusedforthe
furtherance of its purpose as stated in the articles of
incorporation
- Thenonstockcorporationisdifferentduetoitsnatureand
purpose
- There is no prohibition against investing its accumulated
fundsforprofitpurposes
- Theprovisionsonstockcorporationsapplytononstockin
caseofabsence.
Sec.88
- charitable, religious, educational, professional, cultural,
fraternal,literary,scientific,social,civicservice,orsimilar
purposes, like trade, industry, agricultural and like
chambers,oranycombinationthereof,subjecttothespecial
provisionsofthisTitlegoverningparticularclassesofnon
stockcorporations.
Sec.89
- inrelationtoSec.24
- ifstatedinthearticlesofincorporationorcodeofbylawsit
maylimit,broadenordenyrighttovotetocertainclassesor
classofmembers
- Voting by proxy (with compliance to provisions of
CorporationCode)isallowedunlessotherwisestatedinthe
articlesofincorporationorbylaws
- Votingbymailorsimilarmeansallowedifauthorizedby
thebylawsandsubjecttoapprovalandconditionsspecified
bytheSEC
Sec.90
- Membershipispersonalandnontransferable
Sec.91
- Termination of Membership must be in the manner and
causesprovidedforinthebylaws
Sec.92
- inrelationtoSec.14,par6
- inrelationtoSec23(statesonlyupto15trustees)butsince
Sec.92isaspecialprovisionitshallprevailofSec.23
- Theymayhavemorethan15trusteesifstatedinthearticles
of incorporation of bylaws but must have at least 5 as
statedinSec.14
- Ifmorethan15,theywillbeinstaggeredtermswhere1/3
willexpire,butthebylawscanstateotherwise
- The number of trustees should be divisible by 3 by
implication.
- The reason for staggered terms is for the continuance of
governance,purposeandpolicies
2
 Corporation Law Finals Richard Allan A. Lim
- Butthenumberofincorporators(Sec.10)muststillbenot Sec.96
lessthan5butnomorethan15,trusteeselectedareonly - Not close when 2/3 of the shares held by nonclose
provisional corporation,evenifheldbyclosecorporation
- Corporationscannotbeelectedastrustees.Theirauthorized - Should be stated in the articles of incorporation, but
representatives cannot be appointed as trustees in the otherwisestillgovernedbyTitleXIIifitcomplieswiththe
absenceofaprovisioninthebylaws requirementsoflaw
- SeecaseofDulayEnterprisesvs.CAtoresolveissueof
Sec.93 conflictsincaseofdispositionofshareswhichaffectthe
- InrelationtoSec.51 rightsandcontrolofthecorporation
- ButmustbewithinthePhilippines,evenifoutsidethecity - Evenifallthesharesareownedbyafewshareholdersless
or municipality where principal place of office of the than 20, does not necessarily mean that it is closed
corporation(Ifstatedinthebylaws) corporation
- Sec.93prevailsoverSec.51sincetheformerisaspecial - Paragraph 2 dictates which cannot be made close
provision corporationsduetopublicinterest
- Beingaclosecorporationalonedoesnotnecessarilywarrant
Sec.94 piercingtheveilofcorporatefiction
RulesonDistribution
1.Allliabilitiesandobligationsofthecorporationshallbepaid, Sec.97
satisfiedanddischarged, oradequate provisionshall bemade - Classificationofsharescanbeduetochoiceforacertain
therefore; grouptosolelyelectboardofdirectors
2. Assets held by the corporation upon a condition requiring - Greaterquorumunderthearticlesofincorporationorby
return,transferorconveyance,andwhichconditionoccursby lawsinordertoprotecttheinterestofthestockholders
reason of the dissolution, shall be returned, transferred or - Stockholderscanactasdirectorsevenifwouldappeartobe
conveyedinaccordancewithsuchrequirements; acaseofusurpationofauthority
3. Assets received and held by the corporation subject to - ProvisionsofSec.97areoptional
limitations permitting their use only for charitable, religious,
benevolent,educationalorsimilarpurposes,butnotheldupona Sec.98
conditionrequiringreturn,transferorconveyancebyreasonof - Suchprovisionexiststopreventoutsidersfromenteringthe
thedissolution,shallbetransferredorconveyedtooneormore corporation
corporations,societiesororganizationsengagedinactivitiesin - Dependsonthearticlesofincorporationwhetherornotthe
thePhilippinessubstantiallysimilartothoseofthedissolving optiontopurchaseremainswiththecorporation
corporationaccordingtoaplanofdistributionadoptedpursuant - Whatifoutsideracquiresstockwithouthisknowledgeand
tothisChapter; faultthatcorporationisclose?
4. Assets other than those mentioned in the preceding o Notthefaultofthestockholderbutthecorporation
paragraphs,ifany,shallbedistributedinaccordancewiththe - Does corporation need unrestricted retained earnings to
provisionsofthearticlesofincorporationorthebylaws,tothe acquiretheirownshares?
extentthatthearticlesofincorporationorthebylaws,determine
the distributive rights of members, or any class or classes of Sec.99
members,orprovidefordistribution;and - Restrictionsshouldbeconspicuous
5.Inanyothercase,assetsmaybedistributedtosuchpersons, - Itisdutyofthepurchasertodeterminethegenuinenessof
societies, organizations or corporations, whether or not thecertificateofshares
organizedforprofit,asmaybespecifiedaplanofdistribution - Therearetwokindsofrestrictions
adoptedpursuanttothisChapter. o Consent requires the consent of all the other
shareholders
Sec.95 o Optioncorporationandothershareholdersgiven
- Mustnotbeinconsistentwithprovisionsofthistitle theoptiontoacquirethesharesfirst(Notexercised
- Adoptedbymajorityvoteoftrusteesandatleasttwothirds inArt99)
(2/3) of the members having voting rights present or - RighttotransferisunderSec.7
representedbyproxyatsuchmeeting. Sec.100
- Agreementshouldbe:
Closecorporations(Introduction) o Signedbytheparties
- Sharesareheldbynomorethan20shareholderswhoare o Inwriting
closely related to each other, who usually manage the o Executed prior to the incorporation of the
business, there are likewise restriction in the transfer of corporation
sharesandthereisnopublicofferingoftheshares - Par. 5 there would be no liability if there is liability
insurance
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 Corporation Law Finals Richard Allan A. Lim
- Bindingevenpriortoincorporationduetofiduciarynature - Fornonstockcorporations,staggeredtermof1/5expiring
everyyear
Sec.101 - If there is vacancy, majority of vote will elect if due to
- Exception to Sec. 25 where decisions are required to be inabilitytofinishterm
madebyboardoftrustees - Forstock,provisionsonstockcorporationshallapplyunder
- However,ifbylawsprovidethesameasthelaw,thenthe Sec.14par.6
corporationmustcomply - BoardnamecanbeBoardofRegentsasstatedinSec.138
- In relation to Sec. 45 (Ultra vires acts) where the - Boardmaybemorethan15ifinaccordancetoSec.92for
corporationmuststillcomplywiththeformalitiesoflaw nonstockcorporations
- Ifnotprovidedforinthebylaws,itisnotvalidunlessit - ReadcaseofTanvs.Sycip(2006)
fallsinpurviewofSec.101
Sec.109
Sec.102 - 2kindsofreligiouscorporations
- InrelationtoSec.39(preemptiveright) o CorporationSole
- ButSec.102differssinceitcoversbotholdandnewissue o Corporation Aggregate such religious societies
ofshares(bothduetoamendmentandnonissuedbalance) tendstobegovernedbyprovisionsonnonstock,
- The exception on Sec. 39 does not apply here due to aswellasSec.116
principleofdelictuspersonaewherethecorporationhasthe - Therearesomecorporationsgovernedbyspeciallawsbut
righttochoosewhotodobusinesswith arenotcoveredbythecorporationcoderegardingspecial
corporations
Sec.103
- InrelationtoSec.16whichrequiresmajorityvote Sec.112
- Thedistinctionisthatwrittenassentisnotsufficient,there - Registration is for the purpose of acquiring juridical
mustbemeetingdulyauthorizedforthatpurpose. personality
- ProvisionsthatmaynotbedeletedarethoseunderSec.96 - Theyarecreated sothatthecorporation solecan acquire
to97forit wouldterminate thecorporations statusasa property
closecorporation
Sec.113
Sec.106 - Expresspowersofacorporation(underpar.1ofSec.113)
- Speciallawsthatgoverneducationalcorporations - Sellingormortgagingproperty
o EducationActof1992 o Withoutcourtinterventionforpersonalproperty
o TESDAActof1994 o Withcourtinterventionforrealproperty
o GovernanceofEducationActof2001 FileapplicationforleavetosellwithRTC
o EnhancedEducationActof2013 ApplicationverifiedbyCABPRME
- Certainownershiprequirementswhichis60%Filipino Proof that application was with
- The special laws creating certain educational institutions publication
govern them primarily, with the provisions of the Proofthatsaleisininterestofcorporation
Corporation Code on Educational Institutions governing sole
suppletorily IssuanceoftheRTCoftheorder
- Educational institutions which are stock may have some - Membersofthecorporationsolemayopposethesale
otherpurposewhichcanbegivingscholarshipsetcwhile
nonstockcanonlyservethepurposeforeducationsuchas Sec.115
regularfacultyandstudents - Unlike normal corporations, corporation sole once
incorporatedcanexistperpetually
Sec.107 - DissolutionrequiresSECapproval
- UnderSec.17,favorablerecommendationisnecessaryfrom - Ownership of property belongs to corporation sole,
appropriategovernmentinstitution CABPRMEareonlytrustees
- BylawsneedscertificateunderthisSec.17inordertobe - RCCisacorporationsolebyprescription
adopted
- Nonstockeducationalinstitutionscannotbeconvertedinto CorporationSole ReligiousSociety
stock corporation by mere amendment of the articles of 1.Madeupofonlyonetrustee 1.Mayhaveboardoftrustees
incorporation 2.Biggerorganization 2. Smaller organization,
usuallybranchofCorporation
Sec.108 Sole
3. Example: Roman Catholic 3.Dioceses.Parishes.

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 Corporation Law Finals Richard Allan A. Lim
Church 3. Voluntaryandinvoluntarydissolution

Sec.120
- A corporation is dissolved upon the expiration of the
corporate term as stated in its articles of incorporation,
unless the same is amended as stated in Sec. 11 and Sec. 36
(2).
- Procedure is under Sec. 37
- voluntary dissolution is effected if the articles of
incorporation is amended to shorten the corporate term.
OncetheSECapprovestheamendment,thecorporationis
deemeddissolvedwithouttheneedforproceedingsexcept
liquidation.ThereisnoneedforSECinterventionorofthe
court in order to terminate the corporate existence,
However,thestockholdersmayonceagainreincorporatethe
corporationbycomplyingwiththerequirementsofSec.10
to15.
- LikewiseacorporationmaybedeemeddissolvedunderSec.
22
- Continuous inoperation even more than 2 years does not
mean that the corporation is deemed dissolved, for such is
only a ground for the suspension of the corporate franchise.
- Change of name does not result in the dissolution, for such
is an act of creation of the corporation.
- Insolvency is the inability to pay debts when due.
Bankruptcy is when the liabilities exceed the assets of a
corporation which is available for settlement. Insolvency or
bankruptcy does not necessary mean dissolution of the
corporation. However, the inability to exercise corporate
powers by reason of insolvency can be a ground to warrant
the decree for dissolution of the corporation.
- A legal dissolution of the corporation may result when the
corporation transfers or sells all of its assets and property
amounting to a surrender of the corporate charter.
- For stock corporations, death of stockholders does not
necessary mean dissolution for shares are transferable.
However, in case of non-stock corporations, the death or
withdrawal of members may cause the dissolution of the
same as when there are too few members to continue with
the corporate succession and fill in the vacancies.
- Although the shares of a corporation after its creation are
held by less than the required number of people, it does no
mean the corporation is dissolved. If one person acquires all
the shares of the corporation, he or she may be required to
transfer some of the shares to other persons in order to
conform to the requirements of the law.
- Failure to elect or want of officers not a ground for
dissolution based on Sec. 29 and Sec. 25.
- Dissolution by legislative enactment is under the old
Corporation Code but may still be exercised with respect to
public utilities under Sec. 11 of Art XII of the Constitution
provided there is no impairment of contracts and when
public good requires

Possibleexamquestions
1. How does a foreign corporation transact business in the
Philippines
2. Procedureforestablishmentofreligiouscorporation
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